LEGAL NOTES

A preliminary report from the U.S. Centers for Disease Control and Prevention (CDC), based on 2005 statistics, shows that the average life expectancy in the U.S. is 78 years, a figure that has been increasing steadily over the past 50 years. Living longer means more years to enjoy your life, your family and your work. It also means that you will need to carefully plan for a lengthy retirement.

Individual retirement accounts are beneficial for self-employed Real Estate professionals, as they provide a long-term strategy for retirement and an immediate way to reduce your total tax bill. Fortunately, retirement plans are not limited to large businesses; they are available for independent contractors, owner-employees, and small business owners. If you are a self-employed Real Estate professional, there are many types of retirement plans that can work to your advantage.

Traditional and Roth IRAs
An IRA can be an effective retirement tool. There are two basic types of Individual Retirement Accounts (IRA): the Traditional IRA and the Roth IRA.

A Traditional IRA allows you to deduct contributions from your taxable income. The investment earnings of your IRA are not subject to federal income tax until you withdraw the money. You are eligible to participate in a Traditional IRA if you received taxable compensation during the year and are younger than 70 ½ years old.

A Roth IRA is a retirement account that takes after-tax contributions, yet qualified withdrawals are tax-free. There is no age limit on making contributions. Any person who earns income can contribute to a Roth IRA. Unlike contributions to a Traditional IRA, contributions made to a Roth IRA are not deductible. The benefit of Roth IRAs is that earnings from investments are tax-free.

The total amount you may contribute to a Traditional or Roth IRA for 2007 cannot exceed the lesser of $5,000 or 100 percent of compensation ($8,000 for married couples). However, according to the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the annual contribution limit for both Traditional and Roth IRAs will gradually increase from $5,000 to $6,000 in the year 2008. If a married person is unemployed, his or her spouse can contribute up to $4,000 to a spousal IRA. After 2008, the contribution limit will raise in increments of $500 depending upon the level of inflation.

SEP
Another simple and effective retirement plan for self-employed taxpayers is the Simplified Employee Pension (SEP). This is a special type of retirement plan designed for small business and the self-employed.

You can participate in a SEP if you are self-employed, a sole proprietor, an independent contractor, or if you have ownership in a partnership, limited liability company, or a corporation. A SEP is an Individual Retirement Account (IRA). Therefore, if it is created for more than one person, it becomes a group of IRAs.

All contributions to a SEP are tax deductible as a business expense. A SEP’s earnings are not taxed until they are withdrawn at retirement. The individual annual contribution limit for 2007 is the lesser of 25 percent of compensation or $44,000. The bonus to this plan is that you can change the contribution percentage based on your individual needs. For example, if you have a profitable year, you can contribute more; if you have a bad year, you may choose not to contribute at all.

Simple IRA
A Savings Incentive Match Plan for Employees (SIMPLE IRA) is an effective start-up retirement savings plan for small employers who do not currently sponsor a retirement plan. You can establish a SIMPLE IRA plan if:
o you have a business with, generally, 100 or fewer employees;
o and do not have any other retirement plan.

Many small businesses choose SIMPLE IRA plans because they are easy to set up and maintain. Employees can contribute on a tax-deferred basis through payroll deductions, and can make annual contributions of no more than the lesser of $10,000 or 100 percent of their compensation. Employers can choose either to match the employee contributions of those who decide to participate, or to contribute a fixed percentage of all eligible employees’ pay.

The Bottom Line
There are numerous benefits to setting up an IRA. Because IRAs are Individual Retirement Accounts, the way they help you save for retirement depends on your “individual” situation. No matter how much you make or what your situation is, if you earn money, you can contribute to an IRA.

IRAs provide a broader range of investment opportunities than traditional retirement plans. Contributors can choose to invest in mutual funds, stocks, bonds, options, Exchange-Traded Funds (ETFs), Real Estate and even precious metals.

As a Real Estate professional, you may be tempted to add Real Estate to your retirement portfolio. However, you should know a few things before investing. First, your IRA must own the Real Estate strictly as an investment. The IRA trustee must also hold legal title to the property. In addition, your IRA must have sufficient liquid assets to cover any costs associated with owning the Real Estate. You may also lose some tax advantages by holding Real Estate in an IRA. As with any investment opportunity, always consult with a tax advisor, certified financial planner or lawyer before using your IRA to invest in Real Estate.

Disclaimer: The above is not intended to be, nor is it legal advice, and should not be relied upon for any reason. Even though this article maybe disseminated throughout the U.S., the material covers only Nevada law, and no other. E RealEstateExec and Exec MediaGroup, LLC expresses no opinion on any other state's law, nor about the handling of any particular legal situation. You should consult your attorney, accountant or business advisor before undertaking any action. No attorney-client relationship is created between E RealEstateExec, Exec MediaGroup, LLC and the reader.