EP 27 – OPEN FORUM SHOW – Self-Directed Retirement Plan Questions
Join Mark and Mat as they answer your difficult Self-Directed retirement plan questions. Mark and Mat dive deep into all of your questions on Self Directing your Roth IRA, 401(k), Traditional IRA, Coverdale, HSA, and more.
at Sorensen: Welcome, everybody, to the directed IRA podcast with Mat Sorensen and Mark Kohler, Mark Kohler came today as a member of the Yankees.
Mark Kohler: Oh yes, they’re
Mat Sorensen: Wearing a New York Yankees. I know.
Mark Kohler: I paused because I. I was hoping you weren’t referring to the Tommy boy or of a George Costanza
Mat Sorensen: Works for the Yankees. Yeah.
Mark Kohler: You wouldn’t be talking about the Little Rascals and and Spanky. Oh my gosh. Anyway, anyhow. Well, welcome, everybody. Of course, as you know, we try to keep this light and dive into a very difficult topic, but a very rewarding and exciting topic.
Mat Sorensen: Yeah, this is a topic that pays, you know, this retirement this pays. We talk about tax savings, building long-term wealth in a tax-efficient way and having comfort in retirement. That’s what the goal is with, with your self-directed IRA. But this isn’t about what we want to talk about. This is about what you want to talk about. This is open forum. You can submit your questions always if a Self-Directed IRA or retirement account question pops in your head. And I don’t know the answer to that. Well, go to direct IRA Dotcom Slash podcast hit submit a question and we’ll take we take your questions there. We’ve got some in the queue, we’ve got some from social and other places we’ll be fielding today. So we’re just we’re here wanting to give you some good advice today. Something we know about retirement accounts. You can decide whether it’s helpful or not.
Mark Kohler: I guess I want to give a shout out to one of our fans that sent me a shirt. I’m so excited they know who they are. But this is my new Bigfoot shirt
Mat Sorensen: Big foot saw me, but nobody believes him.
Mark Kohler: So for those of you that are listening to the podcast or not watching the YouTube version, this is a shirt with Bigfoot. You know. You know what it looks like we all do. And then some words over the top that says Bigfoot saw me coming, but nobody believes him. I think there’s a little, you know, passive aggressive statement in that.
Mat Sorensen: But I guess. Yeah, what what are you saying there? I don’t know what that says.
Mark Kohler: It says that bigfoot’s real. That’s what it’s really saying.
Mat Sorensen: Ok, yeah. Yeah.
Mark Kohler: So none of this I mean, nobody believes me. I saw Bigfoot, you know, so we’re just turning it on its side, you know, maybe because
Mat Sorensen: I don’t know if that’s like a privacy person. You know, it’s like I’m off the grid. That’s like no one can find me or no one saw me, you know, but Bigfoot that I don’t know maybe what’s
Mark Kohler: Now maybe a deeper legal issue. Well, I grew up in the Northwest. So for any of you that, you know, grew up on in the Sierra Nevada as the Rocky Mountains there, the Blue Mountains, all the Cascades, you know, that’s Bigfoot country. So, OK, yeah. I just want to throw that out. You know, there’s been if you watch the Bigfoot show, which I’m sure most of you do, finding Bigfoot, you know, he’s been seen in Wisconsin. It’s he’s been everywhere.
Mat Sorensen: So they need to make a version for kids like Finding Nemo, you know, Finding Bigfoot.
Mark Kohler: Yeah, but that’s that’s fake. That’s not real. OK, yeah.
Mat Sorensen: Our fish didn’t really do that the fish can’t talk. No. Oh. Oh yeah.
Mark Kohler: Yeah, yeah. Bigfoot’s real. So, you know, if we don’t need to make it any more than or to get so. All right. Hey everybody, we’re going to just dive into your questions. Mat Sorensen start off with a little base hit something. Do you have an easy question? A couple. Let’s just get our juices flowing here. Let’s get warmed up.
