EP 14 – OPEN FORUM SHOW – Self-Directed Retirement
Mark Kohler: Welcome, everybody, to this week’s episode of the directed IRA podcast. My name is Mark Kohler with the amazing co-host Mat Sorensen. We’re here to talk about Self-directing and everything related there to. So this is not directing our own community show or Broadway show or, you know, Sundance Film Festival. This is directing your retirement account.
Mat Sorensen: Yeah. Where you are the producer, the director and the star of the show. That’s true. This is your account. All right. You are all three. Producer, actor, director. OK, well, for those that are new to the show, thanks for being here. We are going to field the open forum questions, which is a reminder you can submit at DirectedIRA.com/Podcast Directed IRA is our company where we handle self-directed accounts, of course. For people that want to invest in alternative assets, buy real estate, buy crypto, you know, you want to buy a mutual fund or stock, we can do that, too. But we really focus on the client that wants to self-directed investments like real estate, private companies, notes, precious metals, crypto. And those are the questions we’re going to be feeding or fielding, I should say, feeding, fielding today during the podcast.
Mark Kohler: Yeah. On today’s episode, we’re going to be talking about farm animals, real estate. I’ve got a joke where a nun walks into a bar with a poodle under her arm. No, I don’t. But OK, Beginning of a joke. I can’t remember.
Mat Sorensen: It’s true. I mean, if you look at the questions, we got questions on cryptocurrency and stable coins. Some cool thing learn about, we’ve got on horse racing race horse questions on an IRA owning. So owning a pair cow calf or whatever that is. Mark can explain that series LLCs a lot of cool stuff about Self-directing kind of. There’s some bread and butter stuff, if you will. And there’s also some more exquisite questions here that are a little more a little more exotic, perhaps.
Mark Kohler: Yeah. That Food Network show where he goes in eats things that make you gag in your mouth, but you keep watching the show and don’t know why. That’s what we’ve got today. It’s going to be good. So I also want to point out for those we’ve got this on Stitcher, Spotify, iTunes and YouTube and today, I’m wearing a tie and Mat is wearing a kind of a sweater crewneck sweater. He looks good, you know. Kind of.
Mat Sorensen: Yeah, I thought I liked the accountant looking get OK. Yeah, I was like, Mark put on a tie today. Wow. He’s going to this special. This is a special episode folks if you didn’t know it already if you weren’t feeling it already in this intro. This is pretty special. He’s got his glasses on. Yeah. Wow. Well, tie to the power tie look woo.
Mark Kohler: It’s kind of the I got the collar undone, so it’s kind of like casual yet it’s like you’re at work.
Mat Sorensen: Yeah. Sleeves are rolled up like, you know, it looks like honestly it looks like it looks like you’re on the campaign trail. That’s the look you got kind of I’m dressed up but I’m kind of of the people. I got my sleeves rolled up.
Mark Kohler: Yeah. Yeah. Well I’m not on the campaign trail of anything so we can skip that. All right. Well, so let’s get into it. And a lot of people find this a fun show because you hear questions from other folks around the country and you’re like, oh, my gosh, I don’t even think of that. And so it really is kind of fun. I want to point out too that. I’ve had calls with clients this week on Self-directing and they’re just blown away that this option exists in their life and that Wall Street has really hidden it from them so many years and they’re an information overload. So I want to give all of you a little rah rah rah session here, a little comfort, a little intervention to not get overwhelmed. It takes time to learn some of these strategies and you don’t have to know them all. And keep in mind, we have a summit that we hold twice a year, one in the spring, one in the fall. It’s a two day summit this spring in April. It will be virtual as we hope we get to the tail end of this covid period of our lives. And the fall session will be live in person in Phoenix, where it will be nice and beautiful and warm for many of you in October that want to just get one last dose of sun. So keep that in mind. Those summits are really, really affordable. Three or four hundred bucks, maybe five hundred, I don’t know, somewhere in that price range. But you can also Mat, as it are you is the last year’s recording still available. Can people even watch that?
Mat Sorensen: That is still available. You can go to my site or SDIRAHandbook.com, SDI or a handbook to get last year’s recording, which Mark and I did together. And we did it in in the studio there where Mark’s out right now. So well done. And we’ll do that again this year, too. So we’ll have a recording will be done after the virtual summit, which is only $199. So go grab. That would be a great great. Well I know. Very special. That’s true. I know that well. Yeah. So but that’s what you can get today. Go. Get on it both days, $199, that’s a day and a half.
Mark Kohler: Ok, well still we got to talk to someone I know,
Mat Sorensen: I know, and it gets even better. We’re throwing in three steak knives.
