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How Active Real Estate Investors Can Use Retirement Plans to Slash Their Tax Bill

Updated: Jul 10

If you're a real estate investor earning six or seven figures from flips, short-term rentals, or real estate-related services, one of the most powerful ways to reduce your tax bill is by using the right retirement plan.


While traditional rental income is generally passive and not eligible for retirement contributions, active real estate income—like flipping, STR operations, wholesaling, or real estate commissions—can qualify. If you report this income through an S Corporation or Schedule C sole proprietorship, you may be eligible to contribute tens of thousands in tax-deferred dollars annually.


Here’s how to use retirement planning as a proactive tax strategy tailored to real estate entrepreneurs.


Why Retirement Plans Are a Tax Strategy—Not Just a Savings Tool

Retirement plans offer more than just long-term wealth building. They create immediate tax deductions. By contributing pre-tax dollars into a qualified plan, you reduce your adjusted gross income (AGI), which lowers your federal tax bill and minimizes exposure to the Net Investment Income Tax (NIIT), phaseouts, and the loss of deductions and credits. Some retirement plans allow six-figure contributions annually, compounding your savings while delivering immediate tax relief.


Top Retirement Plans for Active Real Estate Investors


Solo 401(k)

Best for STR hosts, flippers, and real estate professionals with no full-time employees.

  • Up to $70,000 in contributions for 2025 ($77,500 if age 50+)

  • Allows both employee deferrals and employer profit sharing

  • Offers Roth and traditional (pre-tax) contribution options

  • Ideal for S Corp or Schedule C income


SEP IRA

Best for sole proprietors or business owners with no employees.

  • Contribute up to 25% of net self-employment income (up to $70,000 in 2025)

  • Easier to set up than a Solo 401(k), but no Roth option

  • No employee deferral flexibility


Cash Balance Plan (Defined Benefit Plan)

Best for high-income STR hosts, flippers, or agents seeking very high deductions.

  • Can contribute $100K–$350K+ per year depending on age and income

  • Can be used alongside a Solo 401(k) for maximum deductions

  • Requires actuarial administration and multi-year funding commitment

  • Ideal for investors with stable, high income or those nearing retirement


How These Plans Save You Taxes

If you contribute $70,000 to a Solo 401(k), and you're in a 37% federal tax bracket, you could reduce your tax bill by over $25,000. Layer in a cash balance plan contribution of $150,000, and your total deduction could exceed $220,000, potentially slashing your federal and state taxes by $75,000 to $100,000 depending on your location.


Is This Strategy Right for You?

Advanced retirement tax planning may be a good fit if:

  • You earn more than $150,000 in active income from STRs, flips, commissions, or consulting

  • You operate through an S Corporation or sole proprietorship

  • You want to reduce your current-year tax liability while building long-term wealth

  • You haven’t maximized your current plan or don’t have one in place


Final Thoughts

If you’re earning active income through real estate, retirement planning is not just for the future, it’s a tax strategy you should be using today. The earlier you contribute, the more you can save.


And with 100% bonus depreciation returning in 2025, pairing retirement contributions with other proactive strategies can unlock even greater savings.


Want to See How Much You Could Save?

Book a free strategy call, and we’ll help you determine the best retirement vehicle based on your income, structure, and goals.


 
 
 

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