Mat Sorensen: I like this one. This is from Karen, who asked can Self-directed IRA be set up in a family, trust. All right. Now, a Self-directed IRA and all IRAs are individual accounts. An individual owns an IRA. So when you say can it be set up in a family trust, I don’t know what that means. But just think for you, Karen, you can have a Self-directed IRA. You can have a Roth IRA, a traditional IRA a SEP IRA those are individually based. Now, a lot of people get confused because they’re like, hey, I want to set up an IRA there and I’ve got money in my wife’s IRA and my IRA and we’re going to move them into one IRA with you. You can’t do that. IRAs are individually based on what you can have. Karen, though.
Mark Kohler: Ok, well, I was going to be the good guy and give her some good news.
Mat Sorensen: Oh, you want to give her the good news? Is that OK with that from you? I’ll leave that for you. OK?
Mark Kohler: All right. So we play good cop, bad cop as much as possible and we try to make me the good cop of many of you don’t know. This is how our staff meetings go to.
Mat Sorensen: Sometimes we get confused and one of us goes in is bad cop. The other one goes in is bad cop and our employees are like ok you guys are both bad cops.
Mark Kohler: Yeah, you know, we need a proper mom and dad relationship with even our employees. So, you know, on days we’re firing people. I just don’t show up. Yeah. And then the days we’re hiring, I’m their full first baskets goodies. Yeah.
Mat Sorensen: Raises you know, company party.
Mark Kohler: That’s how you work it. OK, so Karen, here’s some good news. And everybody, you should take note of this. As Mat said, IRA accounts are individual retirement accounts, Roth or traditional. However, the case may be your kids could have their own IRA, you can have your own IRA. The trust has nothing to do with it in regards to the setup, funding and ownership. But the trust and this is very important. Is the key beneficiary. Now, if you’re married, you might have your spouse is the primary beneficiary and then the trust is back up. But for many of us, it’s just easier to go a trust is a beneficiary. And in all of our trust that we designed, there’s a provision called a see through provision. A lot of people hear us say, oh, you would never put a trust is as a beneficiary of retirement account, you’ll screw up the tax issues. No, no, no, no, no. Congress dealt with this about five years ago and said, no, no, no. If you have to see through provision in the trust language that a person can step in if the spouse is the primary beneficiary through the trust and make the elections to do the best tax thing. But if I’ve got a five hundred thousand dollar IRA, I may not want my nine year old to inherit it as the contingent beneficiary. I want it to go to the trust and to the heck with tax planning. I don’t want this nine year old to get all that money when they turn 18 and be partying with Lindsay Lohan out there, you know, with my IRA, which they will do. And I love Lindsay. Lindsay’s out of our life, so I’m just using that as an example. She’s been through that. And that’s
Mat Sorensen: Maybe do Paris Hilton instead, if she’s even around. I haven’t heard what’s up with Paris.
Mark Kohler: Fun, I heard what’s up with Paris. She grew up. She just went off the radar. Yeah. She’s getting ready to take over Hilton. You know, she knows which.
Mat Sorensen: Ok, great. OK, I’ll be staying at Marriotts I guess, just kidding. Well, here’s one tip, though. Here’s one thing about the trust as beneficiary. We usually like the spouse and Mark mentioned this for any of you who are married, list your spouse first because it’s easy to do a spousal rollover when you pass away, which means if you list your spouse as beneficiary, they’re going to get the trust upon your passing. Now, there’s also some practical things with working with your IRA custodian, whether that’s us or anyone else. If you list the trust as your primary beneficiary, you have to provide a copy of the entire trust. Many people like I don’t want to give you my whole trust. Is that any of your your business? Unfortunately, yes. We have to actually have that document like our regulators. If someone listed trust is the primary beneficiary. I mean, like, where’s the copy of the trust? Because we have to be able to identify when that person dies. You if this is your account, who the beneficiary is. You can’t just have the certificate of trust, which a lot of times you can get away with at other places. But for your retirement account, that trust document needs to be prepared. Now, if you list your spouse first primary and trust is contingent, we’re going to want that trust later. But if it’s the primary just be prepared, you’ll need to give a copy of your trust to your retirement plan custodian.
Mark Kohler: I like it and gosh I just love this topic. And by the way, I’m going to open my obligatory rock star recovery, and I’m holding it here in front of the camera to make sure my sponsors, Rockstar, know that they’re dealing with a rock star tax attorney who
Mat Sorensen: They’re like at rock stars. Like, we don’t know what the heck that is a Rockstar tax attorney.
