Retirement & Investment Planning for Realtors: Real Estate Agent SEP IRA & Roth IRA Strategies is the latest lunch & learn topic from veteran Realtor & Coach Nick Libert of EXIT Strategy Realty. In this clip, his guest Chris Underwood of Retirement Solution Group outlines options for real estate agents to intelligently plan for their retirement and tax deferment….(read more)

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Retirement & Investment Planning for Realtors: Real Estate Agent SEP IRA & Roth IRA Strategies

As a real estate agent, retirement planning is often at the bottom of your priority list – but it shouldn’t be. After all, as a self-employed individual, you’re responsible for your own retirement, and that means you need to actively plan and invest for your future. Fortunately, there are a number of strategies that you can use to ensure that you’re properly prepared for retirement.

One of the key retirement planning strategies for real estate agents is the use of SEP IRAs and Roth IRAs. These two types of IRAs offer a number of benefits that can help you grow your retirement nest egg while also minimizing your tax bill. Let’s take a closer look at each of these retirement planning strategies:

SEP IRAs

A Simplified Employee Pension (SEP) IRA is a tax-advantaged retirement plan that’s designed specifically for self-employed individuals and small business owners. With a SEP IRA, you can contribute up to 25% of your net self-employment income (up to a maximum of $58,000 for 2021) toward your retirement savings. The contributions you make are tax-deductible, meaning you can reduce your taxable income and lower your overall tax bill.

Another benefit of a SEP IRA is that your contributions grow tax-free until you take the money out in retirement. When you do take distributions from your SEP IRA, they’re taxed as ordinary income. This can be an advantage if you expect to be in a lower tax bracket in retirement than you are now.

Roth IRAs

Roth IRAs are another type of tax-advantaged retirement account that real estate agents should consider using for their retirement planning. Unlike SEP IRAs, Roth IRAs don’t offer any tax deductions for your contributions. However, all the money you contribute grows tax-free, and when you take money out in retirement, it’s completely tax-free as well. This can be a big advantage if you expect to be in a higher tax bracket in retirement than you are now.

Another benefit of a Roth IRA is that you can withdraw your contributions (but not your earnings) at any time, tax-free and penalty-free. This can provide some added flexibility as you plan for retirement.

Combining SEP and Roth IRAs

Real estate agents can also benefit from combining these two types of IRAs. By contributing to both a SEP IRA and a Roth IRA, you can take advantage of the tax advantages of each account while also diversifying your retirement savings. For example, you might contribute 25% of your net self-employment income to a SEP IRA, up to the maximum allowable limit. Then, you might contribute an additional $6,000 ($7,000 if you’re over 50) to a Roth IRA. This way, you’re reducing your current tax bill by contributing to the SEP IRA, while also growing tax-free retirement income in the Roth IRA.

Conclusion

retirement planning is important for everyone, but it’s especially critical for self-employed individuals like real estate agents. By using a combination of SEP IRAs and Roth IRAs, real estate agents can take advantage of powerful tax advantages while also diversifying their retirement savings. If you haven’t already started planning for your retirement, talk to a financial advisor or accountant today to get started. Your future self will thank you!