EP 32 – Open Forum – Answering Your Self-Directing Questions
Join Mat and Mark 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.
yMat Sorensen: Welcome, everyone, to the directed IRA podcast with Mark Kohler and Mat Sorensen, this is Mat Sorensen. I’m the the sultry, you know, sexy voice on the podcast. Mark is the
Mark Kohler: I was going to go with boring monotone voice, but sultry, I fine.
Mat Sorensen: Yeah. This is like I don’t agree with what you guys are saying on this podcast. We’re just getting started. Well, this this podcast is dedicated to Self-directing IRAs.
Mark Kohler: This is your source, people this is your source. You know, other podcast has more credential, education and information behind it, behind the scenes. Now, there’s some other good podcasts out there. I’m not trying to start a fight with anyone, but you want to answer you can rely on take it to the bank. I stepped in some to do there tonight. I got to be careful
Mat Sorensen: If I’m not trying to start a fight or anything. Yeah.
Mark Kohler: Suns in 4.
Mat Sorensen: Ok. Yeah. Suns in 4 which by the way they’re going to that they’re going to the finals. Yeah. The Phoenix Suns. I mean as many of you, I mean I live in Phoenix, I’m just, I live in Phoenix and let me just say I’ve been to a lot of Suns games where they lose. In fact I, I mean I might say a lot. I mean maybe like ten. I’ve been like maybe ten suns games. I think they’ve won once. So it’s it’s it’s been a hard time being a Suns fan. Finally, you know, I feel like like the Rodney Dangerfield of the NBA, but hopefully will get some respect now.
Mark Kohler: There we go. Well, everybody, one other side note. We try to keep this light and today’s our open forum. We’re going to go through a lot of questions that you have posed, presented, inputted, put before us on the DirectedIRA.com/podcast page. That’s where you want to submit your questions for future open forums. We do it every three weeks. So today it’s all about you. We’re going to do our best to answer these questions without selling you to a boot camp for ten thousand dollars in Vegas at a penthouse suite. That’s not our style. So we’re going to just give you the unadulterated answers that sound ok Mat? I just there’s no up sell.
Mat Sorensen: Yeah, right. Yeah, yeah. I mean, we’re just this one hundred percent education. You do what you like.
Mark Kohler: No walking on fire, just keeping it real. But we do try to provide a little satire and Mat. I’ve got a good one for you. This is new. OK, I experienced something. I’ve, there’s all these first going on in my life now that I’m getting a little older and it was a rude awakening. I was in the kitchen. We’re just cooking dinner. And since we’re talking about IRAs, which essentially are retirement plans, and essentially there could be death involved at some point, we’ve got to talk about where your IRA is going to go. And so I think this is an appropriate comment for this show. But we’re there in the kitchen making dinner. And my daughter says, hey, dad, when you die, can I have X? You know, it was like talking about, frankly, one of my cars. And I’m like, OK, it’s finally happened. My kids are planning my death. They’re starting to ask for things. If your kids ask for anything when you die yet.
Mat Sorensen: And how has it. Not yet. Not yet. Yeah. Dang yeah. That hurt. I would kind of take me back a little bit. On the other hand you could say we have got some nice stuff that my kids want.
Mark Kohler: Look at you have but half glass full comment. There you go. Yeah well at least someone wants some of my crap, you know, like I was like, oh so you so because we have to think back and go, OK, what was going through their head before they said this? Obviously Dad is old. He could die at any moment and I better put in for my stuff.
Mat Sorensen: Yeah.
Mark Kohler: And it took me back so.
Mat Sorensen: Wow. Wow. I love that.
Mark Kohler: Ok. So what did I do. I immediately cut them out entirely out of my will. I said, you know, just for that comment you get jack diddly squat. And they were like, wow, what’s diddly squat actually mean. Can I still have the car. I go, No. Yeah, you’re out.
Mat Sorensen: I’m getting diddly squat too. Cool.
Mark Kohler: Is that appreciated?
Mat Sorensen: Yeah. This is a new crypto token. What is this. Yeah.
Mark Kohler: Yeah, yeah. Is that a coin. Because if I’m getting the diddly squat coin I want it so. All right. OK, so Mat why don’t you throw out our first question of the day. Oh no more satire from poor old Mark Kohler the old guy.
Mat Sorensen: All right. OK, this is from George. He says, hey, you guys totally rock. Thanks, George. One way to make sure your question gets answered is just serve up a compliment
Mark Kohler: Did he say Mark totally rocks or guys where you just
Mat Sorensen: Find yourself. I was for both of us. Don’t, don’t, don’t hog. All the compliments of
Mark Kohler: The sultry voice gets a little shout out. So go ahead.
Mat Sorensen: My dad he says my dad on some commercial real estate holdings membership interest in several single purpose, Multimember LLC.
Mark Kohler: Your dad does. You’ve never told me that.
Mat Sorensen: This is George’s question.
Mark Kohler: Oh, OK. I just thought you were just talking something personal with me there for a moment, OK? Right. OK, go ahead.
Mat Sorensen: All right. My dad does have some duplexes though. The bottom line is like 18. I got to get in this game one the back to that.
Mark Kohler: George is.
Mat Sorensen: My dad some commercial real estate holdings says my wife is a full-time real estate broker who does business in a single-member LLC taxed as an escort. OK, can she set up a Self-directed Solok and purchase some of my dad’s membership, interest or marketability of minority discounts available? Any other rules or valuation? OK, well, he was
Mark Kohler: Pretty hopeful at the end there. He was expecting a yes answer, wasn’t he?
Mat Sorensen: This is an interesting one. This is tricky. You’ve got to get into the you got to get into the weeds with a question like this, because on first glance, you might say, is George crazy? And maybe he is maybe not. Maybe not. OK, all right.
Mark Kohler: That’s giving George some hope.
Mat Sorensen: Ok, some hope for you, George. All right.