Mark Kohler: And let me show you how they can cut through a can right now. Yeah, it’s going to be good. OK, let’s get to our first question. Do I get to yesterday in the open forum for Main Street business you got to choose the first question. So, OK, I feel like it’s my turn. Your turn. OK, we’re going to hit a base hit here. We want to do kind of easy ones to begin with. Boy, I don’t know if there’s any. OK, I got Alex Alex in Miami. That’s kind of an easy one. I think Alex made Alex may be sad that he’s like, it’s that easy, but Alex there’s some other hard ones here today. OK, so Alex in Miami says, So I have a solo 401k with you guys. And at the law firm, you can set up a 401k for as low as $500. And you’re the trustee of your own 401k and your self-directing a Roth 401k or traditional. So Alex has gone that route and he says, I’m thinking of buying a rental on a lake to Airbnb. If after retirement age I decide to use this rental personally, maybe even make it my primary residence, would that be an issue? Well, issue is a strong word, I would say. Is it possible? Yes. Is it difficult? No, there’s just some steps you need to follow. And we’ve taught this is as a strategy that’s pretty darn cool. I mean, I’m going to give you the basic and then I’m going to put it on steroids. OK, Mat. You’ll have to approve if this is OK. OK, all right. So everybody out there, you can be funding 401K getting a tax write-off. The 401K goes and buys Airbnb, it can get a nonrecourse loan, typically you’re going to have to put down about 40%. But we’ve got lenders lined up all day long. That’ll give you a 60% loan to value and you put 40% down in your 401k. No personal guarantee. You’re into this Airbnb. You rent the heck out of it. You put furniture in there, you cash flow, the sucker cash goes back into your 401k. All good to go. Wonderful. Well, Alex, at that point turns, let’s say, 60 years old and he says, all right, I’m going to quit Airbnb. I want to move in. Well, it’s fairly straightforward. You would go get an appraisal for the value of the home at that time, with or without the mortgage. Maybe the mortgage is paid off by now, but whatever the value is, minus a mortgage, what’s that equity. So that’s really what your 401Ks asset that it bought, whether it’s Microsoft stock or this little Airbnb, what is it worth? You take a distribution, you distribute the cabin to you just as if you took stock and sold it and took cash out of your 401k you would pay tax, because at that point you’re over fifty nine and a half no penalty. And you get to move into the house, you just take a distribution of the house, but it gets better. Now, what I’d like you to do is inside your 401k, Alex, whatever the house is worth now you start chunking and turning it into a Roth 401k asset. So let’s say the cabins worth $300,000 and over the next 10 years, you chunk 30,000 a year. Now, it is true, as you convert it to Roth, you’ll have to reevaluate the value of the property. But there’ll be some squishy room there to make sure the valuation is fair, but probably on the lower end. And you’re going to convert it to Roth and pay taxes in pieces and parts, keeping your bracket a little lower rather than taking this huge tax bill of 300 grand when you turn age 60. So now when you convert it to Roth, little by little at age 60, your Roth owns the cabin and you just frickin write yourself and sign the deed when you transfer this Roth property to myself. No tax, no penalty. Now you’ve got your home completely paid for tax-free, did it in your 401k the entire time, and chunked it at lower appraised value pieces where now it could even be worth more. Doesn’t matter. It’s yeah. It’s already Roth. What do you think Mat? Did I didn’t nail it.
Mat Sorensen: Yeah. I mean I like that strategy. There’s some work and to doing that many conversions just, you know, you have some fees and some appraisals to do that. And then you got a partnership because you’re traditional on some of it in your Roth own some of it. So there’s some detail there. Also, when you do that last Roth conversion, you’ve got to wait five years. There’s a five-year rule on Roth conversions until you can take a distribution. Now, you probably want that because after you do all those conversions, right, you want to own it as Roth and let the value go up a little bit before you distribute it and take it out for use. So, I mean, that’s the whole purpose of that strategy, right, is convert it now at lower values, let the price go up and then distribute it out when it’s Roth later where there’s no tax. But you do got that five year rule. You got to meet, though, after you do your last conversion.
Mark Kohler: And probably the sooner you do the conversions, the better anyway, like Mat said. So the value, the future value is outside of your personal wealth. I like it now. OK, I’ve got to I was going to go down another rabbit hole, but we’ll leave it alone. Fun stuff. Thanks, Alex. Mat your call.
Mat Sorensen: OK. All right. Let me go to Burt’s question. Burt asks, Can stable Coin Krypto held in DFI accounts essentially decentralize financial accounts. And he references a couple of names here that yield great rates be held in Self-directed IRAs Blockfi now supports ACH to banks. So no need for exchanges. OK, yes, it is possible to own stable coins, this is essentially crypto that’s tied to some other asset. And so rather than it just being like, let’s say, Bitcoin, which would not be a stable coin, but let’s say Bitcoin is just there’s just that value is just what other people are willing to pay for it. There’s other stable coins that are more linked to an asset but are built on a crypto blockchain type network. So, yes, you can on those in a Self-directed IRA, you do it through the IRA/LLC and link the LLC bank account. Now we are at Directed IRA. We are going to have trading capability probably in a week or so directly out of your IRA account. We’re going to be linking with Gemini, who’s a major provider of crypto trading accounts that will link directly to your IRA account without the need of an LLC. Now, you won’t be able do stable coins, but you’ll probably be able to do the most 20 common crypto like Bitcoin, Ethereum, Litecoin, all that type of stuff. Those are the things to be able to trade. So just a heads up for people on the crypto side of things that want to buy kind of some of the more popular crypto, but the stable coins you’ll do for now at least link with your LLC bank account, which is our standard process. We got lots of content on that, I think two or three podcasts ago. Mark and I went over that option on How to Own Crypto with your IRA using an LLC.
