Self-Directed IRAs (SDIRAs) come with a lot of benefits, if you follow the rules and conduct due diligence on your investments. Real estate professionals are well-poised to take advantage of these benefits. Their real estate knowledge, experience, and access to good deals can be leveraged to reap the benefits of SDIRAs. But most aren’t taking advantage of the opportunity to build retirement wealth and grow their business at the same time.
In a recent poll, we learned that many real estate agents have retirement savings of some sort, but not many have self-directed IRAs. Many also count on selling their business to retire. Others save and invest in real estate, but pay taxes on gains from their investments because these investments are not in a tax-deferred account. Many have traditional IRAs, but they are not taking advantage of the high contributions that are allowed in Simplified Employee Pension (SEP) IRAs.
The National Association of REALTORS does not offer a retirement package and neither do most brokers or associations. Real estate agents are self-employed so it's up to them to set up a retirement plan. Self-directed IRAs give real estate agents the perfect opportunity to leverage what they already know about the real estate business to plan for a future of financial freedom in retirement. Let’s look at 5 reasons why a self-directed IRA for realtors is the best way to do this!
Self-directed IRAs allow the opportunity to take advantage of alternative investments such as real estate, private equity, precious metals, and other types of investments typically not allowed at most financial institutions. Most institutions offer investments in stocks, bonds, and mutual funds for the most part. In order to invest in alternative assets, like real estate, you need an IRA custodian that focuses on these investments. A company like IRAR Trust specializes in alternative investments, like real estate, in IRAs.
Here are some reasons why, if you’re a real estate agent, you should open a self-directed IRA, and start building retirement wealth while growing your business at the same time. If you are not a real estate agent, you probably know one or have worked with one. Forward this valuable information to them. They will thank you.
You are a powerful REALTOR and are well-versed in real estate 101. You already know the ins and outs of the real estate industry — the market, the process, and the people. You have the inside scoop when it comes to deals through your work and existing network and may already be doing this outside of a retirement plan. So what’s stopping you from using those skills to plan for your own future of financial freedom? Why not invest in real estate in a tax-advantaged environment?
You don’t have to go at it alone, but you do need a strategy. Build or stockpile cash in an individual retirement account and start saving now. This fund will be your startup investment capital that you can later invest through an IRA. Moving funds from an old 401(k) or another retirement plan you may have can also be used to establish your self-directed IRA.
There are several ways for a self-directed IRA to purchase real estate. You don't need to have the full purchase amount in your IRA to buy property. Your IRA can get a loan or partner with others, including yourself on new purchases. You have many options. The important thing is that you need to start saving now.
One major (and often overlooked) benefit of self-directed IRAs is rental income isn’t taxed while it’s in your IRA. You don’t have to pay taxes on the earnings until distributed (tax-deferred) or at all, if you have a Roth IRA. You can use the money you would have been paying in taxes to maintain or grow your real estate retirement empire.
Although you can continue to make investments in the IRA with the earnings, you cannot use it personally. This means that all income must go back into the IRA so that it is not taxed. Keep in mind with a self-directed IRA, the account holder must stay up to speed to ensure they’re following the rules to keep their IRA compliant. Learn more about prohibited transactions and self-directed IRA compliance.
If you are self-employed, you may not have access to a 401(k) or employer-sponsored plan to save for retirement. But you can establish a self-directed IRA anytime. It only takes about 10 minutes to set up a self-directed IRA by opening an account through an IRA custodian.
Similarly, realtors who are small business owners, have the option to open a SEP, which allows for larger annual contribution limits than a traditional IRA or Roth IRA and put away more than an individual investor. SEP allows you to contribute up to 25% of your income and up to a certain limit depending on the tax year. The 2022 contribution limit for a SEP owner is up to 25% of compensation, with a maximum of $58,000. Your business — this means you — can deduct your contributions to employee SEP accounts.
No one likes the thought of running out of money in retirement, but with costs rising every year it’s hard not to be worried. When investing in real estate inside or outside of your IRA, you have predictable rental income every month — essentially a guaranteed monthly stipend. It’s a nice way to protect yourself from the unpredictability of life — and the stock market — while preparing yourself for the future.
Real estate professionals aren’t the only ones investing in real estate— so are their clients, and recently, more and more are doing so with their self-directed IRAs. They are directly involved with buyers and sellers but are not tapping into this incredible opportunity to build more business.
Lead by example. If you know about self-directed IRAs, and better yet, you intimately know the process from an investor’s perspective, your insight will be appreciated and highly regarded. You can use this new insight to build your network and client base.
Fundamentally, self-directed IRAs enable massive gains and more freedom to invest the way you want. However, keep in mind that with great power comes great responsibility. SDIRA account holders are responsible for taking care of all IRS reporting with respect to the IRA.
Custodians also are not financial advisors. You’re in the driver's seat, which means you can take all of the glory when celebrating your wins, but also be prepared for potentially having to take the fall too.
Still, REALTORS need to put that real estate license to work. As a real estate professional, you are uniquely poised to benefit from the opportunity to invest your retirement in physical property— an asset class you already understand. Reach out to your financial professional to see if opening a self-directed IRA is the right move forwards for you.
Retirement plans for REALTORS are possible through a self-directed IRA. When you set up your self-directed IRA through IRAR Trust Company, you can expect help from a real self-directed IRA expert immediately any time you call, email, or visit. All though we do not provide investment advice, our team of experts can answer any questions regarding real estate IRAs.
Our mission is to help people build wealth by leveraging alternative investments through self-directed accounts at a lower cost. We do this by providing low and transparent SDIRA fees, saving you over 50% compared to other custodians.
Book a free consultation with one of our expert IRA specialists to find out more about how you as a REALTOR can buy real estate through a tax-advantaged, self-directed IRA.