Mark Kohler: I’ll back clean up on this one since you’ve already offended George. OK.
Mat Sorensen: All right. OK. All right. So first thing, let’s get the some questions here. Yes. Your wife, real estate broker, can set up a Solok. That’s an awesome retirement account. You. Fifty eight thousand in a year. You can self-direct it we do them here at directed IRA. Law firm KKOS Lawyers sets them up all day long and basically it’s a 401K for someone self-employed and they’re just themselves. Or maybe they’ve got a spouse or partner, but there’s no other employees other than the business owner. So that works great for someone, typically a real estate broker. All right. You have your own 401k. Cool. Now, the question is, can he buy this membership interest that the father in law has? Can she can can she can her retirement account better, more accurate? Can her retirement account buy LLC interest of her father in law? Now, to answer this, you have to know who is a disqualified person and who’s not to your retirement account. And so there’s there’s rules that say your IRA can’t transact with this category of people. Disqualified persons is what they’re called in the tax code. And that includes you. That would include George husband here. He’s disqualified. But does it include George’s parents? No, it actually doesn’t. What the father in law and mother in law are not disqualified to your retirement account. When you go into the rules on who’s disqualified, it is when you go up the family line, it only says ancestors. Your ancestors, the account owners, ancestors, your parents, grandparents, etc. It does not pick up your spouse’s ancestors.
Mark Kohler: Hold it, hold it, now this flies in the face of Mat Sorensen classic joke of your daughter, Brooke. Yeah. What’s his name? Yeah. And you said you can’t marry my daughter because. Right. You just. That’s a father in law.
Mat Sorensen: I know. And that’s still valid and still a good joke. So because see, the code says when you go up the family line, you only count the account owner’s ancestors, parents, grandparents, great grandparents. It says nothing about the spouse’s ancestors, which would be your mother in law and father in law. Right. So but when it says when you go down your family line, you’re thinking of you again as an account owner. It says your children and grandchildren are disqualified persons. And the code says on also spouses of your children, grandchildren, it picks up spouses when you go down, but it doesn’t go on the way up. It’s different.
Mark Kohler: Wow. You know what, Mat? This is some of you are going to be very OK. You can take this to different ways. On one hand, you can say Mark Kohler didn’t know this answer and be very disappointed. On the other hand, some of you may go, you know what, this is good. Mark and Mat are. You know, they’re on the cutting edge, looking at the, you know, in the weeds and even they’re still finding loopholes. And that’s OK. Marks, you know, whatever. And third, some of you may go. This proves it. Mat Sorensen’s smarter. Now, I would go down path number three there. I think that’s a little too much.
Mat Sorensen: But at least on that on that area, you know, it’s true. But here’s how this came out.
Mark Kohler: Ok, I’m going to say this in layman’s terms for everybody then, because I think it could be confusing. All right. Now I’m going to use Mats joke here, if I may. Would you allow me to use your example before which has been on this podcast before?
Mat Sorensen: Yes. Yes. I’ll give you express written verbal consent here.
Mark Kohler: Ok, so Mat Sorensen. Has a daughter named Brooke now going off to New York and investment banking so talented, so smart, so beautiful, at one point she had a boyfriend and the boyfriend came to dad or sorry, came to her girlfriend’s dad. So this guy went to Mat, Brooke’s dad, and they were not engaged or married yet and said, hey, Mat, would you invest in my business with your IRA? Now, Mat said, sorry, but I can’t do it because if you marry Brooke, you’re disqualified party, because going down the line, his daughter and her husband would be disqualified. But in this example, if that same bow or courter or suitor we call him a suitor, if this same guy came to Mat and said, hey, Mat, could my IRA buy in your business, you’d say, sure, I’m not disqualified from you. You’re just disqualified from me. Yeah, I get that right.
Mat Sorensen: Yep, exactly, yeah. So here’s how this came up. This this. I had a client and I had seen this before and thought about in the code. And I just was I and this is kind of quirky. Why does it say pick up spouses of your lineal descendants, which is your kids, grandkids? You have to pick up your son in law, daughter in law. But when it says ancestors, it doesn’t say. And your spouse’s ancestors, too. It just says the account owner’s ancestors. That’s not going to pick up my mother in law and father law. They’re not my ancestors. So it’s interesting. Then a guy called me on a on a consult. He’s like, I want to buy a rental and I’m going to lease it to my mother in law. So I just want to can I do that I was like. Sure, I mean, I’d never do that, you’re crazy, but sure.
Mark Kohler: Talk about the ramifications of a victory
Mat Sorensen: And listen to your mother in law, OK? Yeah. And in fact, I said here’s what I told him to. This is serious. I said, you know, this is funny. I said. Now, you can’t stay there, though, on for like the holidays or anything or like you can’t be over there a lot because you can’t have benefit of it because because you’re still your retirement accounts going to own this property and lease it to your mother in law. So I’m like, but you can’t stand it because you’re still disqualified to this property your IRA owns. Now he’s like, So you mean I can’t go over there for the holidays? And I’m like, yes, he’s like I am definitely buying this and leasing it to her so I can come home for the holidays. Got to run my IRA owns this it would be prohibited for me to stay. Yeah, no, but but truthfully,
Mark Kohler: He could go over there for Thanksgiving dinner, but he couldn’t stay the night. That’s the beauty. So when his wife goes, we’ll just stay with my mom when we’re in town. Sorry, honey. Prohibited. Oh, that is sweet. I love it. OK, now as the OK, I do have a little experience on the answer for the follow up. Oh, we’ve got we’ve got a question from our producer in the show. Are we going to allow Corey to ask a question during the show? Is that appropriate?
Mat Sorensen: Wow. This could go bad.
Mark Kohler: This will determine if it’s a good enough question. Go ahead, Corey. So he says if the husband is prohibited from staying in mother in law’s house because IRA owns the property, is his wife prohibited?
