Real Estate Agents and Retirement Plans

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare.  We bring Case of the Week to you to highlight the most relevant topics affecting your business.  

A recent call with an advisor in North Dakota is representative of a common question related plan eligibility. The advisor asked: “A client of mine is a real estate agent who receives income that is reported on Form 1099-MISC, Miscellaneous Income. Can this individual contribute to a retirement plan?”

Highlights of Discussion 

• Some unique rules for retirement plan eligibility apply for real estate agents, based on their worker status as a “statutory nonemployee.”(Since each employment scenario is based on unique facts and circumstances; it is recommended that workers seek professional tax advice for a definitive determination in their particular situations.) 

• Individuals who perform services for businesses may be classified as an independent contractor, a common law-employee, a statutory employee, or a statutory nonemployee.  The IRS explains each classification in more detail in Publication 15-A, Employer’s Supplemental Tax Guide. 

• There are three categories of statutory nonemployees: direct sellers, licensed real estate agents,1 and certain companion sitters. Direct sellers and real estate agents are treated as self-employed for all Federal tax purposes, including income and employment taxes, if the following are true. 

1. Substantially all payments for their services as direct sellers or real estate agents are directly related to sales or other output, rather than to the number of hours worked; and 

2. Their services are performed under a written contract that provides they will not be treated as employees for Federal tax purposes. 

Because real estate agents are considered self-employed, they are eligible to establish a retirement plan based on their earnings from self-employment.  Please see IRS Publication 560, Retirement Plans for Small Businesses.

Conclusion

If a licensed real estate agent meets the above criteria, he or she could establish a retirement plan using his or her Form 1099-MISC income. Since each employment scenario is based on unique facts and circumstances, it is recommended that workers seek professional tax advice for a definitive determination.