Mark Kohler: I’m redefining it. Redefining it. You want to know? Look at this right here.
Mat Sorensen: Come find out.
Mark Kohler: Of course, I have terrible eyesight. If you’re watching on YouTube, I just reach for my glasses and I put them on them. I like I can’t see any better. I put on my sunglasses, but I grab the right glasses before I read the next question. But on this on this beneficiary thing, a lot of people say, well, what if I haven’t set up my trust yet and I’m opening up my IRA in the middle of the night or I don’t know my trust name. That’s OK. Set up your accounts buy your home open LLCs open S-Corps. You can always integrate the trust later. Now, that’s not the best thing to do. It’s more ideal to if you’re in the process of doing that.
Mat Sorensen: Let’s be honest it’s what most people actually do. Yes.
Mark Kohler: Which we recommend they don’t. So but right now, in many of you probably know if you’ve been listening in the last week or two, this is our month out of the year where we do a little special on estate plans and trusts. And so if you’ve never done your trust, yeah, this is in the law firm, at KKOS lawyers. So it’s a it’s a great deal. It’s a trust document. And all the pieces and parts we’ve really crafted over twenty years, it’s fantastic. We can help client in any state, but you can always then what you do is go back to your self-directed IRA custodian, or maybe you have just a regular IRA or a 401k at work once your trust is in effect and you sign it. Then you go back and do a COB change of beneficiary form, simple download on one of those websites, no
Mat Sorensen: Yup.
Mark Kohler: So you can always have the trust later. So no stress, but let’s get the trust done. If you haven’t done it, give us a call.
Mat Sorensen: All right. And one thing we’ll say on this, I just want to this is helpful. I don’t mean to be too technical. I think this is helpful when you’re going to the process all retirement accounts, when you designate someone that’s not if you’re married, if you designate someone who’s not your spouse. That spouse has to sign a waiver and say, I agree that I’m not the primary beneficiary on this account when my spouse passes away. Now, if the trust that’s why we need a whole frickin copy of it. The trust says your spouse is the beneficiary or that you could bypass this. But this is, again, why a lot of people list spouse first as primary, if they have one or just or and then trust second, if you don’t have a spouse, then you can just throw the trust down, send us a copy.
Mark Kohler: Yeah. Oh, man. We could get into some interesting conversations here. I’ll just say one. Retirement accounts, by definition, are marital property. So if you’re married, even if you’re in a community property state, unless you have a postnup or a prenup in in effect, funding a retirement account in the event of a divorce is going to go 50/50 with your spouse or at least hypothetically, unless you allocate other assets to make up for that. And upon death, your spouse is going to have a claim under probate law. If you had no no plans at all, they’re going to at least get 50 percent of it typically as well. So what some people say is, well, what about life insurance? Well term life insurance is not considered marital property. So if you want to benefit someone, you can go out and buy life insurance policy and make them the beneficiary all day long. No one has a claim against that. Life insurance company just pays out whose names on it. And practically too think of Mat and I have a life insurance policy on Mat. He has one on me. Are we married? Look, we’re business partners and so we want life insurance policies on each other so that if something happened to us, we could buy out the bulk of their ownership and give the money to their surviving family members. And we’ve got a buy sell agreement with other things. But but that’s OK. So life insurance is different, which is kind of interesting, right?
Mat Sorensen: Yeah. Yeah. Well, a nice little tidbit there. Yeah.
Mark Kohler: Ok, I know you do it. I’m rambling. So you do it.
Mat Sorensen: Ok, George, ask this is can an IRA borrow money from a disqualified person. OK, so
Mark Kohler: Tell us who disqualified are.
Mat Sorensen: Yeah. Disqualified person. These are people your IRA can’t transact with. Buy, sell, borrow, you know rent. Basically any money going between your IRA and this group of people called disqualified people is a no no. So disqualified person includes yourself. You’re disqualified, your own IRA, your spouse. For those in Utah, all of your spouses, your kids. I was just
Mark Kohler: Taking some jabs today. All right.