Mat Sorensen: Not unless her account bought it but her account couldn’t and lease it to her mom, because that would be her mom, but now so she can
Mark Kohler: Stay the night, this is even better. He could go. Sure. Let’s go for Thanksgiving. You stay with your mom. I’ll stay in a hotel by myself that also has a golf course and maybe a few other
Mat Sorensen: States in her ESPN. You know, just ESPN.
Mark Kohler: Oh, yeah. Now you’ve got quiet time. Yeah. Boy, is we should write an article on this. OK, now. Good question, Corey. I will give you kudos for that. OK. All right. Now the second part of his question or the third part was if my wife does go buy my dad’s membership interest in this real estate holdings, can we look at marketability and minority discounts and what do we have to do for valuation? May I comment on that as. Yeah, as a CPA. The answer is the rules for the valuation and marketability and minority discount, since it’s not prohibited. It’s really about. It what you want to do it, does Dad really want to discount it does what’s fair for Dad and what’s fair for wife. So there’s no IRS purview over the valuation in this situation because it’s not an early distribution from your IRA. It’s not a situation where the IRS would require a valuation. So I would just say whatever the parties agree, I mean, if you want to discount it, you could there could be some estate planning benefits of discounting it because dad’s estate is in an estate tax quandary, but. I don’t see a problem.
Mat Sorensen: Yeah, yeah, I mean, you’re going to need to be at fair market value, though, like even though this is this family deal where it’s like cause see let’s say I’m selling this L.L.C. interest to, you know, the Solok here. I’m going to charge you what I think it’s worth. Like we’re going to negotiate. We’re going to get real fair market value here it’s like, well, it’s my dad. He’s technically not prohibited as we went through the rules here because it’s my wife’s account to him. He’s just he’s just father-in-law. He’s not an ancestor. So it’s OK. Yeah, but they still do a fair market value if you try to do some below value things, your dad doesn’t pay taxes on it. You know, that’s that’s going to be a problem that would that would not be OK needs to be negotiated and be a fair market value.
Mark Kohler: Yeah, but I’d say this from, again, the IRS rules for a fair market value transaction are a lot more relaxed or loosey goosey when it’s not being evaluated. Under a IRA distribution rule or or
Mat Sorensen: Yeah, I get it for like like for the estate tax part of things and things like that, and they they do marketability and minority discounts for that, for that. But to sell it to a retirement account, I think that’s going to be a sale. Like you probably have to have it at fair market value. Otherwise I think the IRS can say.
Mark Kohler: But they wouldn’t because the reason why they have prohibited transactions is for that very purpose is because if it’s not, I’m OK. Well, all right. Well, let’s let that one go. We could we can debate that one for a little bit. OK, let’s move on to another question. We are right with that now.
Mat Sorensen: And excuse me, I just snapped into a Slim Jim here. These are Slim Jim mini’s. Those are those I don’t really recommend them, but I’m hungry. And this is what we had. Yeah, that’s
Mark Kohler: Ok. That’s OK. Mat’s raiding the company kitchen, which is usually not a good thing for a person’s diet, but Mat’s what he’s sacrificing for you the listener today will just say that that’s OK. This is a question from Clay, good friend of mine. He posed this via text to me and said, would you cover this on the show today? Now for you crypto miners, this is a great question. What he is doing is mining. For crypto inside his Roth IRA, he has set up the two entity structure that we’ve described before and prior podcasts. So there’s one entity for mining that would be a blocker C corp because it’s subject to UBIT. And then as he mines his crypto, whether it’s direct mining or he’s paid in Bitcoin, he’ll transfer those earnings over to a Holding LLC, both of which flow down to his Roth IRA. Well, he came back to me and said, OK, he only had two graphics cards, which many of you crypto miners would go. This guy’s a chump to graphics cards. That’s chump change. Right? So and plus, he discovered I have three graphic cards in my little mine. So he said Mark. The size of a man’s rig matters, and my mining rig needs to be bigger than your mining right now. I at that take that on the face of it. I’m not implying any innuendos. I’m Mat has a potty mine. So he might have thought something different, but I’m just.
Mat Sorensen: I said nothing.
Mark Kohler: You said nothing. So he said, Mark, I need a mining rig bigger than yours. So he called and he said, can my Roth IRA, can I contribute this year’s Roth IRA contribution, inject that into my LLC and buy two more graphics cards? Because right now the market’s around three grand a graphics card if you’re if you’re shopping hard. So what’s his contribution amount this year? Six thousand. And for some you that might have to do a back door Roth contribution or a traditional IRA typical Roth contribution. Let’s not go there. But he just said, can I put in six grand in my Roth, inject that into my LLC and go buy two more graphics cards. Now I have four cards making me money versus your three. And this was kind of his, you know. Yeah, manly problem. He had to prove to me that his rig was bigger. And I said, I will discuss this on the podcast. So the answer is it depends, because if you have multiple owners of an LLC that are mining, there has to be a pro-rata contribution, meaning everybody that’s a part of this LLC has to put in their fair share in a capital call. So if we need six grand more in the LLC and there’s three partners, you may say, well, everybody puts in two grand. Well, it depends on the ownership percentages of the LLC on what would be pro rata or fair, we’ll not go there now because that’s a fairly detailed conversation. But in this situation, Clay, his Roth IRA, was the 100% owner of the LLC, so pro rata there was no pro rata calculation. His IRA, his Roth IRA, owns 100% of the LLC. And so I said, sure, go for it. Now, it pains me to say that because now I’ve got to go figure out how to put more graphics cards in my rig, which I have a twelve slot motherboard, so game on Clay. But in his situation was 100% owned, Roth LLC. I said you can do that so he can make a contribution, then inject the entire amount into his LLC and go buy two more cards. Mat. Do you have any follow up on that.
