Lifepoint Financial Design – LifePoint Financial Services – Mike Metzger Financial Planning

Real Estate is a valuable asset class, but retirement plans can play a valuable role in that!

For some reason there is a rumor among real estate investors that you either contribute to a retirement plan or you invest in real estate, with no in-between. Why is it that its’ either one side or the other these days?! It’s like, you either like spicy or you like sweet. But have you tried spicy chocolate?

If you don’t know, now you know.

The same can be said for real estate professionals. You can contribute to a retirement plan and invest in real estate. And just like spicy chocolate, the two can even complement each other.

In an effort to help you change your mindset around contributing towards a retirement plan, I’m here to give you 3 reasons why real estate professionals should financially plan to maximize retirement plans.

1. Massive Tax Savings

Yes, real estate investing offers big time tax deductions. I will be the first to agree with that sentiment. But you still likely pay income taxes at the end of each year. So why would you want to keep paying Uncle Sam instead of keeping some of those hard-earned dollars in your pocket??

Let’s say you put away $50,000 into a retirement plan (And yes, there are ways to put that much away into a retirement plan). Let’s also assume you are in the 35% federal tax bracket. By putting $50,000 into a retirement plan you are literally keeping $17,500 in your pocket that would have otherwise gone to the IRS!

Why wouldn’t you do that?

You might say, “yeah, but I can’t invest that money into real estate because it’s trapped in a retirement plan”.

I would say, “says who?”.

2. Flexible Benefits

It’s amazing how many people don’t know the options that exist for retirement plans. Even the most successful real estate professionals assume that their only option is contributing $6,000 a year into a traditional IRA.

Please, let this be a lesson to do your research before jumping to conclusions.

I could show you ways that you could potentially out $100,000 + into retirement plans each year!

But for the purpose of this blog, I’m just going to focus on the benefits of a Solo 401(k).

There are many provisions in a 401(k) plan that allow for you to have access to your retirement money. And when you can get access to your retirement money, you can use that money to invest into real estate. All of this while you enjoyed keeping tax money away from the IRS!

401(k) loan. As a self-employed real estate professional, you can set up a Solo 401(k) so long as you are the only employee (or your only other employee is your spouse). Once you have a plan set up, you are allowed to take a loan from your 401(k) plan to the amount of 50% of the vested plan value or $50,000, whichever is the lesser.

Let’s address that $50,000 is a pretty good down payment amount on that duplex you want in Salt Lake City!

Once you take that loan, you have to pay a “reasonable” interest rate back to the plan, i.e. yourself.

In addition, you are required to pay the loan back within a 5-year period. 5 years is easily enough time to produce some replacement money. You can redirect the rental income back to the 401(k), sell the property, cash-out 1031 exchange, etc.

An exception to the 5-year pay back rule is if you are purchasing a primary property. Which as you may know, means you have to live in the property for 2 years of a 5 year period. Which, if you are catching my drift, means you have even more flexibility to this loan.

Of course, I would recommend talking this through with both your CERTIFIED FINANCIAL PLANNER™ and accountant before implementing.

3.  Portability

The great news about retirement plans is that they be easily be added, subtracted, or converted to other retirement plans.

Let’s say you have an old 401(k) out there from a previous job. You can potentially move that into your new Solo 401(k).

Maybe you have a traditional IRA that you were adding into from when you first started in real estate. You can potentially move that IRA into your new Solo 401(k).

All of this adds to your ability to take advantage of point # 2, loan provisions.

As you can see, contributing to a retirement plan does not take away from being a good real estate investor. It only adds to it!

Whether from tax savings, loan benefits, or portability, your retirement plan contributions can be a valuable tool to your real estate business.

If you need help evaluating the right retirement plan for your real estate business, I’m here to help.


Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. 

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal.  Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

Traditional IRA account owners should consider the tax ramifications, age and income restrictions in regards to executing a conversion from a Traditional IRA to a Roth IRA. The converted amount is generally subject to income taxation.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

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