Mat Sorensen: I mean, there’s not so many jokes you get to make when talking about this qualified person. So I got to take my shots when I get them. Yeah, it’s your parents. Your parents are disqualified. So now when you go. So just think of your you know, your lineal family line, you know, but if you go horizontal here, you go to your your siblings, your aunts and uncles and cousins, they’re not disqualified. So for George, your question, let’s say you’re like, well, I want my spouse to loan money to my IRA. That’s that they’re disqualified person that would be prohibited. Also, your IRA couldn’t make a loan to your your mom, let’s say get your mother as your parent disqualified person. So no matter what way it’s going, you know, disqualified person sending money to the IRA, IRA sending money disqualified person, it’s prohibited either way.
Mark Kohler: That’s called a two way street. That’s which if you want if you want to use that, feel free to. And your royalties to fifteen South Main Street.
Mat Sorensen: I like that. That was a good one. Thank you. Two way street.
Mark Kohler: Ok, now I will throw this out and I’m going to let Mat finish with the punch line because he, he’s an artist. He really is. He’s a comical genius.
Mat Sorensen: Great.
Mark Kohler: But I’m setting you up here and this is a setup. This is what they do in Arrested Development. They’re setting it up for pay off. You’re going to get the payoff here in a minute. I remember when Mat’s daughter, Brooke, was dating a young man and was contemplating starting a business. And he went to good old future father in law and said, hey, I listen to your show, can I borrow from your IRA? OK, Mat tell us what what your options were in that situation.
Mat Sorensen: Yeah. So, you know, if he’s still in boyfriend status, I can loan him money. Right. But if he marries my daughter, he becomes a spouse of a child, spouse of a child under the rules is a disqualified person. So what you want to do is you want to loan a little bit of money to your kids, you know, boyfriend or girlfriend, if you don’t like them, maybe just throw out a thousand bucks and then when they ask you to marry him, you’re going to say you can’t do it because my IRA loaned you money and you’re going to become a disqualified person. If you marry my child without cause a prohibitive transaction. The IRS isn’t OK with this.
Mark Kohler: The answer is no. Pack your stuff and get out.
Mat Sorensen: As boyfriend or girlfriend. It’s OK. And I even run into this with clients who are doing business or investments with a boyfriend or girlfriend and they have a pending loan or investment between the two of them, one’s IRA and the other person or other person’s company. And now we want to get married. Is there a problem possibly that existing investment?
Mark Kohler: Yeah. Now I love Mat’s joke. I thought that was fun. You know,
Mat Sorensen: It didn’t
Mark Kohler: Know it was good. It was good. I feel like it was ok. OK, I got a chuckle right down inside but I do want to ask, I thought it was more grandfathered in in a situation. Let’s say you did loans future son in law $20k and he married your daughter. As long as the terms are not modified after the marriage and he sticks to it, you’re probably OK
Mat Sorensen: With you, right. I definitely agree.
Mark Kohler: But if you give us any slack.