Mat Sorensen: No, I love it, I thought it was and it was nice of you to not try to pull the little deceptive acts, you can’t do that thing, you know, and be like, oh, yeah, there’s this rule, you know. Yeah, it does big of you
Mark Kohler: For, you know, I could
Mat Sorensen: Have the right demised despite that, you know, they took it down a notch.
Mark Kohler: Some of us took an oath when we became lawyers and I said, I will tell my clients what’s best for them, even though I could have been self-serving and said, what, you idiot, you’re that’s prohibited.
Mat Sorensen: Oh, yeah, that’s right. You’re an attorney not a financial adviser. So you tell them what’s best for them. Oh, yeah.
Mark Kohler: Yeah, that’s true. If I just read about Merrill Lynch, I could have told them whatever I wanted.
Mat Sorensen: Right. Yeah, ok. OK. I was a little a little dig at advisors.
Mark Kohler: Thank you. So that was big of me Corey. Thank you. I just went up a little bit in stature with Corey. It’s it’s a it’s a long road to earn his trust. OK, Mat you choose the next question.
Mat Sorensen: Ok, Emily asks, enjoy your podcast and find it helpful to newbies. Can you partner your IRA/LLC with your solo 401k and or your personal funds to invest in real estate like buying or hard money lending? Is that considered a prohibited transaction? How do you set up a structure for it? Do you need another LLC for each deal/property? Thank you for answering. All is a great question, Emily. And let me say at the front end, we have a whole podcast episode on this on partnering your retirement accounts with other IRAs 401(k)s, other people, your IRA spouse’s IRA. Yes, you can do it. And it was what Mark talked about a minute ago about pro rata. So if you have your IRA LLC put in 40 grand to an LLC and your Solok puts in 40 grand of the LLC and you personally put in twenty thousand into this new LLC, we’re going to break up the ownership of that LLC. Forty percent to your IRA. Forty percent of your Solo(k) twenty percent to you personally. This is called a Multimember IRA LLC. We’ve got videos. I got a whole page on on the directed IRA website that just explains if you go to the IRA/LLC page, we got a video and a lot of content as well as, like I said, the full podcast episode. So now remember, your IRA is prohibited to your Solok. You personally are prohibited to your IRA and your 401k, but we’re not transacting between each other. That’s the difference. We’re co-investing into something at the same time. So your IRA is not buying or selling anything with your 401k there’s no transaction. You’re personally in that example, not buying or selling between your IRA or anything else. You’re co investing in something at the same time. Now you got to go in at the same time. That’s the key though. What you can’t do is have an LLC that your IRA owns one hundred percent and then six months later be like, well, I want my personal funds to be in there. Oh, I want my Solok funds in there. Now it’s got a buy in and we got to actually transfer ownership over to it. That doesn’t work. Got to go in at the beginning.
Mark Kohler: Love it. Excellent question and excellent answer. So good job. Thank you. All right. I’ve got a great little one. This is right up my alley. I’m a huge fan of this. I’ve been talking about it for years. Nathan Pineda says, can my kids max out their Roth IRA or is their contribution dependent on my income? Two part question. Yes, your kids can max out a Roth IRA. I’ll tell you when and how. And no, it is not dependent on your income Nathan. So this is really cool. So for all of you parents out there and I just released an article yesterday on my blog on how to pay grandchildren with a diagram. Funding a Roth IRA is pretty cool. Mat. I don’t know if you’ve seen it yet. Mat and I are so busy Mat posts our articles and I do too. Sometimes we don’t review them. Each Mat reads my articles, but I sometimes don’t read his. But if you want to get over and check it out. Mat yeah. So grandkid’s. There’s an article in my blog. So grandparents. Sorry, you’re going to have to read the article, but any of you parents out there and it appears Nathan’s talking about minor children. So we’ll talk about kids under age 18 for a moment. Your kids rule on how much they can contribute to a Roth IRA is simply dependent on their earned income, not the parents. Now the parents can still claim them as a dependent. They can still put them on their tax return, blah, blah, blah. But if a kid goes out now, this is really cool. For years, I would say, well, if the kids worked at McDonald’s and earned two grand, then they can put two grand in the Roth IRA. But what if your kids are eight or 10 years old and you pay them out of your business for legitimate services two or four or six grand? Sure. Then the kids have earned income and they can contribute to their own Roth. But recently we were always hung up Mat on parents paying the kids and the process and all that, which is true, which is good. But just this last year, I had a client out of New Hampshire say, well, my daughter babysits. And I said, you know what, I’ve never really highlighted that fact, if your daughter is baby sitting in your or your son’s out there mowing lawns or vice versa, that’s earned income. Do they have to file a tax return to prove it? No. It might be nice to dot the I’s and cross the T’s, but as long as your kid has earned income, which literally could be a seven year old selling on a lemonade stand on the corner. Now, this could be a good Ozark strategy because maybe you drive by and buy a lot of lemonade and I’ll send your kid makes six grand or lemonade stand. It’s cash business who knows where it came from?
Mat Sorensen: Yeah, so I mean, maybe you get Ruth out there, you know, run some stuff, run some errands, you know, you can
Mark Kohler: You could really work that lemonade stand. You tell all your friends, go to that lemonade stand, I’ll hook you up. So anyway, all of a sudden, this cash business of your seven year old on the corner of this lemonade stand becomes a great business more than some would expect. But your son or daughter has earned income. Now they can go contribute to a Roth. They can pull out the contributions tax free for college. The earnings continue to grow tax free. They can, Emily, they just like in Emily’s last question that Roth could partner with you. It could be a Crypto Roth. Oh, my gosh. So many options. So in summary, parents, your income does not matter. Help your kid create earned income. I’ve got chapters in my book, Tax and Legal Playbook. Little shameless plug here on the YouTube video. I have a whole chapter on paying family members. So get over there, check it out. Anything you’d like to add now?
