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June IRA Insights: The Successful Realtor's Retirement Plan

It is difficult today, with all the choices, to determine which retirement plan is best suited for each individual. However, it is now easier for the realtor to enjoy the same tax favored plans large

By: Carl Fisher

IRA Insights

By: Carl Fischer

It is difficult today, with all the choices, to determine which retirement plan is best suited for each individual. However, it is now easier for the realtor to enjoy the same tax favored plans large companies availed themselves of for years. Plans are necessary to increase net worth and build wealth by using the tax-deferred and tax-free strategies the plans afford. Although there is no "single" answer, a successful retirement plan must consider the following:

1. Types of plans available
2. Plans that best fit each individual's circumstances.
3. Control and decision making one has on investments and plan administration.

Types of Plans
Most realtors are independent contractors/self-employed-they are considered a business even though they may be the only member of that business. Realtors may provide a retirement plan for their business (themselves) as well as personal plans and health plans. Most successful retirement plans utilize a combination of these choices.

Minimum: $50 or less set-up. Moderate: approx $300 set-up. Extensive: $1000+ set-up.
Business plans ref IRS pub 560, Persona ref l IRS pub 590, HSA ref IRS pub969

Which Plans Best Fits Your Individual Situation?

Business plans

SEP-Simplified Employer Plan has long been the vehicle of choice for most realtors without employees because it is easy to set-up and provides tax-deferred contributions-25% of your wages (or up to 20% of your Schedule C income) up to a maximum of $46,000.

SIMPLE-Savings Incentive Match Plan for Employees is the preferred plan for realtors who have employees, such as assistants, and want a low cost, easily administrated plan with tax-deferred contributions. Maximum contributions consist of $10,500 for salary deferral plus $2,500 catch-up if you are 50, plus up to 3% of your salary matched by your employer.

Individual(K)- This plan is ideal for an individual with no employees who wants pre and post tax contributions. It is gaining popularity because in 2006, it allows the choice for post tax salary deferral contributions, similar to the Roth IRA, which allows earnings to be withdrawn tax-free upon reaching 55 years of age. Maximum contributions of $15,500 in salary deferral, plus catch-up deferral of $5,000 if you are 50 or over, plus 25% of your wages (or 20% of your Schedule C income) up to a maximum of $46,000.

DB-Defined Benefit plan is for individuals who want to tax defer large amounts of income usually exceeding $100,000 and are complicated and expensive to administer. An evaluation of the tax savings and the ongoing costs is warranted. Cost and liability concerns have caused a decline in this plan type.

Personal plans

Roth IRA- For individuals who believe they will be spending more money in the future and/or will be in a higher tax bracket. If your Modified Adjusted Gross Income (MAGI) exceeds $114K (single)/$169K (married), you are not eligible to open this account. Contributions-maximum $5K-are after tax (no deduction), but all future earnings are able to be withdrawn tax-free. Contributions can be withdrawn at any time without penalty which makes this one of the most popular wealth building tools available today.

Traditional IRA- For individuals who believe they will be spending less money in the future and/or will be in a lower tax bracket. Contributions-maximum $5K-are tax deductible. This plan is one of the most widely owned accounts in use today.

HSA- Health Savings Account is a tax favored savings account combined with a qualifying High Deductible Health Plan (HDHP). Contributions are tax deductible and all earnings and contributions are tax-free when withdrawn for medical costs. Contributions can be withdrawn today to cover medical expenses or invested for future use. If you or your spouse work for a company that offers full health insurance coverage at affordable rates with a low deductible and low co-pay. then HSAs are not for you. If you are self employed, own your own business, and pay your own insurance, then choosing an HSA/HDHP is one of the smartest decisions you can make.

ESA-Educational Savings Account is for individuals who would like to provide educational expenses for loved ones under 18 years of age. Contributions are limited to $2K per child, per year and all earnings can be withdrawn tax-free for educational expenses up to the child reaching age 30.

Realtors that use multiple plans and maximize contributions experience the greatest increase in net worth. In many instances, these plans can be partnered to buy a single asset such as a commercial or residential building.

Take Control of the Plan and Investments

As a business owner, you want control over the administration and investments of the plan. It is particularly important to pick an administrator who will not limit your choices. An administrator that allows true self-direction is best. Make sure the plan is able to purchase hard assets such as real estate, as well as paper products.

This aspect is very important to the realtor as they are now able to invest in what they know and understand, especially real estate, and have complete control over their financial future by using their personal knowledge and expertise. In addition, the realtor is better able to assist clients who can now use retirement plan money ($14 Trillion) to buy real estate and, in return, earn more commissions.

For additional information, visit our web site or attend an EntrustCAMA seminar. Consult your accountant or other professional if you need additional help in determining the plans or combination of plans that best fit your circumstances and take control of your retirement as you build your wealth today.

Carl Fischer is a Certified IRA Specialist (CISP) and a principal at EntrustCAMA, a self-directed IRA LLC with headquarters in Spring House, PA Call 215-368-7878 or email for information on self-directing your retirment plan.

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