Mat Sorensen: Yeah. Bozo son in law now know let’s say you needed money to fund a rehab no properties he’s flipping and you know, he for whatever reason he can’t pay me back. And now I need to cut him a deal because he’s my son in law and all this now I’m running into prohibitive transaction issues. Yeah. So because now he is disqualified and we’re cutting a deal, it’s going to change the terms. So that’s that’s what we’re concerned about. But if the deal goes out, as you had already planned, we think you’d be OK. There’s no cases on that. But it would make the most sense, you know,
Mark Kohler: Ok, I’m going to now I’m going back into our archives of our questions here on the website. And let me reiterate that if you go to DirectedIRA.com/podcast or just go to DirectedIRA.com, you’ll see the link to the podcast on that page. You can submit a question. If we don’t get it to it on one open forum, we’re going to we’re going to get to it as soon as we can. So that’s why we hope you continue to listen to the show. And I usually reply and go, hey, we hit it, you know, we got it. So I don’t show that we answered Gary’s question Mat regarding crypto and could we go? Could I pose that one? Yeah. Now, Gary kind of throws in the kitchen sink. I’m already spotting about three question marks. So I don’t know if he’s trying to get greedy here with three or four questions in one, but we’ll see how it goes. OK, so Gary says with an IRA LLC configuration. All right. Now, for those to be new to the show, an IRA LLC configuration, what Gary is talking about is your IRA may open an LLC and you could be the manager of that LLC and run the operations without major sweat equity and without compensation. Just manage the affairs of that LLC. That’s OK. That’s a single member IRA LLC. You also may create an LLC with five or six IRA partners who could be disqualified generally. But when you form a new LLC, there’s an exemption for that where you can say, Hey, my mom, my dad, my kids, my spouse, we’re going to form an LLC, we’re all going to throw our money into this bucket and for this multimember LLC and go do business, that’s OK. I can’t go transact with them directly or compensate them in the LLC, but we can pool our money. So we’ve got other shows on IRA LLCs. Please go back and listen to them. So to set the stage Mat. I hope that’s ok. OK, yeah. I’m telling a story here. Got to tell a story. OK, ok. With an IRA LLC configuration comma. How does buying crypto from a private party work. I’m guessing the LLC owned by the IRA or IRAs would write a check to the individual and the LLC would then own the crypto keys, thus owning the asset. That’s correct. That’s just like buying a piece of real estate, buying a note, buying a business, buying hay, buying cows, whatever your LLC buys.
Mat Sorensen: Theory, we say in theory that works, but nobody does it like that. Even private party. No one writes a check to buy Crypto.
Mark Kohler: Those things don’t coexist.
Mat Sorensen: Yeah, I mean, while possible. It’s not usually going to do that via a digital wallet. So your LLC is going to have a wallet and it’s going to exchange the money for crypto with another party. So you could do it via check, but then they’re going to typically send the crypto wallet to wallet. So, I mean, while there is like private keys, you could have like a piece of paper or something. That’s not how it’s done. And that’s not so you you’d want to move it to a digital wallet with that, whether that’s offline, you know, and it’s or whether it’s a hot wallet or whatever it may be that you didn’t go buy digital wallet. Think of like and for people new to crypto, just think of like your Apple Pay or Venmo or something, you know, it’s a digital way to send it back and forth.
Mark Kohler: Well, Mat uncannily jumped into the answer to his follow up, or the main question was how would the reporting go for this transaction, both on the L.L.C. side and the seller? Will forms, if any, would need to be brought into the transaction? Well, as Mat said, when you’re trading crypto now, we could talk about real estate and title companies no matter what asset we throw in the mix. There’s a process in this example. Gary wanted to talk about crypto, but for any of you out there with an IRA/LLC, you want to confirm what the process is. That’s why using the law firm to set up your IRA LLC, you get an hour with our team and the attorney is going to help direct you on how to manage your LLC and do your transaction. So that comes with every LLC. Now, the reporting, Gary, I have a feeling you’re talking about the tax issues, see for Mat. He was saying, hey, there’s a wallet, you’re going to just go from their wallet to your wallet. Your LLC may own the wallet. You might be doing this through Gemini or some sort of we’ve got several crypto exchanges, primarily Gemini, that we have a relationship with a directed IRA. So you can be up and going within 24 hours. You don’t have to.
Mat Sorensen: Yeah, not with an IRA LLC though, but yes. And you’re buying from Gemini exchange with those. If you want to go peer to peer, you’re going to need an LLC with the wallet. You know what I’ll say with those. If you want to get a wallet linked to an IRA LLC and you want to use a large provider like Coinbase, Gemini, Kracken, you’re in about three to six month hold time right now. They are not prioritizing those. They are too small of accounts. They’re processing those manually. If you’re a hedge fund and you’re going to one hundred million plus, they’ll get you through in thirty days maybe. But everyone eles there, like we’re so frickin busy this last year, get in line. So that’s the whole reason we did Gemini and got institutional relationship. We get people up and running to buy and sell crypto that way. Now, there are some other places I just want to note on this that we’ve had clients use that we don’t recommend necessarily. I don’t know them enough to say that we chose Gemini because there are license trust company with a ton of insurance and audits and everything. But Bitrix is one that we’ve had a number of clients use successfully. They’re pretty well known the crypto space to do an LLC wallet. And so that’s probably the one I’ve seen clients use the most trust wallet, which is a part of Binance we’ve seen clients use too with their LLCs. So just a couple ideas of where to go to for for a wallet, for an LLC. They’re kind of tricky. That’s again, that’s a reason we did the Gemini and we do the crypto raised here directly. But it’s possible. It’s possible. Just takes a little more persistence. And you’re not going to go to the Bitcoin based Kracken or Gemini providers unless, you know, someone there have a huge account they’re just going to take forever.
