Looking for a valuable, tax-favored way to help minimize your current and future taxes, as well as build real wealth for your entire family?
You may need to super charge your retirement plans.
Retirement plans are one of the best legal tax savings strategies for most self-employed real estate agents, and a real estate agency of any size can help provide these valuable benefits to themselves and to their employees, while at the same time reducing their total tax bill.
Real estate agency owners can establish tax favored benefit programs for themselves and all of their employees, including family members who they have hired to work full or part-time.
Retirement plans for your real estate agency: If you are a self-employed real estate agent, even if you only get 1099's, even if it is only a side line business, you can establish multiple types of retirement plans within the same company. You are allowed to make tax deductible contributions to your retirement accounts through your business as a tax deductible expense. You can set up these plans, in addition to receiving retirement benefits, such as (401k Plans, Pension Plans, 403b Plans, 457 Plans) from your other employers.
If the self-employed person is at least 50 years of age, they can put away as much as $50,000 of combined contributions in just one type of plan. If you company is set up as a real estate team, you could feasible shield as a $100,000 in retirement accounts. Do you know how much retirement savings that would grow to, before you had to start taking qualified withdrawals? The retirement account balance could easily be rolled over into a special type of IRA to purchase real estate as an investment in their IRA.
Now you can start picking up some of those rental properties, you know will be good cash flowers, or have the potential for substantial appreciation. There are companies now that will lend your commission on the sale of the property, which you can use as the closing costs to purchase these properties. By using your existing IRA funds to purchase the properties, all of the earnings will be growing tax-deferred inside your IRA, just like your current retirement savings plans do as well.
If your income is much larger and more consistent, you could set and fund a pension plan defined benefit plan for yourself and all of your employees that could feasible give you a pension of up to $180,000 a year, per person. This is in addition to any other qualified benefits that your company has adopted for its employees.
If your real estate agency is larger and you have employees who are not related, there are additional planning options for you and your company to consider. Before implementing any of these strategies, please consult a tax professional.
Even if your real estate agency does not currently have a 401(k), Keogh or other qualified plan that had been established by the end of 2006, you still have time to set up a simplified employee pension (SEP) plan to be included on your 2006 income tax return. If you do some planning right now, you will not have to make the contribution until the extended due date of your 2006 income tax return. That means you do not have to deposit the funds until October 15th, 2007. By adopting this strategy, you could save as much as $3,000 in taxes, while at the same time putting away $9,200 into a tax-deferred retirement.
There was some good new for Realtor's 401(k) plans in 2006, a new type of retirement plan has became available, the new "Roth 401(k) Plan." Just like your Roth IRA, you use after-tax dollars to make the contributions, but at much larger contribution amounts and no income phase out limit. This gives to the 401(k) plan, the same tax treatment as the five year old Roth IRA. Essentially, employees will be able to designate their elective deferrals as an after-tax contribution and when the funds are finally withdraw, they will be completely tax-free.
The new "Roth 401(k)" retirement plan looks more attractive for Realtors who do need to touch the retirement accounts for many years -- spouses, children, and grand children are some possible planning options.
While the funds contributed to the Roth 401(k) are taken out after-tax, they are taxed at today's lower marginal tax rates. Under certain conditions, this can be very beneficial to a Realtor, if they expect to be in a higher tax bracket at their anticipated date of withdrawal.
Thus, a business may want to adopt the Roth 401(k) plan as part of its regular 401(k) plan. The Roth 401(k) plan works just like your current 401(k) plan any of your elective deferral contributions are made just like your normal contributions. Employees of the real estate agency, can contribute their elective deferral ($20,500 for 2007 if you age 50 or older) to their Roth 401(k), just like they would normally contribute under a traditional 401(k) plan. The key difference between a Roth 401(k) and a traditional 401(k) plan is that the employee will pay taxes on the current contribution, but when the play is qualified will never have to pay taxes on the growth or the withdrawals. These funds could grow until withdrawn 50 years later, completely tax-free.
Employers may also allow their employees to establish and make contributions to separate IRA accounts within the employer's qualified plan.
As IRA accounts, these accounts will not be subject to the complex rules that apply to most qualified plans, greatly simplifying their administration to the employer.
The IRA may be either set-up as regular or Roth IRA. The new law also allows for increases in the contribution limit for IRAs to $4,000 in 2007 and $5,000 in 2008, plus if you are age 50 or older, you may be able to contribute an additional $1,000 catch-up contribution, if you qualify.
You still have time to set up a retirement account for your 2006 Tax Year and save taxes while doing it. Contributions that are made to your SEP IRA retirement account can be deducted on your 2006 Income Tax Return as a dollar-for-dollar income deduction, even though they do not have to be paid until almost the end of 2007. Now is the best time to start planning for next year's taxes and set up some of these accounts for your business.