As a realtor, how do you approach Retirement and Tax Planning?

Question

I see a common trend among realtor's:

• Real Estate brokerages do not offer 401(k)/IRA programs, thus the responsibility of retirement planning falls entirely upon the realtor.
• Unlike more traditional employers, realtor's do not have the luxury of receiving their salary/commission tax-withheld.

With that said, I have a few questions:

• As a realtor, how do you currently go about your tax and retirement planning? 
• How could a financial advisor provide benefit to your life and business? 
• If a financial advisor approached you, what type of skills/products would convince you to take a meeting?

Thank you for your input! I am trying to get a better understanding of the industry.

Brian Eastman · Answer

@Steve Kempton & @Jacob Mallison

The SEP IRA is a great savings vehicle as you have indicated.

A Solo 401(k) is an even better alternative for many realtors.  To qualify to sponsor a Solo 401(k) plan, you must be self-employed and have no full time employees.  With the exception of a few principal brokers or those who have built teams including licensed assistants or property managers under their wing, this is most realtors.

The upper contribution limits are the same in a SEP IRA and Solo 401(k), at $55K for those under age 50 and $61K for those age 50 and older.  A Solo 401(k) will give you the ability to make a larger contribution towards the plan maximum on lower amounts of income.  This is because in addition to the maximum 20% profit sharing contribution Steve described above, the Solo 401(k) also allows you as the employee to contribute $18,500... or $24,500 if age 50+.

The employee contribution may be done on a Roth basis with no income phase-out, which is an exceedingly powerful wealth building strategy.

And, with a self-directed version of a Solo 401(k), you can then take that tax-sheltered retirement savings and invest in what you know... real estate.

A financial advisor that is not 100% focused on conventional market based (commission-able) investments, but who also understands the power of alternative assets and planning in a broadly diversified sense will have much greater traction with the realtor niche.

We work with many realtors who don't focus on retirement savings because they are not experts in the stock market and have bad experiences with any investing they have done there.  Once you illustrate the tax-benefits of savings along with the ability to invest in an asset class they fully understand, you truly become an advisor and not just a stock salesperson.  They can then see the value of setting aside money into a retirement plan where they can actually create measurable results.

We also work as a platform provider for many financial advisors who are tuned-into the need for diversification beyond stocks and want their clients with expertise in real estate to be able to invest that way with retirement funds.

Russell Brazil · Answer

I have a separate account for taxes.  When I receive a commission, I just move my estimated amount for taxes into that account, then pay my taxes quarterly. I have a SEP IRA. I put some money in that every year, sometimes I max it out, sometimes I buy real estate instead.

Michael Lee · Answer

Hello Brian!  What I would try do is to treat them like a friend, find out if they have any problems you coul do help with, and use written or printed information they would need to help them understand the subject deal and make the proper decision.

JJ Conway · Answer

As a Financial Planner I work with people to create irregular income budgets.  I also work with them on business cycles. So maybe that's something you can incorporate.  I was a Realtor for 10 years and both companies I was with had business cycle and a "wave tops" level of financial planning as part of their training.  You might could offer to be that training at no cost for a smaller firm that doesn't have the budet to add it.

Jake Fugman · Answer

@Jacob Mallison I found a good way for realtors to plan for the future is to work on creating at least 1-2 passive forms of income that dont come from direct selling or a 401K.  In my case I researched and joined a firm that awarded stock as well as had an aggressive revenue share program for helping grow the company.  This way I can see my monthly residual income grow until it reaches an amount that would allow financial freedom.  I also personally own/operate my own rental properties which is a common route for agents to force themselves into building long term equity.

As far as the need for a financial planner I would say that any of the agents who take a similar route would have a need for a financial planner that can help them maximize the gains/tax savings from these sources.

As a realtor, how do you approach Retirement and Tax Planning?

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