Mark Kohler: Are you done? Yeah, OK,
Mat Sorensen: I’m probably giving that speech right now, like every other hour to a client with an IRA/LLC agreement. Coinbase, I’m waiting it Kracken like they see crypto dip and they’re like, I want to buy, I want to buy, I want to buy them. Like, I’m sorry, I can’t help you. Like I don’t have someone over at Coinbase to be like, talk to this person. They’ll get you going.
Mark Kohler: Ok, all right. Whatever. I just was in the middle of my answer and you kind of cannibalized it, hijacked it, whatever. OK, now.
Mat Sorensen: Well, you know what? What am I good for? I mean,
Mark Kohler: It’s the back and forth. That’s what we’re trying to do. OK, now, as I said, the three letter word tax. I think what Gary is referencing here and this is good for everybody. You said my question is, how would the reporting go for this transaction both on the L.L.C. side and the seller? So so Gary actually zooms in on the issue that there’s been a transaction. Is that taxable? What do we do? How do we report it and maybe this the methodology and the procedure Mat just wonderfully addressed. But now we’ve got to think about the IRS. What are they asking about? Well, let’s take the low hanging fruit, meaning let’s do the easy answer first. If Gary is buying, if any of you are buying cryptocurrency inside of an IRA of any type they’re is no reporting, you don’t pay tax. That’s why we’re out there advocating this. If you want to go put down a thousand bucks on Bitcoin and wait till it goes to a million, do it, but do it in your Roth, you know, and we’re not advocating cryptocurrency anyway. Some people think it’s a scam. Some people think it’s the next best thing to sliced bread or whatever. We’re just saying if you’re going to pay some taxes, do it in an IRA because there is no reporting. Easy, smeasy. Now, if you have an IRA LLC that’s multimember, you might have to do a tax return, but the IRA itself is not going to pay taxes. OK, now what about the seller? Now, in an exchange scenario, it’s kind of like me going out and buying Lululemon stock. I don’t know who sold it to me. I just went online at Scottrade or Ameritrade or Merrill Lynch and bought 100 shares of Lululemon. I don’t know who sold it to me. It’s on them to report the gain. If they had a gain for all I know, they could have had a loss. So I go out and buy one hundred shares of Lululemon if I’m doing it in my IRA. Doesn’t matter, just like crypto it just drops into my IRA. Now, if you’re out there, people selling crypto or trading crypto, not in an IRA, you now we have a big concern because believe it or not, Mat you tell them this was on the tax return. This is a big deal. Yeah, yeah.
Mat Sorensen: That’s like page one of the tax return. Like right before you enter in your W-2, it’s like, did you buy digital assets or currency in the tax year? Not did you even sell them. Yeah. Did you buy.
Mark Kohler: No, I think it’s much more broad than that. Let me I’m just going to pull it up, I think. Did you transact
Mat Sorensen: I think it was yeah I mean, they are asking if you bought or sold. Maybe, but but even one thing that people were confused about, as we all know, and Dan notes this in the comment here to Gary question on the site is, oh, you got it.
Mark Kohler: I got it. It says at any time during 2020, did you receive, sell, send, exchange or otherwise acquire any financial interest in virtual currency, yes or no. Under penalty of perjury. Yeah. Yes or no. Now what’s cool here, look at the key word for me. This is seven words in at any time during 2020 did you. That’s a key word. Is your IRA you? No, so people do not check yes, this is what’s happening Mat people go out there and go, Yeah, I bought some I bought some Bitcoin or Dogecoin in my IRA. They go to do their taxes and their accountant goes, hey, did you buy, sell or exchange any virtual currency? Yeah. And they check the box. Yes. Now the IRS is going to have more questions. Hey, Bozo.