Mat Sorensen: I love it. We have a kids Roth IRA app that we’ve developed at Directed IRA should be going up actually this week. So we try to make a simple app for kids because it takes a parent who is the guardian and, you know, custodian of the account for, you know, for your minor child while they’re 18. Now, one thing be careful about when this is interesting on Roth IRAs for kids, when they hit 18, sometimes 21 depends on your state laws. They’re an adult. This is now their account and they’re controlling it. So teach them during this process, don’t just have this account. They don’t know what the heck it is. Teach them about what the heck you’re doing. Help them understand the purpose of it and how it’s growing and all that. So so when they do get that age where they could come claim it and kick you off of it. They don’t actually do that and hopefully they put it to good use,
Mark Kohler: You know, and let’s clarify a few things. We’re not talking about Kid Rock. Huge fan. We’re talking about kids Roth. So I just want to make sure any of you that may have thought you heard something different, it’s not Kid Rock. It’s Kids Roth. By the way, Kid Rock does a lot for charity. I don’t know if you knew that Mat.
Mat Sorensen: He’s got a I don’t know what Kid Rock up to. I mean, not that I stay up to date on pop culture, but I haven’t heard a lot about Kid Rock.
Mark Kohler: I usually read People and Star and watch TMZ the news. And so I will see if I can get a report for you. I was I’ve been all up in Britney Spears world this last week, so I got to I can’t catch myself too thin. But I was also going to say this is an opportunity for another shameless plug. This fall, I am launching my first ever young adult and teen financial and small business education seminar. It’s just an evening, four hours long, just about as much as you can get out of a teen or not. A lot of smart young adults out there. But this is going to be at three locations this fall. I’ll be announcing it on the website within the next ten days, if not sooner. We’re going to be doing a location in Chicago, a one in Orange County and one in Hawaii the week before Thanksgiving. So you may want to take your board of directors, a.k.a. the kids, with you on a trip to Hawaii Tax-deductible trip for a seminar on business and financial education. So so I throw that out like keep your eyes open.
Mat Sorensen: That might be the best thing you guys got today. OK, all right. OK, this was a question from Suzanne kind of little. I’ve had this question every now and then she says, love you and your show. I don’t know who she’s talking to, Mark or I, but.
Mark Kohler: We can share that
Mat Sorensen: We can share, yeah OK. I have money with Directed IRA and I’m wondering if it is a trusteed IRA. If not, what is the difference and impact on leaving money to heirs in the IRA world out there and sometimes you get on the web or read it or something and you get kind of deep into this. You’ll realize there’s two types of IRAs out there. There’s trusteed IRAs and custodial IRAs, 99.9% Of IRAs out there are custodial IRAs that when you pass away, you list a beneficiary who gets your account when you die, and that beneficiary is going to have control of the account to decide what to do. Now, maybe you have an estate plan, you have a trust and your beneficiary on your custodial IRAs, your trust, and now the trustee on your trust would then make those decisions for who’s the beneficiary in your trust. A trusteed IRA is something where when you pass away, you’ll still have beneficiaries on it. But the IRA custodian takes control of the IRA for you. And now they make the investments, they decide whether to distribute to your heirs or not, they decide whether to do a spousal rollover or whether to do a an inherited IRA for your, let’s say, kids or grandkids, that may be the heirs on your account. So trusteed IRAs are not very common. Usually people with really large estates do them where they have a trust company that’s going to manage their estate. But you’re paying typically one percent annually for that. There are a lot more expensive to get. I don’t know any of the self-directed providers that do trusteed IRAs. We don’t do them. So I hope that helps IRAs here and 99.9% of places are custodial IRAs. So, so but when you pass who’s on your beneficiary designation, you know, is it your spouse or is it your trust or kids? You know, that’s who’s going to get your account. And they’ll just follow all those rules as to spousal rollover for a spouse or inherited IRAs for kids. Or again, if you list your trust as a beneficiary, it’s going to go according to the trust terms and your trustee of your trust will dictate.
Mark Kohler: I’m sorry. Sorry. Were you done?
Mat Sorensen: There? OK, you know, sometimes the best information is what’s kind of boring.
Mark Kohler: Eyes of the beholder, baby, I sorry, man, I got to shake that one off if some of you had to pull off to the side of the road, just slap yourself. Now, that’s not Mat’s fault. That was a tough question.
Mat Sorensen: I just hope Suzanne appreciates it. Yeah. I mean, anyone else still listening? Yeah. Anyone? Yeah. Hello. Can you hear me now?
Mark Kohler: Our next question is, could you explain the equation for plutonium, please? All right. OK, I don’t know if there’s an equation for plutonium. I don’t like the periodic table. What do you call it there? I don’t know. That’s why I didn’t go into science.
Mat Sorensen: Yeah, clearly. Yeah.
Mark Kohler: So then I try to take a spontaneous joke attempt. All right, I’ll back off. OK, now this question is from. Colloquia, colloquia, now, I nailed it Kikhia in. OK. I actually sat in on a class on her pronouncing terms, but anyway, Cucu in Hawaii says, Aloha guys, I’m here in Hawaii and interested in hosting vehicles on Turo in my solo 401K. Can you please share some strategies on the best way to accomplish this? Thanks. And have a nice day. Well, we’ll try and have a nice day while you’re over there in Hawaii. So thanks Cucu for
Mat Sorensen: That little aloha.