Mark Kohler: Ok, I love it. I’m going to keep it a little simple still until we get into more complex stuff. I’m just going through the questions here, typing up a few responses. We got a bunch of questions that came in via Instagram too we’ll jump over there in a minute. Osan asked the question. Which Self-directed IRA is best for real estate investments and why a traditional or a Roth? Now, first, I like the way Ossana said this in some way. Let me clarify, a lot of people do call up and go, I want to self-directed IRA. What is that? Well, a Self-directed IRA is just like any other IRA. It’s just you’re at a custodian or a what the world knows. As is a broker-dealer, you’re in a trust company that allows you to invest in a lot more than their little stockbroker allows you. A lot of stockbrokers are actually restricted from even bringing up the option of self-directing or they get fired because they’re basically sending their customer to somewhere else. So an IRA is an IRA, a Roth is a Roth. It’s just can I self-direct it means I got to move it from the place they’re holding it to a new place. So it’s just a rollover. There’s no tax. There’s no penalty. It’s very easy to have a Self-directed Roth or Self-directed IRA Traditional. It’s just where you where you plant it, if you will. So then Osahan, should I do this real estate in a traditional Roth? I think that if you surveyed a hundred accountants and or financial advisers. You’re going to see the majority say. Any investment is going to be generally better in a Roth, the tax-free growth and the tax-free withdrawals and the flexibility for not having to do 72T distributions and just the flexibility overall of a Roth and the power of a Roth is going to generally win every time. On the flip side, you have to remember you got to get money into the IRA to begin with. So I would say the real question is sometimes, as people say, which account should I fund this year? See that’s a different question. You may say. I’m just saying, well, what’s your tax liability? What bracket are you in? How much income did you have? Because funding an IRA or a 401k could be a good move. You could be in a larger bracket. And we want the write-off. We need the write-off. Then we’ll convert to Roth later. Other people were like, oh my gosh, just can do backdoor Roth, don’t worry about it or do this. So you’ve got really two questions to ask yourself. What should I contribute to this year? Because we want everybody contributing every year, even if it’s a small amount. And then the next question is, what do I put in those vehicles? And again, I think in the long run, you’d want to be in the Roth no matter what type of investment every day. And on Sunday Mat agree/disagree?
Mat Sorensen: I love the Roth IRA myself, because in the long run, if you perform well, you’re going to have a large Roth account and you’re going to love it. I always like to explain, though. It’s like the Roth account is the one that sucks now, it’s painful. I’m not getting a tax deduction or I had to convert to get to it. But in 10 years, you’re like, oh, I’m so glad I did Roth. Yeah. And I have clients that call me. They’re like Mat. I got $400,000 in traditional I just talked to a client about a week ago. He’s like I really want to go Roth and already in a high tax bracket, he’s like I just I feel I need to bite the bullet now. I don’t want to. And I’m like, you know, there’s just no way around it. It’s going to suck now. You’re going to pay a lot of tax you didn’t even want to chunk. He’s like, I just need to go for it. I got some really good investments out here to perform well. I just want to go for it. OK, cool. Let’s just do it. Bite the bullet. Are tax rates going to go up later in time anyways? Probably so he just bit the bullet went for it. But I told him, I said we’re think of where you’re going to be in ten years with this account. Like what do you like? Where do you think the account value is going to be and how happy are you going to be when you’re like, this is Roth now It’s worth a million. I went from four hundred thousand to a million. Very realistic to do in ten years. We’re very realistic. Yeah. How? I mean, you’re going to you’re going to love loving it. You’re going be like, gosh, that was such a good idea ten years ago.
Mark Kohler: You know, the sad part is we help you guys, but no one sends us a Christmas card and says, you know what, Mat, thank you ten years ago, you know, my life is better now. You know, we’d appreciate if you’d call once in a while and just say, yeah, we had to because you said we send you out into the world and we never hear from you again. You just you just make millions. Yeah. Now, I would throw this out too. When you’re going through this process. Don’t forget, and Mat and I debate this all the time, so I’m going to throw it out there, the health savings account or the Coverdell. Don’t hyperfocus on one account either, it’s not the traditional bad we just compared traditional to a Roth. Don’t forget, there’s other players on the field. You’ve got a goalie, you’ve got a forward, you’ve got all these other players. And so the Coverdell is your college savings account for kids that can be self-directing. And if your kids are young, who you know, that could be a very powerful tool. You could set up coverdell’s for grandkids and invest them right alongside your Roth. And those come out tax free and grow tax free. But kind of in the health savings account. I met with a client a week and a half ago at about 80 grand. No, no, no, no. I told you it was on our show last week. I said one 160,000 in a health savings account. I use paid for your long term care for life. And it’s tax free any time, any time. You don’t have to wait till you’re in half for medical. So there’s some other vehicles.
Mat Sorensen: Yeah. So, yeah. Cool. All right. Well I got, I got a. What’s that.
Mark Kohler: What’s the. I don’t get bite the bullet. Did that come from like they’re going to it’s like in Tombstone when the brothers up on the pool table and they’re pulling out the they’re like bite the bullet. Just it I don’t know. I think a rip off the Band-Aid. I’m more of a rip off the bullet.