Mat Sorensen: They’re going to be waiting for you next year or two and be like, hey, you bought this. Did you sell it? Yeah. And you’re like,
Mark Kohler: Well, when it comes down to it, I didn’t buy it. My IRA did. Then don’t check the box yes. Isn’t that deep? This is deep. This is life changing.
Mat Sorensen: We yeah. Mark and I, we did a webinar with entrepreneur on crypto tax rules and what you need to report how the taxes work personally, we talked about IRAs as a kind of a secret weapon at the end, but we went through all the rules and I got an article on entrepreneur.com, on tax rules for buying, selling, exchanging bitcoin and crypto. So. All right. Well, I got another question. We got deep on crypto there.
Mark Kohler: Sorry, but that was good.
Mat Sorensen: Ok, now lots of questions. This is a new and developing one. A lot of our real estate clients, it’s like, guys, I know the rules now. I’ve been doing this for a long time and cryptos new for everybody. There’s a lot more questions on it. OK, I’ve had this question come up quite a bit. We did a whole podcast episode on Solok and Contribution Deadlines and Rules. We’ve got a lot of content on that. We still have a lot of people doing SEP IRAs. And what are the deadlines, the contribution deadlines for SEP IRAs? Now, IRAs in general have an April 15th deadline. This last year was May 17th, but in general it’s an April 15th deadline if you wanted to make a prior year contribution. So a 2020 contribution would generally need to be made by April 15th 2021 this year only moved to May 17th because of the pandemic. Now, SEP IRAs are a little different. For a SEP IRA, you got to determine, well, what am I, I’m a business, a business who’s contributing to the SEP IRA it’s different than an IRA Roth or traditional. So what type of business are you? Are you an S-Corp or a partnership? Your business tax return deadline is what sets your SEP IRA contribution deadline. So if I’m an S-Corp, my business tax return deadline is March 15th. Now I can extend it six months up to September 15th, which means I can contribute to my SEP IRA if I’m an S-CORP and I extended way up until September 15th. If I’m a sole proprietor like independent contractor, single member, LLC, whatever, and I just file my business return on Schedule C of my personal 1040. That tax return deadline is April 15th, which for this last year again 2020 only was May 17th. But you’re going to extend up until October 15th every year. So the SEP IRA contribution deadline is October 15th for those of you that are sole proprietor’s. So just note that for you SEP IRA owners, you’re not cut out. If you missed May 17th this past year, again, usually April 15th, you also have the six month extension deadline. If you did file an extension to get that SEP IRA contribution and we’ve been seeing I’m still coming in here, it’s just a good strategy to note just to get more money in.
Mark Kohler: Now, Mat, I know we’re running a little shorter show than usual. Can I answer one more question and then we’ll wrap it up. This is a little shout out again to our real estate investors. Now, just stepping back for a moment, everybody, we really encourage diversifying your portfolio and including real estate in it personally and potentially into retirement accounts. Why not if you’re getting a great return on real estate, but then you go to the stock market with your 401K or IRA and you’re like, wow, this is what it is. There’s no other option. Oh, no. So you can buy the same types of real estate deals you’re buying in your personal name and get that same awesome return in your retirement accounts if you so choose. So for years that’s been really some people get sick of our show in the past because all we did was talk about real estate. Now I’m kind of nice to have a crypto and gold and silver and small business cows. We’ve got a little of everything going on now, which is it’s nice well here’s the, I’m going to answer this briefly because this could be a thirty minute conversation. We had a question come through the firm this week where we did a training with all of our attorneys. So I’m not going to read it from the website hear, but I’m just going to pose it for everybody else. Can I do a 1031 exchange inside my IRA or inside my IRA LLC? Do I need to do a 1031 exchange? Would that make sense? So yeah, we think it’s 1031 exchanges in our personal lives. I’m going to sell a property and buy a new one of equal or greater value. I’m going to sell three and buy a new one of equal or greater value than the three combined. I’m going to sell one and buy four. Anyway, we could talk about 1031s. We’ve got shows dedicated to 1031s on the Main Street Business podcast, so go over there and watch it. You’ll see it on the podcast history. 1031 exchanges. But the answer is can an IRA do 1031 exchange. Yes. Now, I’m going to let everybody think for a minute, why would I ever. On this earth, this little God’s green earth wants to do a 1031 exchange in an IRA when I don’t pay taxes. And it’s a four letter word. And it’s not FICA, and I don’t know what other F word you’re thinking of, but it’s not FICA. It starts with what is it, Mat? It starts with U.
