An excellent real estate retirement plan is the by-product of keeping your finances in order as a real estate agent. Different aspects must come into consideration, from taxes to retirement planning.
You’ve probably wondered how you can have the freedom and flexibility you want while still making a good income. Between working long hours and building your business, you may feel like you don’t have the time to start planning for your future. However, you need to think ahead to make the most of your retirement.
Take Control of Your Personal Finance
Real estate is a lucrative market but can also cost you in the long run if you don’t manage your finances.
Personal finance is a big topic with a lot of moving parts. It’s a lot to keep track of, but it can also be fun if you approach it correctly. Here are some of my favorite personal finance tips to help you control spending, saving, and investing.
Create a Budget and Savings Plan
Before anything else, you should establish a budget based on your monthly income and expenditure and stick to it.
Moreover, create a savings plan, or update the one you already have to factor in your new retirement plan. If possible, increase the amount of money you save from your income.
Monitor Your Income and Expenses
After you’ve created a budget and savings plan, you’ll need to develop a method to keep you on track. It’s easy to believe you’ll have the discipline, but using a software or budgeting app won’t hurt.
You can easily access the best budgeting apps to help you accomplish this. These apps can help you set up a sound system to record your earnings and expenditure.
Furthermore, if you think of overspending as robbing yourself of a chance at a good retirement, it may help. By spending too much money now, you’re reducing your chances of a great retirement.
Develop an Emergency Fund
An emergency fund can save you if something unexpected happens. You won’t need to consider using your credit card with a good emergency fund.
Creating an emergency fund should be your primary focus after you’ve set up systems to keep your spending in check. As soon as you have enough saved up, you can begin to repay any debt while still building your fund.
Repay Debt
It’s easy to believe you must pay off your debt before creating an emergency fund. But an emergency fund should be a bigger priority. Not every debt is bad debt. You’re good if it’s not a consumer or liability debt.
There are two approaches to clearing debt. These are:
The avalanche approach
The avalanche approach involves listing all your debts and ranking them in ascending or descending order. After that, begin by paying the debt with the highest interest rate off first. You can still service the little debts simultaneously, but your focus should be on the one with the highest interest rate.
The snowball approach
The snowball approach involves writing down every debt you have according to how easily you can pay it off. You can start with the ones that have the lowest balances.
Each approach has its implications!
Create an IRA
Individuals can use retirement accounts (IRAs) to accumulate long-term savings and investments. There are several different types of IRAs. Your choice will depend on your current income, specific tax benefits, and retirement plans.
You can receive tax benefits for money saved in an IRA. But the money is less liquid than just investing in a portfolio or savings account. You can open one of these accounts with a bank, an investment firm, a private broker, or an online brokerage like eXp Realty.
For instance, eXp Realty agents and brokers can use 5% of their commission revenue toward 10% off eXp stock. This stock purchase plan is an excellent opportunity to invest and save up for retirement.
Traditional IRAs
Below are some essential facts concerning traditional IRAs:
- You can lower your existing tax burden, and traditional IRAs have no income restrictions.
- The money is, however, taxed at your standard income tax rate when you withdraw it.
- A traditional IRA previously did not accept contributions from anybody above 70. But The IRS changed that in 2020.
- In 2022, a single person’s annual contribution cannot be more than $6,000 ($7,000 for those over 50).
- A 10% penalty will apply if you withdraw money early (before 59.5 years) for non-exempt circumstances.
- Exemptions include up to $10,000 for eligible college costs and purchasing your first home.
- At age 72, you must start receiving the mandatory minimum payouts.
Roth IRAs
A Roth IRA is excellent for an early real estate agent retirement plan. Below are key facts about Roth IRAs:
- Contributions aren’t tax-deductible. You cannot use a Roth IRA to reduce your current tax burden. Your deductions will not get taxed when you are ready to withdraw the funds.
- The IRS also established income caps for Roth IRA contributions. You can’t contribute to your Roth IRA if your income exceeds the cap.
- For persons below 50 years old, the maximum contribution to a Roth IRA for 2022 is $6,000.
- If you’re over 50, you can increase your contribution by $1,000 per year to a maximum of $7,000 through catch-up contributions.
- You can switch your Roth IRA at any point to a standard IRA.
SEP IRAs
Both businesses and sole proprietors can create Simplified Employee Pension (SEP) IRAs. Below are some crucial facts about SEP IRAs you need to know:
- You can only contribute 25% of your annual salary or $58,000.
- The employer’s tax return allows for a tax deduction for the contribution.
- If withdrawals are made without an exemption before the person is 59.5 years old, they get taxed as regular income and are subject to a penalty.
- Employees can not make contributions to their accounts.
- As a team member, if you make a 25% contribution for yourself, you are also required to make the same contribution for all other employees.
Property investments
Numerous investment opportunities are available as a real estate agent or broker. And with time, you will develop the knowledge and skills necessary to profit from real estate investments. Portfolio diversification is a great way to solidify your retirement plan. The implication is that you can combine real estate assets with your selected retirement plan to finance your future rather than solely relying on them.
The Ideal Retirement Plan for Realtors
The absence of a defined sustainable retirement plan is a severe problem for realtors and real estate agents. Most agents cannot rely on IRAs or other retirement plans at the end of the day. Factors such as inflation, life emergencies, or fluctuations in sales, earnings, and savings, may make it difficult for an agent to save up enough for retirement.
Fortunately, there have been some significant alterations and interruptions in recent years. By supplying real estate agents worldwide with a cutting-edge revenue share plan, eXp Realty is revolutionizing how realtors get paid.
This innovative real estate agents pay model has provided a unique opportunity for agents and brokers to establish a good retirement plan. In addition to this, eXp’s Glassdoor gives their agents a reliable retirement plan that is one of a kind.
eXp Realty’s Revenue Share
The eXp revenue share model is a unique way eXp rewards its agents that contribute actively to the firm’s growth. Through monthly recurring residual income, eXp agents get rewarded for bringing other qualified real estate agents to eXp realty who close deals.
When you recommend an agent to eXp Realty and they choose you as their sponsor, you will receive 3.5% of all closed transactions’ gross commission up to the cap.
eXp Realty operates on an 80/20 split and a $16,000 annual cap. When an agent you have referred to eXp Realty pays $16,000 into the company in commission splits, you will no longer receive revenue share from their production until the following year.
Since you receive your revenue share from the company’s portion of the commission split, you can keep your entire commission.
You will learn everything you need about eXp’s revenue share.
How Revenue Share Can Help With Your Retirement
Let’s say an agent you recommended to eXp Realty closes a deal that generates $30k in GCI, they will receive 80% of the proceeds ($24k), and eXp will receive 20% of the proceeds ($6k).
Since you were in charge of introducing this agent to eXp, you will receive 3.5% of their gross commission ($1,050) from the $6k that eXp received.
For every agent that the agent you sponsored brings, you also receive a revenue share from their production. This highly replicable growth strategy for agents pays a revenue share to agents seven generations deep at variable percentages.
Revenue share is a duplicatable income stream that allows you to earn residual income yearly. Now, I understand that not every agent you enroll will cap. But in any case, this model provides an excellent opportunity to generate passive income and save up for retirement.
Conclusion
One of the most critical decisions is planning for retirement, especially in the real estate industry. You must study all the options available.
Some real estate agents turn to their real estate company for guidance on retirement planning. Different companies offer different levels of service. You can’t hope to plan based on your commission split alone. Therefore, choosing the right brokerage to work with can help you grow your business and establish a sound retirement plan.