Cash flow for CRE brokers can be very erratic. To help normalize cash flow for our broker clients, we have several strategies. One of these is using a brokerage account, in addition to a 401(k), for retirement savings. If all your retirement savings are in retirement accounts, fluctuations in income can be problematic. Also, retirement plans have limits on contributions and can generate taxes and penalties if tapped early. Therefore, saving for retirement should not happen only in retirement accounts. A brokerage account can be a great supplement to your retirement savings.

A brokerage account is an investment account, but it is not a retirement account, and therefore can be titled in several ways. If you are single, it can be in your individual name, or with a named beneficiary via transfer on death instructions. If you are married, it can be a joint account. In Florida, we recommend “Tenants by Entirety” designation rather than “With Right of Survivorship” for the account registration, due to liability protection purposes. Depending on your estate planning or net worth, it might be more appropriate to use a Trust or LLC structure.

Having a brokerage account also serves to diversify the types of accounts owned, which is beneficial for future tax planning. Tax on investment appreciation and dividends is not tax-deferred like it is in a retirement account. Growth on investments will be taxed at capital gains rates, which are lower than ordinary income tax rates. This tradeoff creates more flexibility to control taxes when selling an investment to create cash for future expenses or to help top off a retirement account contribution. It can also dictate what types of investments to hold in this account for tax efficiency.

Since there is no annual limit to contributions into a brokerage account, it can be used to help provide for contributions to retirement accounts such as 401(k)s and Defined Benefit Plans if cash flow is tight before a deadline. How much you decide to contribute to retirement accounts will depend on your goals, contribution limits, and available cash flow. By having a brokerage account, you have access to cash you can easily transfer to retirement accounts when needed.

Please contact us today to learn more about tailored retirement savings strategies for CRE brokers.