Taxes, how do I loathe thee? Let me count the ways.
Fortunately, real estate investors (as self-employed people) can take advantage of 401(k)s just like W-2 employees can, to invest a certain amount of money each year tax-free for retirement. And the good news does not stop there – they can even invest in real estate as their 401(k) retirement investment!
But there are plenty of details that investors should know before they jump off the diving board.
First, individual (or solo) 401(k) accounts are for self-employed people who own sole proprietorships or partnerships (such as LLCs created for real estate ownership), but have no employees (other than spouses, who are allowed). Real estate investors with employees can set up normal 401(k) accounts and benefit that way.
There are contribution limits, of course. For tax year 2013, self-employed people can contribute a total of $17,500 as their “employee” limit, but can also contribute as the employer, up to 25% of their self-employment income (to a maximum total contribution of $51,000).