Mat Sorensen: Yeah, yeah, yeah, yeah, yeah. You know these analogies. I’m the last guy you want to check those. Where did they come from. Yeah. It’s creepy. I don’t know man. I’m not going to feel like I’m kind of spelling bee competition here. What’s the origin of that anyways. Of that phrase. All right. Eric’s got Eric had a good question. I know if it’s my turn of yours, but I’m going for it. I love it. Sure. It was my turn. OK, all right. I was going to feel like a jerk there for a second, but Eric said, I’ve personally invested in racehorses. It works similar to Mark’s example with the cow calf pairs, initial investment, for percent ownership of the horse, monthly expenses, et cetera. But returns are tied to winnings. Can an IRA/LLC invest in this scenario or would it be considered gambling? This is a great question here. Yes, your IRA and we’ve had clients invest in LLCs that own race horses. This is a really important distinction here between gambling and I’m going to give a gambling example of a client who was using their IRA to basically do sports gambling, which I got a problem with this one I don’t. And here’s why this is OK. I thought you said no, but you mean it is this this is this way. You try using your IRA to invest in an LLC that owns a racehorse. Totally cool, because when that LLC makes money, you’re making money from Prize Winnings. The LLC owns the horse that gets the prize winnings. OK, it’s kind of like the professional sports team that makes money when they win the fact team wins the Super Bowl or whatever. Now, in racehorsing, there’s I don’t know that the horses get a share of the ticket sales or something. Maybe they do. I don’t know. But here you’re not gambling on the outcome of the race. You are in a sense in that, you know, if your horse wins, you get that that horse gets the prize and your LLC that owns this horse and paid for all the expenses and the trainers and whatever, you get a share of that prize winnings. And so so it’d be OK in that example. And we’ve had clients do that. Now, the one thing you’ll need to note here is this. There would be. You bet. So you would want to use a blocker corp or maybe it’s a C corporation that owns the horse anyways. But you would want to use a blocker possibly.
Mark Kohler: we’ve done a whole show on UBIT and blockers right?
Mat Sorensen: We have we have not we did kind of rules to know when we talked about you, but the rules to know when you self-direct we should do a more deep dive on UBIT. But so we’ll hit that in an upcoming episode. I got a whole chapter in my book. We got a lot of articles on directed IRA on it. We should do a special podcast episode.
Mark Kohler: And I think can I just say on that note, everybody, when Mat says UBIT if you’re new to this, it basically means when you invest in a business that is not passive. So if you buy an Airbnb with your rental, that’s passive, even though it’s a short term rental, it’s still the IRS calls it passive, which we’re lucky there.
Mat Sorensen: But unless you start providing services and you make that Airbnb look more like a bed and breakfast or a hotel, that’s a business. And you’d have UBIT that if you keep it rental, not given services. Yeah.
Mark Kohler: Yeah. So like a restaurant and then a horse operation, a racehorse operation is ordinary income. So you can go back and watch the listen to the podcast on rules to know. But we’ll do a separate show on that and Mat book. All of you, if you’re listening to this podcast, you need Mat’s book, get over to SDIRAHandbook.com just pick up a copy because you can refer to it on all these shows. Now, Eric, I think you’re missing the big the big deal here. May I comment? I’ve got clients that have done the racehorse thing to. Eric, you need to make sure you look at this LLC agreement, because the money is not in the prize money, the money is when they go out to stud after. It is big. Oh. But it’s significant, I actually want to use the right terminology here, so I don’t want Mat to say “that’s what she said” I’m not going to I’m not touching. You’re not commenting. OK, OK, OK. But when you’re talking about a horse impregnating other horses, this is a fact of life. People, it’s called the birds and the bees.
Mat Sorensen: And you know, remember the show. I don’t remember the show in the 90s called Stud’s. Did you remember? No, no. It’s like this dating show and these dudes just get on that. We’re considered studs. You know, this is a more common phrase in the 90s to refer to a, you know, a guy who’s apparently got it going on or whatever study would be like, yeah, and they’d go date, like all these women. It was kind of like, what if it can be like the bachelor? But in a way. But it was called studs. It was hilarious anyways. OK, you know, talk to the racehorse studs and how you can make money on it. Yeah.
Mark Kohler: So racehorses really as long as they place they may not have big winnings like the Kentucky Derby or this or that, but these racehorses with the good bloodline and even just placing in some cases, they become extremely valuable for stud fees and they can be anywhere. I’ve seen stud fees from ten grand to five hundred grand just for one vial of you know what. And so these it’s a really it’s a really big deal. So make sure if you’re going to invest in a racehorse that you’re you’re a part of the the game for the long haul with the horse, because a lot of times there’s trainers that are in it for the stud fees on the back end, not the prize money. So just keep that in mind, Eric. I love what you’re doing.
Mat Sorensen: All right. All right. Questions your unless you’re going to pass.
Mark Kohler: Let’s stay with I don’t know if we’re going to have a question on this, but let’s let’s deal with a comment on the cows, because we had some that send in some messages, so on a prior show, I talked about pairs now in the ranching world. And if you’re a Yellowstone fan with Kevin Costner, who is a total stud in that show, I’m on the stud feeling like you want to, you know, be a rancher. And so I have some friends that run ranches down in southern Utah, and every spring they’ll buy pairs from other ranchers, that kind of horse trade. Have you ever heard of that horse trade? This is legit. Really happens, people. So they’ll horse trade and a pair is a mother cow and a calf and they might range from a thousand bucks to fifteen hundred bucks is what I understand. Now, some ranchers out there are saying I’m an idiot, so just be patient with me on. I’m just an accountant here. But anyway, these ranchers guys were like, yeah, you want to buy you want to buy some cows this year. I’m like, I was thinking I like steak, especially filet mignon. Sure I’m in. But then I thought, hold it. What happens to my parents? And they go with the calf, grows up and has a baby too and the mom has another baby. So at the end of next year you now have four cows. Apparently cows reproduce. I don’t know if you do that. Mat ok.
Mat Sorensen: All right. OK, so thank you for this reproductive information you’re giving today.