Mark Kohler: Yeah, aloha. A little jab there. I could tell there was a little passive aggressiveness in that. Thanks. Have a nice day. Wish you were here, Yohanna. OK, now, Kyuki, this is a great question. Now, everybody, this is really goes back to our crypto conversation a moment ago. When you can you do this, yes, can your 401k buy an RV and rent it, can your 401k buy a rental and rent it? Can your 401K buy a vehicle and put it into a pool? Yes, all of the above. However, depending on the asset you’re renting, it could get taxed differently. For example, if I buy a long term rental with my IRA or 401K and I put in a tenant that’s passive income, it’s rental income. Now if I use leverage or debt, I might have what’s called UDFI unrelated debt financed income. We’ve got a whole podcast show on that. But the point is you bought a long term real property asset and it’s creating passive income. Now, believe it or not, a short term rental. Gets the same long term tax classification, so if you buy an Airbnb with your 401k or IRA, you may think, well, that’s short term income, I might have UBIT unrelated business income tax. However, you would be wrong as long as it’s a true Airbnb where you’re not providing daily concierge services, you’re fine. It’s still considered a long term rental. But once you get into the personal property realm of a vehicle, now, it’s it can be considered UBIT, meaning you’re in the business of renting personal property. I had a client that took a Roth IRA and bought lighting equipment and would rent it to sets and production companies in in L.A. and Hollywood. And they had a great rate of return, but they were renting personal property and it was subject to UBIT mining crypto is subject to UBIT, so use a blocker corporation to get around it. But Mat, I would think renting personal property vehicles through Turo could be subject to UBIT would you agree?
Mat Sorensen: Yeah, unfortunately. So you’d want to use the Blocker Corp strategy, the Blocker LLC with a C Corp election. We’ve done some shows on that whole chapter in my book and on on UBIT. And how you do that. But we’ve seen some clients do it. One other question I got on, Turo, is where can I park the car? So I had one client like, well, I mean, can I like a park on the street in front of your house? Don’t parked in your driveway or in your backyard. Yeah. So you might have like a storage issue because we don’t want you’re like home or personal residence or personal property you personally own turning into storage or where these materials are stored. But I got on the street, you know, can I come
Mark Kohler: Can I comment on that just quickly because. Yeah, Cukor’s from Hawaii. And if any of you been to the North Shore, there’s a chance some of you might want to park your car in your backyard. There’s a few cars up on blocks on the North Shore. Now, I love the country. You know, now that if you are on the North Shore, you’ve seen signs save the country. It’s a little more. Rustic, ghetto, urban, I’m sorry, rural, so Kiokia, you may not have curb and gutter on the North Shore with your Turo car, but get it off your property.
Mat Sorensen: Just yeah. See Mark leaves the trusteed IRA versus custodial IRA question for me and he takes the Aloha Hawaii Turo question for him. I just want to let everyone know
Mark Kohler: I said your choice on a question. You took Susanne’s. I didn’t touch it with a ten foot pole. Not my problem
Mat Sorensen: True. True. You know something. All right, I’m done.
Mark Kohler: Ok, so let me summarize. I’ll say one summary point. Mat you two, I think. I think it’s a great idea. I’m not saying buying rental property, personal rental property, whether it’s an MRI, an MRI unit, a machine, I’ve had doctors do that for a surgery center. It could be a car or any of these things. I’m up for it. Don’t worry about UBIT look at your net rate of return after corporate tax. So you so many people are like, well, I got UBIT better not do it. No. Are you doing better with stock? Are you doing better with some ETF? Hell no. Even after tax, you might have a 30 percent rate of return. Do it. Just set up the right structure.
Mat Sorensen: Exactly. Helps the economy hurts no one.
Mark Kohler: Where did you get that? I haven’t heard that one.
Mat Sorensen: Oh my gosh. That’s the Biden said in a conference. I can’t remember. Someone asked me a question about something of one of his proposals and he says, helps the economy hurts no one.
Mark Kohler: Didn’t he whisper it like two weeks ago. And we’re going to give you a tax rebate. I mean, everybody was like, did he just do that?
Mat Sorensen: And he hurts. No one is going to get the focus. Hey, so
Mark Kohler: Now I’m just going to say we are bipartisan. I’ll call out Trump for a bad haircut or a toupee. I’ll call out Trump for a stupid tweet. And I’m going to call out Biden when he starts whispering and sounds like a pedophile, so take it or leave it people you got, he’s not perfect. So you got to. Don’t be mad at me. If you’re a Biden fan, I’ll call out Trump, too. But you got to be able to admit sometimes when Biden’s acting nutty, I guess I’ll admit it when Trump does. Yeah. Can we keep that on the show? Can we keep that in the show? Yeah.
Mat Sorensen: Yeah, we I think we can keep it. Yeah. I mean, it’s easier to just not have to add at this more laziness thing on it. Yeah. It’s more work to edit that out.
Mark Kohler: Raw and uncut.
Mat Sorensen: So like so like that drinking the soda right there, you know, he’s like should I be drinking a soda. Helps the economy hurts no one. Keep buying your soda.
Mark Kohler: I’m going to use that one. Can I put that on a shirt. I might put that on a shirt.
Mat Sorensen: It helps the economy hurts no one.
Mark Kohler: Oh man. OK, so Kikhia thank you for that question. Mat and everybody hear me. I need the witnesses out there. Go ahead and choose a question you want to answer. I’m not twisting your arm or forcing you to answer any question. OK, who boring you.
Mat Sorensen: All right, let’s let’s answer Jeremy’s question. OK, I do. We hit this one in the last open forum. It’s a little bit old on the list here, but good question timing because we’ve got a lot of resources on this now. He says, can you please explain the benefit of after tax contributions to a Solok do the earnings have to be W-2 or can they be from K1? All right. Great question, Jeremy. Now, after tax contributions to a Solok are crappy unless you convert them to Roth, they’re awesome if you make them and convert them to Roth. So the only time we would tell someone in a Solok to make an after tax contribution, which once you put in nineteen five as an employee, you’re done on deductible or Roth contributions, but you can still do after tax contributions as an employee up to the total of fifty eight thousand total between all your employee and employer contributions match anything else in the Solok. So a lot of people have some extra money they want to throw in. They can do after tax, but you must convert that to Roth if you don’t want to have a total train wreck. And why would you want after tax contributions unless you convert and Roth so and there’s no tax to convert it to Roth because it’s after tax, you don’t take a deduction on it. So it’s kind of cool strategy sometimes called the mega backdoor 401k or the mega Roth 401k. Mark had some videos and an article on it to recast your question. Jeremy, just two weeks ago, some fresh material fresh. So now on the earnings, you have to have earnings or W-2 income. It cannot be from a K1 K1 is profit because these are employee contributions you’re making is after tax contributions. So this is like you as an employee, you know, in your business or maybe you work at another company like it has to be on your W-2 or if you’re a sole proprietor, it would be on your schedule C this is not K1, though. Profit from a from the business.