Mat Sorensen: There’s an accident there. Yeah. UDFI unrelated debt financed income, which is for those that have used debt to purchase a property real estate. And you can do
Mark Kohler: What you could do that in your IRA.
Mat Sorensen: A nonrecourse loan, you don’t guarantee it, but you can use the IRA money as a down payment, get a mortgage for the balance. There’s a bunch of lenders on DirectedIRA.com and banks that do those loans for IRAs buying real estate. But that can cause a tax called UDFI that, like Mark said, the good news. You can 1031 it and there is no UDFI tax, you do a 1031, you buy another property, same rule of equal or greater value, and then that gain gets rolled into the next property.
Mark Kohler: And with here’s the payout, people. This is the cool part. There’s no UDFI if you sell a property in your IRA and there’s been no debt on it for at least 12 months preceding the date of sale. So if you do a 1031 exchange, that new property in your IRA, you’ll hold it another five, seven, 10 years, whatever, and pay off the mortgage. Sell it tax free inside your retirement account, no, UDFI and the 1031 exchange deferral disappears. So the deferral that most Americans have to deal with until the day they die, it disappears in the IRA, if you ultimately pay off that mortgage against the property. So exciting.
Mat Sorensen: So that’s pretty freaking cool. I love that one. I’ve had some clients do some 1031 exchanges with their IRAs that are involved. And it’s the same 1031 rules that those real estate investors are familiar with it apply. But here again, we’re deferring that the gain because of UDFI, if you’ve bought a property with cash, with your IRA or even the soloks that don’t have UDFI on on on leverage real estate, don’t worry about it. You don’t even worry about the 1031. But those IRAs that did leverage in your selling with a bunch of debt still. If you’re planning to buy another property, consider the 1031. I love it. That’s a good one to bring up. That’s a great one to close. Thank you.
Mark Kohler: Well, I’m going to take us out of the show and was closer. That was our closer but for those on YouTube. Some of you may want to get over to YouTube and check this out. I’m going to put on my new sunglasses now. These are persols now. Why I like these. These are pretty cool. Mat, right?
Mat Sorensen: Well, those are cool you look like Ice Man. Oh.
Mark Kohler: Ok, I’ll take iceman. That’s for those who don’t aren’t in the know you ladies will know. All the all the ladies know who iceman is. I mean this is when well this Top Gun 19. Whatever Val Kilmer, this is the best Val Kilmer ever looked in his life was playing volleyball and top gun. But you know what these are? These are the glasses worn by Brad Pitt in Ocean’s Eleven and also Daniel Craig in 007 Skyfall. Oh. So if you’d Google it and go, what are those glasses they’re wearing? They’re called Persol’, P E R S O L. Well, now they’re not terribly expensive. You can even get them at Sunglass Hut. Boy, I sound like an infomercial here, but I’m just I’m just saying I’ve got some cat calls. It’s been a little awkward because I walk down the street and I get, you know, I’m like, yeah, I object.
Mat Sorensen: Legally Blonde.
Mark Kohler: Yeah. There was a three four. I pulled an Ocean’s Eleven, Skyfall and Legally Blonde right there.
Mat Sorensen: Yeah, I. Wow. And you guys thought you came here for some IRA and tax advice and look what you got.
Mark Kohler: Yeah, it’s Memorial Day weekend. You’re going to sit down, watch some movies. I will recommend the documentary Harry and the Hendersons. Go search that. Harry and the Hendersons. Some may call it a docu drama, but is the true story of Bigfoot. You’re going to love it. And everybody, thanks for listening. We’re going to be here next week with an incredible show on building your wealth tax free inside your retirement accounts so you can.