Mark Kohler: We went from Horses now to cows reproducing. Ok, so anyway, you, your book of your herd doubles in value and you can see now you’ve got feed and then immunizations and all these other things. And once in a while apparently a cow can die there. That, but if you’re careful you can see easily a 30% return on this pair. So 30% return a little better than my ETF or mutual fund. And I said, I want to buy three pair. And these guys like, dude, you’re in. So I’m creating an LLC now and I might fund these three pair with four or five grand, let’s say, and I’m going to see how it goes, you know, and I in the herd that they get, they don’t brand them with, like, iron anymore. They tag them. So if you go to kind of a newer ranch operation, you’ll see these plastic tags on their ears. But anyway, so my cows would be branded with the tag and and I can go look at my cows and pet them if I want. And maybe when they’re asleep, tip them over.
Mat Sorensen: I can’t believe you never been cow tippin.
Mark Kohler: Maniac. Maniac what. Come on, Tommy Boy. Baby, Tommy boy baby.
Mat Sorensen: Best of all time.
Mark Kohler: I can’t, I can’t do the whole quote. Go to thirty two on four boom you know. Yeah. Rob Lowe. OK anyway so people have been emailing going hook me up. I want to buy some cows. So here’s the disclaimer. We do not have a resource for buying cows like possibly bitcoin. So if you buy Bitcoin we can hook you up or gold or silver. We have some referral sources for that, but we do not have a hot red phone to Kevin Costner in Yellowstone for cows. So what you need to do if you’re in this, if you’re interested in this, is get in your truck. I recommend a truck rather than a sports car and start driving around the farms and start. I’d wear cowboy boots, too, because you’ve got to fit in and you drive around and go eat. Can Ibuy a pair, you know, to start they call it networking in the business world.
Mat Sorensen: I just go to the local cafe in the early morning when the Cowboys are there, you know, and that’s where they cut their deals, you know. That’s so. Yeah. that might be easier.
Mark Kohler: There you go, have a copy of Farmer’s Almanac. You know, sit down and just be like, oh, what’s what are the futures on soybeans this year look like?
Mat Sorensen: You know, I don’t even know if that’s a thing, but OK, I don’t either. All right. Let me hit the next question. I’m going to get off the reproductive route. Come here. This is a question from Ed. Good structuring question. He said, Can a group of people, each using qualified money, meaning retirement accounts, create a multimember IRA/LLC? Yeah, we did all the time. Chapter 15 of my book. So far, so good. And the videos on that, we’ve got podcast episodes on it. Totally cool. We break up the ownership in the LLC between those different people based on how much money comes from each account. Then he says, and can we do it in a series, LLC? Yeah. If it’s a state that allows for series LLCs, let’s say you’re doing real estate, which he brings up here. You can have a multimember IRA LLC that’s also a series LLC so that you can have each property if you’re doing multiple properties own. And it’s a separate series and it’s got the liability protection of what’s called a series LLC. He said, PS I bought and read Mat book. It is excellent. I agree. Add great comment there. I highly recommend anyone interested in the subject matter. So yes, the good news is that you can do a multimember LLC with different retirement accounts and you can make it a series as well. Just keep in mind there’s about 20 states now that allow for Series LLCs. There’s always a couple every year that get added to the list. Different states wake up and decide this is a good structure and they adopt it in their state so that we and we can confirm that it’s in Mark’s book. I believe that the list of states do series LLCs, but again, there’s a couple of get added every year. All right, you’re up. Do you got a question about OK, nothing reproductive.
Mark Kohler: It’s a yes. This one is about raising rabbits. So I think I think I think we’re in for a big return here. Ok, my the problem is they don’t sell for a lot, but you could, you know, apparently produce a lot. So. Yeah, but you know what? The funny the seriously, the funny takeaway here is many of you know, your IRA can buy animals, you know, that are now your personal pet or your personal guide dog or comfort animal.
Mat Sorensen: They’re not on your farm. And whatever that you own, like Mark, you know, I just go to the farm or ranch or whatever that has that. And I know there’s a difference between a farmer and a rancher. I probably hunt. Yes. So forgive me for I’m just going to say.
Mark Kohler: All right, well, here’s a question from Dave. Not sure if Dave’s from he says in a checkbook, IRA is the LLC that is created only good for use within the IRA. It can’t be used to buy real estate outside the IRA. Dave, this is a great question, because I think we can define some terms out there on. In the Self-directed industry, several promoters, frankly, for lack of a better word and probably the true term to use, have tried to make their company on the Web sound the coolest and the sexiest. And you just want to use us, give us money, and we’ll set up a checkbook IRA, and say that we never used the term checkbook IRA in our marketing. We don’t like that term because that term really doesn’t mean anything. But what it does mean practically a checkbook IRA, means you have an LLC. So I would encourage all of you if you’re going to be a listener of our show, just flush the term checkbook IRA. Just that it’s not a good term use. What we like to say is you can have an IRA directed IRA, you can have a Roth that directed IRA, you can have an HSA, a directed IRA, and if you want to do some loans or some investments directly out of your retirement account. Fill out a form, you’re in business, buy stock, buy crypto, buy gold, all sorts of goodies. We’ve got almost every structure you can imagine you can do directly out of your IRA. But you’ve got to call us. You’ve got to fill out a form. And that’s OK. A lot of people. That’s good. Now, in a sense, you can say it’s almost like a checkbook, IRA, because you can call us up and we’ll do what you say. So but it but you’re using the custodian’s checkbook in a sense, to take care of your transactions. Now, where the checkbook IRA term came from is you’re like, well, I’m doing so many deals. I hate calling your office even though everybody’s so nice and they do it quickly. I just want to do it myself. Can I get a checkbook? No, you do not get a checkbook for your IRA. But if you want to form an LLC, the LLC can be funded with a portion or all of your IRA, or you can have a multimember LLC with multiple retirement accounts from friends and family and you can be the signer on that bank account. You can be the manager of the LLC. And there’s there’s rules of you. Of course, you can’t be compensated and have personal benefits from the assets of that LLC. But we go through that in our podcast from time to time. But you’re going to get this LLC and you control the checkbook. And so that’s we like the term Checkbook LLC or Checkbook IRA/LLC, because you have to have the LLC in order to have the checkbook. And so I don’t know if I understand the rest of your question and say it can’t be used to buy real estate outside of the IRA. I don’t know, Dave. I’m just going to say that LLC can do anything, it can buy cows, it can buy real estate, could buy an Airbnb. So the LLC is a just a model that allows you to make investments a little more quickly without calling the office and filling out a form. So all the investments you could do in the IRA by calling directed IRA are the same investments you could do out of the LLC. It’s just you could write the check yourself anyway. I don’t Mat would you add anything that does that help clarify that today.