Mark Kohler: Yeah, I now we actually had a big training on this with our team the week after I released my article because because we have between attorneys and CPAs and our firm, we have twenty to thirty professionals and really smart people. And it’s always scary when I write a new article because I throw it out there to the wolves and they’ll they’ll eat it up and spit it out and go. And they love to prove me when I’m wrong, which is good. You know, we got all these smart people fact checking Mark Kohler.
Mat Sorensen: Exactly. That’s how you know you’re in good stuff. Yeah. So you want some rogue guy out there, no one checking their stuff or challenging them or getting other input. That’s scary.
Mark Kohler: It is. So so we had a big training on this literally just a week ago and. The question here, Jeremy is asking is actually very, very important, because your W-2 in an S-CORP has to be enough to cover your 401k contribution. Before tax or after tax contribution and think about health insurance. So if you’re paying for your health insurance premium out of your S-CORP, you have to make sure your wages are great enough to cover this combination. Now, I’m just going to it’s very technical for the show and there’s a lot of opinions out there on that combination. And what the W-2 in which box on the W2 do you need FICA wages and which ones don’t you? Because there’s different boxes on a W-2 and this is where the rubber meets the road. So if any of you are trying to do this strategy, the mega Roth or mega Back-Door Roth or Mega Backdoor one K, there’s all these terms out there. Check out my article from two weeks ago and meet with your CPA. Before you do this, you’ve got to make sure that you’ve got the right type of 401k. Are you in a safe harbor plan? What’s your W-2? There’s a lot of factors now. Generally, we can make it happen, but a lot of it, you just can’t do it and hope your accountant cleans it up later. So that’s my recommendation. Jeremy, just love it. OK, my question. We’ve got time for a couple more. Yeah, right,
Mat Sorensen: You got one more, maybe.
Mark Kohler: One more. One more. What do we got? OK, let’s see here what we’ve got. Um. All right, I’m going to this is I’m going to actually put Mat on the spot here because after our little Turo question, my head spinning a little bit, Cam asks C.A.M. Cam, I’m not sure if that’s a man or woman, but Cam asks, Can I purchase a manufactured home or an RV or a houseboat that I can use as a rental within my IRA LLC? Are there any restrictions for rental properties? Well, again, just like the example, there’s no restriction that you can’t do this. You can buy any of these items
Mat Sorensen: As long as it’s for investment. And it’s not the houseboat you’re out partying on.
Mark Kohler: Yeah, that’s right. No, no, none of this. Yeah. You’re not using this Airbnb or this RV or the whatever it is houseboat personally. So you’re let’s say you’re safe there. There’s no problem buying any of these rental problems, rental properties. The problem is. Do we have UBIT, this unrelated business income tax, and I’m going to say on the left hand, Mat while you gather your thoughts, anything that’s real property. Think of sticks and bricks home on real estate. It’s not movable, it’s not going anywhere. You can’t back it up to a lake and drop it on the water. You can’t, you know, hook up your car to it and drive away or what? Your SUV or truck? Yeah. So if it’s real property, you don’t have to worry about this UBIT thing. All you have to think about is am I leveraging and should I do it in a 401k versus an IRA and this UDFI thing. Mat, where do you draw the line? I’m going to ask you on this. Where, where does an RV fit in the same rule as a Turo or a piece of Hollywood lighting equipment or houseboat? When you think
Mat Sorensen: The the exemption from UBIT is for rental real estate, it’s specific to real estate. So Turo’s never going to count. Those are always cars or trucks. You know, the RV is never going to count. The houseboats probably not going to count. The manufactured home is going to count because that’s usually, you know, like it’s fixed. It’s not going to get, you know, put on a truck and towed away.
Mark Kohler: But a mobile home. I’ve heard if it’s if it’s if you can hook up a hitch in a F150 to it and drive away. Yeah, you’re out.
Mat Sorensen: Right. That would make sense to me. OK, all right. Or even a a a Dodge Ram that that also what are the it doesn’t have to be a Ford F150. I just want everybody know that was not, you know, exclusive. I don’t want anybody like them. I bought one of these and I didn’t do the Ford F150. Like Mark said, I did the Dodge Ram. And now you tell me I got UBIT.
Mark Kohler: Well, I don’t I don’t think the F150 could pull a manufactured home either. I think you’re gonna have to go 250 or 350. OK, I’m just not OK. We’ve got to make sure we got the right engine class.
Mat Sorensen: I know nothing about trucks. Yeah. I want the but the Ford F150 doesn’t have a hemi.
Mark Kohler: Well the hemi is up for debate. A lot of people are big fan of the hemi.
Mat Sorensen: That comedian by the way is hilarious.
Mark Kohler: Ok, let me just say, if I put this John Deere hat on, you’re going to believe me more than Mat.
Mat Sorensen: That’s right. Because now we’re talking trucks.
Mark Kohler: Yeah. Yeah. For the for those of you that are watching on YouTube, I just pulled out the trump card, not present. I didn’t know. This is if you’re playing Rook. I just pulled out the trump card. I’m wearing a John Deer hat. And you want to talk about hemi versus Ford. I’ll bring it on. I, I think I’m going to people are going to believe me.
Mat Sorensen: I’m intimidated. Let’s change the conversation.
