SEP IRA vs. Solo 401(k) for Real Estate Agents

As a real estate agent, you assist clients with long-term planning through home or business purchases. But are you investing as much time and care in your own future and retirement plan? 

Unlike corporate or government employees, you may not have access to an employer-sponsored real estate agent retirement plan. This could be because your employer doesn’t offer one or you’re self-employed. That means it’s up to you to choose the right plan, whether it’s only for you or a small business with employees. 

How do you know which plan is right for you?

Two strong retirement savings options for realtors are the SEP IRA and the Solo 401(k). We’ll walk you through the key differences to help you decide which one might fit your financial goals. 

If you haven’t identified your financial goals yet, you may want to explore financial planning for real estate agents with a financial advisor. At Mercer Advisors, we recognize that real estate agents need specialized planning. We offer a tailored approach to comprehensive wealth management beyond investment strategies. 

Understanding the basics 

What is a SEP IRA?

A Simplified Employee Pension (SEP) IRA is a retirement plan designed for self-employed individuals and small business owners such as sole proprietors. The plan is easy to set up and maintain, with minimal paperwork. You can contribute up to 25% of your net earnings, capped at $70,000 (in 2025). A variety of financial institutions offer SEP IRAs, each with different features and investment options.  

What is a Solo 401(k)? 

A Solo 401(k), also known as an individual 401(k), is designed for self-employed individuals who don’t have any full-time employees (other than a spouse). The plan allows both employee and employer contributions. You can find many financial institutions that offer Solo 401(k) plans. These plans have different features like loan options, investment options, and administrative help. 

As the employee, you can make annual contributions of up to $23,500 or 100% compensation each year, whichever is less (in 2025). As the employer, you can contribute up to 25% of your net earnings with a maximum compensation of $350,000 (in 2025). 

As an employee, you can contribute an additional catch-up of $7,500 if you’re aged 50 to 59 or over age 64; an additional $11,250 if you’re aged 60 to 63. 

SEP IRA vs. Solo 401(k)

Withdrawing funds 

Both a SEP IRA and a Solo 401(k) have a 10% penalty if funds are withdrawn before age 59 ½. Exceptions to this rule include qualified education expenses, disability, unreimbursed medical expenses, and health insurance premiums if unemployed. 

A SEP IRA allows up to a $10,000 withdrawal penalty-free for a first-time home purchase. A Solo 401(k) does not have this feature. 

Qualified withdrawals are taxable income unless you make Roth contributions to a Solo 401(k). With a Roth option, qualified withdrawals are tax-free after age 59 ½ and five years of participation in the plan. 

Both retirement accounts require RMDs starting at age 73 in 2025. This rule does not apply if you are still working and meet certain exceptions. 

Planning for taxes  

Both plans offer tax-deferred growth, where taxes won’t apply until the withdrawal of funds.  

The Solo 401(k) has tax advantages like a Roth option. You pay taxes before adding your money to the plan. Then, you can take out the funds tax-free when you retire.  

SEP IRAs are pre-tax only for contributions, meaning you’ll pay taxes on withdrawals later. One tax benefit is that contributions are considered business expenses, which can be deducted on your tax return. 

If your Solo 401(k) plan has more than $250,000 in assets at the end of the year, you must file Form 5500-EZ each year. This form provides the IRS with information about the funds and investments, contributions, and participants. The deadline for filing the form is July 31 of the year following your plan year. If you don’t comply, the IRS can charge up to $250 per day as a penalty. 

Consider your situation 

Your career stage and income level are key factors in choosing the right plan for you. 

Consider whether you fit into one of these scenarios: 

• New agent with modest income: Due to its simplicity and low cost, an ideal option may be a SEP IRA for real estate agents. You can also open a SEP quickly. 

• Established agent with high income: Tax planning flexibility and the ability to make larger contributions are attractive features when thinking about a Solo 401(k) for realtors. 

• Agent nearing retirement: A Solo 401(k) for real estate agents close to retiring offers catch-up contributions and Roth options for tax diversification. 

Switching or combining plans 

You can start saving for retirement with a SEP IRA. Later, you can switch to a Solo 401(k) as your income grows or becomes more stable. You can roll funds from a SEP into a Solo 401(k) if you choose a provider that accepts rollovers. This strategy allows you to consolidate your retirement savings and benefit from additional features. 

Take action 

Choosing the right retirement plan is mainly about aligning your financial strategy with your goals. Whether you are just starting or growing your real estate business, SEP IRAs and Solo 401(k)s can help you build wealth.  

Mercer Advisors has a unified team of tax specialists, investors and estate specialists that design and execute financial services for real estate agents. They adapt a wealth management plan to your income, business structure, and long-term goals. Our specialists also have experience with determining the best retirement plans for real estate agents.  

When you’re ready to collaborate with a financial advisor for real estate agents, we’re here to help. Let’s talk.