Mat Sorensen: Yeah, and we have that the IRA/LLC podcast episode, it’s probably five episodes back. Go, go listen to that. And we outline that that structure better. But I always like the IRA/LLC word because I tell people it’s two things. It’s an IRA and it’s an LLC because some people are like, well I set up the checkbook LLC? Do I need my IRA anymore? Yes, your IRA owns the LLC doesn’t replace the IRA. It’s it’s two things. It’s like a peanut butter and jelly sandwich. You need two things to really, you know, make it work. So, OK. I had an emailed question, if you want it, I can hit here. Yeah, I don’t have any final questions on your end from social or in other places you want to field. OK, go ahead. OK, so I had a question basically on Roth IRAs and taking distributions for Roth IRAs. So the question was, is when can I begin taking distributions from a Roth IRA? And then there’s a second part to this, which has to do with inheriting the Roth IRA. And this is a long description. I’m just trying to paraphrase the actual questions out of this. So let’s go over. You have a Roth IRA, right? OK, you’ve built it up. And remember, with any retirement account, this is not for to use today unless you’re already fifty nine and a half. You can be using it now. But for all the rest of us that aren’t at that magical age yet. Fifty nine and a half, we can’t touch that account. Call that magical for the IRS, the IRS and the magic being you don’t get a 10% penalty to touch it early. But I want to make a couple important points on the Roth IRA that are important and how you can access it. Remember, in a Roth IRA, you can always get your contribution part out without any tax or penalty, no matter what age you are. So if you’ve had a Roth IRA for 10 years now and you’ve been throwing in six grand a year, five grand, whatever the contributions were back then, you can always pull that money out first as a distribution that is not taxable. OK, that’s one of the cool perks on a Roth IRA, but is that account grows the earnings, you can’t touch it. The earning piece of it, the growth of it. Let’s say you bought real estate, the rental income you sold the property, the gains you bought some crypto or private stock and you sold that for a gain. All those gains that are built up, you can’t touch until you’re fifty nine and a half. OK, now, once you hit fifty nine and a half, you can start pulling the gains part out. No tax. You can start living off of that. Obviously, you don’t want to pull out more than you need because you want to keep that money available to reinvest in this tax-free account. That’s really the best way to invest out there anyway. This is the old the Roth IRA is the only way. And the Roth 401k, included, what you can do with the Solok is the only way you can make money and not pay tax to the government or to your state. The only legit way to do it. All right. Maybe moving to Puerto Rico, there’s some options there. So. So that’s cool on the Roths. So keep in mind, you can always take contributions out early if you needed to do that. The second part to this question is about what happens when I die. Now, last week’s show, we covered a lot of that podcast episode on what happens to my retirement accounts when I die. Now, the rules have changed on this so that when you’re if your spouse inherits it but by the way, you die, your spouse just gets your Roth IRA or whatever account you have and it becomes an account in their name. And they can if they’re fifty nine and a half, they can start taking distributions. Let’s say they’re forty five when you pass away. Well there it can roll into their name but they, they can and they can keep investing it but they can’t pull it out to fifty nine and a half if they do a spousal rollover. Can you throw this. The second thing though is let’s say a non spouse inherits it. The new rules are now 10 years. They can use that account and keep it as an inherited Roth IRA, which we have lots of those at our office. But then they got to distribute at the end of 10 years. OK, so but then I take RMD every year. It’s just by 10 years. They have to have a whole account distributed, but that your heirs basically inherit account. They got a 10 year window to keep investing it, grow up, maybe double it without any tax, and then they get to pull it out totally tax free. So that’s the distribution rules from, you know, cradle to grave maybe, I don’t know, on no pun intended on the Roth IRA.
Mark Kohler: Well, I think the big takeaway in that response is that apparently when you turn fifty nine and a half, it’s magical. So Boca Vista, that’s the what goes down.
Mat Sorensen: I was thinking of the how. Who’s the band that sings that. Uh, Oh it’s magic when I’m with you. What. Who’s that magic now. That’s not Hall and Oats. I would know that my band used to play that song. I can’t remember what the Dolby dog smell because I used to play magic. I mean, we didn’t write it.
Mark Kohler: If anyone didn’t know Mat’s in a band was was. Yeah, he played the spoons. So it was no, I’m not that Mat can rock the the Stratocaster straddle straddle.
Mat Sorensen: Stratocaster Stratego. I’m a Fender guy and the guitar world you have different. You know, there’s different. It’s kind of like being a Ford or a Chevy person, you know, or whatever up there. I’m a Fender guy and it’s a Stratacaster.
Mark Kohler: Ok, well, there you go. I know about as much as that as you know about farming and ranching, apparently, so we’ll just leave it at that. OK, I had a question via Instagram. This is from Shelly. And she says, Where should I set up my Self-directed IRA/LLC? We want to get an LLC going, but we’re not sure where to set it up. That’s a great question. Yeah, this is for that question, Shelly. It’s like, yeah, it’s like.
Mat Sorensen: You put that on the Tee for Mark Kohler.
Mark Kohler: Yeah, the this is probably the Shellie’s question is a great example of why when you’re just starting to self-direct set up a consult, if it’s not with our law firm, that’s fine. You may not like we have seven tax attorneys that are booked out about a week and they’re just awesome. And Mat and I spend time with them literally almost daily in a group text and trainings per week, making sure they’re kind of mini mart mini mats. And we’re learning from them so much when they’re in the trenches out there. So it’s just a great team. But if you don’t use our firm is fine. But you want to meet with an attorney when you set up your first IRA LLC, because these are the kind of questions we’re going to go through. You know, it’s like if you just go online and set it up in Delaware or Nevada or wherever you’re at, it could cost you twice as much to unwind it and set up where you’re supposed to down the road. So our single-member IRA/LLCs are around $800, $850 plus filing fee. If you have multiple IRAs or 401ks or whatever end of LLC, a multimember LLC s $1,500 and that’s it. And you get to work with an attorney on your situation, phone call, zoom, whatever you want. So it’s not like someone in a cubicle in Nevada. Saying they’re talking to an attorney, it’s so but this is what we do, Shelley, is we’re going to say, well, what are you most likely to do with the money? Because everybody’s is leaning towards something and if she goes, well, we’re kind of leaning towards a little rental property, OK, locally or by grandma or where and everybody has at least a gut feeling. Well, I think I’m going to we’re going to buy a rental probably in Ohio. OK. OK, they may have a connection there. They have a good real estate investment club there they trust or a group or a friend or a realtor or someone a coach. And they’ve chosen Ohio. That’s more than likely where we’re going to set up the LLC, we’re going to say if you’re going to start making offers, we want to do the offer in the name of the LLC because you can’t make the offer in your name. This is an IRA project. So what we want to do is kind of choose the best state where you’re most likely going to invest. And we’re going to really try to corral you into that. Let’s get you focused on a market because you want to is a good real estate investor. You will really want to dive deep in that market anyway, know what the common rents are and fair market values. You’re going to be playing on Zillow every day, getting building a network. And so that’s where we want to set up your LLC, because that’s where it’s going to have to be registered to take title to the real estate. So we’re going to set up the IRA LLC where you hold the asset. That’s option one. No, if I’m on the phone with Shellie and her husband and she goes, well, we’re probably going to do a little crypto and we want to buy a little some precious metals and then we’re just going to maybe do some joint ventures or some partnerships with some other people, maybe even invest in a PPM or a I think we could qualify as an accredited investor. We’re going to do that or whatever. Then we’re going to say, let’s just set up the LLC where you live, because you’re going to have to open a bank account. It’s you’re operating in your state because you’re just kind of going from there. And I think that’s going to be the most common and simple thing to do. And that’s option two, option three is some people are going to go, well, it’s all virtual, you know, we’re going to buy stocks, bonds, mutual funds, ETFs, crypto, precious metals. We’re not really doing business in any one state. Why can’t we do it in Nevada, Wyoming, Delaware, Florida, Texas, somewhere where there’s no state tax? And I’ll go, well, if you’re doing this in an IRA, you’re not going to pay state tax anyway. What’s going on? And and so that’s when the UBIT conversation may come into play. So these are all little variables that are specific to one person. But I don’t know Mat would you? Those are my three main options. What would you say?
Mat Sorensen: All right. And just remember, when you’re doing the IRA LLC, it’s two things. You need a Self-directed IRA, you need the LLC and get some advice on the front end. Not everyone needs the IRA/LLC a lot of people come to us like, oh, I don’t really need an LLC. I’m just going to get a loan, somebody some money on a deal and it’s just going to be a note secure on the property, you know, I’ll see for that. No, you could do that right out of the IRA. I’m just going to bust into X, Y, Z private company. And there’s this private fund offering. I’m going into an LLC for that. Now, just invest it right out of the IRA. And I’d probably say about 40% of our accounts do some version of an IRA LLC single-member or multimember, but the majority of them don’t need it. Now it’s popular real estate being the one where we usually are going to recommend it on a rental or a fix and flip. But again, the podcast episode on that, also on directed IRAs page, we have a page for the checkbook IRA/LLC or IRA LLC, you know, that goes over how to set it up. It has the application to get going on it. You can mark getting an appointment on the lawyers in the law firm on it to go over the structure and set up in your situation.
Mark Kohler: Love it. Well, I’ve got one last question. I think it’s a fast, easy one then.
Mat Sorensen: OK, let’s finish on that, OK?
Mark Kohler: Yeah, this is Eric. He says if your IRA buys an Airbnb property through an LLC, as I understand, your in-laws brother sister can rent the property to vacation in, but would you be able to tag along and join them? As long as you’re not the one paying the rent or on the property, are you strictly forbidden from physically staying in the property? Are there any other scenarios where you can stay in the property if you don’t transact with yourself, stay without paying rent? Well Eric, probably your best move is when you get off the plane. I would drive a really roundabout way to get there because if the IRS is following you, you want to lose them. You want to you know, if you’ve ever been tailed, there’s got to shake up. You’ve got to shake them. Yeah. I watched Burn Notice Michael Westen. He’s got some good tips on, you know, he was a spy. You know, he’d do this. So, Eric, yes. You would get in trouble if the IRS discovered that you are staying at a property your IRA owns, whether you were a guest, paid, whatever, you can’t work on it. You can drive by and look at it. Property manager, you don’t go kick the tires, take pictures of it. We want you to be engaged in the supervision, but you cannot be the property manager. Stay or so I think if you’re under surveillance from any major governmental agency, including the IRS, I think if you do a little shake and bake, you might be able to stay there. No one would know you didn’t hear that here.
Mat Sorensen: Yeah, obviously. Yeah. Good question. I’ve talked about that scenario of, you know, if you own an Airbnb and no one’s using it, you know, you rent it out fifty-one weeks of the year and there’s one week, no one’s using it. You can’t just go stay there for free because you’re benefiting from the property. It’s called self-dealing, but if you pay for it for that week, then you’ve just considered cause what’s called perse property transaction because you just paid your own IRA or IRA LLC, which is also prohibited. So I get it. Your brother and sister, you know, they’re not disqualified persons and sure they can stay there, but you shouldn’t be running up and having use of the property or any benefit from it. You know, it’s a I think we’re joking because it’s not like there’s a primitive transaction police out there. But if that was disclosed or somehow figured out in an audit or something, I would not love to have to defend that. Let me just say that way
Mark Kohler: And how it could happen is, you know, I think you should stay there under the name Ted Nugent. Yeah. Or Peter Lemon Jello. Peter Lemon Jello. Yeah. Yeah. That’s you know, that’s what Fleche would have done. And then, you know, a little disguise would never hurt and a mustache or something. But I think I think you could pull it off. And I just want to point out that was a trifecta I just quoted Flooding, Talladega Nights and Burn Notice all in one right there. So I think.
Mat Sorensen: Let’s finish on a high. All right. Yeah, I got we got to take it to the hoop like. All right, that’s it for me. That’s all right.
Mark Kohler: So for me, that’s it for me. So, no, I think this is great. You just want to stay away from your rentals in retirement accounts and it’s OK.
Mat Sorensen: Let me say this, Eric. I don’t know that that juice is worth the squeeze. You know, I just.
Mark Kohler: We got to end the show. This is getting out of control.
Mat Sorensen: That’s one of my favorite things. That just isn’t worth the squeeze because there’s risk that I get it you want to stay on the property you own. But is the risk and just worrying about it, it’s it’s so unlikely that you would have a problem with that. But I just think the worry of it and like, is this going to be a problem? It’s just that just isn’t worth the squeeze.
Mark Kohler: So, you know, now I would say that’s a couple side. Don’t let’s say you’re either.
Mat Sorensen: We just can’t end this thing can we?
Mark Kohler: We can’t. I just I wanted to give some real advice rather than screw around is if your IRS.
Mat Sorensen: I thought that was good real advice and was it was gone. When you’re kind of in this gray area. Is there a transaction or not? I’m just like like I’m just always like just the stress and worry of it is to start with some good advice, some help to.
Mark Kohler: Your orange juice comment. I was just.
Mat Sorensen: That’s what I was a perfect analogy that used to say what the school year you do Kohler staying at the property, your brother in law’s your brother’s rented from the IRA/LLC and the squeeze and you know the risk you’re going to take, you know, and your brother in law.
Mark Kohler: Yeah. Stick it to the brother in law. Make him pay extra. And now here’s a little loophole, because we’re tax lawyers and so everybody wants to know the loophole is if your IRA in retirement accounts in combination, including you. Own, let’s say, less than 30%, 20% somewhere. Small ownership in the other parties are owners, are not family. Maybe you team up with some neighbors and you buy a little Airbnb.
Mat Sorensen: Or they’re not disqualified. The brother and sister not disqualified.
Mark Kohler: That’s true, too. So you might if your IRA owns less than 50%. That’s kind of the technical rule. We like the 50 Shades of Grey rule that it’s pretty white up there. We’d like to get down to the grey of maybe 20% or 30%. So stay keep it minority ownership and then, yes, you could stay there and rent it. You just can’t have majority ownership control with your retirement account. All right. So everybody take us out Mat. Everybody, some charge to live the dream. Something good.
Mat Sorensen: Yeah, well, I just want to say thanks, of course, for all the great questions. Always go to DirectedIRA.com/Podcast. You can submit the questions. And I love seeing the creativity of what people are doing out there, because that’s what Self-direct is. Right. And I said this before on our podcast is great. Investments aren’t sold. You know, they’re found and they’re made. And a lot of these questions are about people making deals, making investments, finding an Airbnb, doing the racehorse thing, you know, buying crypto or more, cutting edge things. And there’s risk to those, of course. But where there’s risk, there’s reward. And do your due diligence, of course. But I love seeing it just gets me excited because this is why I love self-directed IRAs is people taking responsibility and control of their retirement account. So thanks, of course, for listening. If you like the podcast, you know, subscribe on YouTube. If you listen there, like it, share it, give us five star reviews on a podcast channel you’re listening to or like it or thumbs up. They all got a little different system there, but that does help get the word on the podcast to spread the gospel of Self-directed retirement accounts. The good word.
Mark Kohler: Yes, the good word. Thanks, everybody. See you next week.