Mark Kohler: Hats off. OK, so. So, Cam. Yes, you can do it, just deal with UBIT, talk to our team about a blocker corporation and go out, make some money, love it.
Mat Sorensen: Yeah, cool.
Mark Kohler: Ok, you’re you get the final question here, my sir. Well, so choose wisely as in Temple of.
Mat Sorensen: Ok, here’s a question from Michael. This is Michael Sally.
Mark Kohler: I got to finish my movie quote, because you haven’t done a movie. I’ve quoted Ozark or referenced it and Indiana Jones last crusade choose wisely. Final scene, so choose your question wisely,
Mat Sorensen: Ok, what’s happening in that scene? Choose wisely, choosing between.
Mark Kohler: It’s one of the three nights that had protected the Holy Grail and Harrison Ford had ran into this tomb to find the grail that’s going to save his father. Sean Connerys life. And he tells him, choose wisely. Now, I’m not going to no spoiler alert. I’m not going to tell you what happens. Folks, if you haven’t seen it.
Mat Sorensen: I forgot. Ok, get in there. OK. All right. My last question I would love to hear if you can invest in international properties or businesses and how that would work, do you have to set up an LLC equivalent in the foreign country? OK, great question, Michael. So when you’re using an IRA or even a 401k solo 401(k)s too, you’re going to run into this issue of the IRA custodian or even you trusting your Solok, well, how do I own a foreign asset? And over here at directed IRA or any other IRA custodian, we’re going to be like, you can’t own a foreign asset directly into the IRA. There’s a few exceptions to that, like a hedge fund feeder fund in the Bahamas or the Cayman Islands. We have clients do those very sophisticated. There’s a ton of lawyers involved. If you’re not into one of those massive funds with lots of tax counsel, you’re not doing that. But so those are ones that they jump through all the hoops so that your IRA can own indirectly into some of these foreign investments. For the most part, though, if you like, I just want to buy a rental like I had a client want to buy property in France as a rental. I was like, OK, I mean, I don’t I’m not going to read French documents. We’re not we can’t process that over here. You know, even if it was in like a country that had English, it’s just like we just don’t know the rules and laws. We don’t want to get a subpoena on your IRA or have like I don’t and I don’t even know if France recognizes an IRA. Like, you’re probably you have to pay tax in France.
Mark Kohler: We know you don’t know anything about France. OK, move on.
Mat Sorensen: Yeah, I’m just saying, you know, reasons here. Go. I know France, Kevin, you’re what the French call les incompetent. Home Alone.
Mark Kohler: Pulls out a home alone quote. Ok, fair enough. All right. OK, you’ve redeemed yourself.
Mat Sorensen: I can’t remember what the competition means. I think it means like lazy or something. I’m sure it does
Mark Kohler: Earn it in the context of the scene. I think you’re fair to say.
Mat Sorensen: Ok, all right. So here’s what you to do, Michael. Your IRA is going to own a US based LLC. That LLC is going to own the foreign asset or it’s going to own the foreign entity that owns the foreign asset. Like I had a number of clients at a certain point were buying a lot of property in Belize. We would do a U.S. based LLC. They’re actually Florida and Florida. So we just did Florida LLCs the Florida LLC end up owning a what’s called an IBC, which is kind of popular in the Caribbean, and that entity then owns the real property in Belize.
Mark Kohler: And we’re not talking about IBC root beer. We’re talking about International Business Corporation.
Mat Sorensen: Yeah, something of that.
Mark Kohler: It’s pretty cool. OK, we got to do one last question, though, and I’m sorry, I’m kind of on the crypto bandwagon today. You know why I am? Because it is hotter than hell in the studio and my crypto mind is in the back here. And Corey said I had to turn it off for the show because it’s too loud and we can’t run an AC when it’s just hot here. So I’ve got crypto on the mind. All right. All right. And some of you are like, why would you ever turn off your crypto mine when it’s just making money for you in your sleep? Well, it’s too noisy for the audio in a quality studio. So and it is not prohibited people. It is paying for its own rent to a third party owner. OK, Mike says, I would like to learn about Gemini earn in my Gemini account. Can I keep my solo 401k funds in this account earning a higher rate of interest than at a bank until I decide to use them and invest elsewhere, which I think he means buy a coin. Is there is there fees or are there fees for transferring these funds between my bank and Gemini? Now, I’m going to tee this up for Mat Sorensen and get everybody up to the same page, if you want to buy cryptocurrency, you have to put your retirement account into an exchange that allows for this. Merrill Lynch is not going to let you buy cryptocurrency currently. So you have to move your money from your 401K or IRA wherever it’s at and move it to an exchange that would help you do that. Well, you have to make a pit stop along the way. You need a custodian to hold your IRA to. That’s going to let you do the exchange thing. So that’s where it directed IRA. We have an express service or a fast track to a Gemini account. You can also open up an LLC and open a blockfi account or Coinbase account takes more time. But anyway, the point is Gemini is one of these exchanges that’s going to hold your retirement account once it’s moved over to Director IRA. Huh? So if anybody’s interested in that, you’ve kind of got this two step process that we try to simplify for you. But Mat, I do have the same question as Mike. Let’s say I move my 401k money over to Directed IRA as my custodian or through an IRA or whatever. I open up a Gemini account and I put my retirement money at Gemini. Yeah, can I earn interest?
Mat Sorensen: Your Gemini trading account because you’re directed IRA Account owns the Gemini trading accounts and then let’s say you go buy Bitcoin with your Gemini trading account. Now, you’re your IRA, which owns the Gemini account and the Gemini account owns the Bitcoin. Now you want to do what’s called Gemini earn, where you basically loan the crypto. OK, you can do that. We have an internal form process for we’ve had some clients do it, but you got to sign off on a lot of stuff. I believe our fees, 50 bucks to process it, maybe one hundred. But what you’re doing is I want to make sure everybody understands this. Gemini earn or any of these crypto exchanges that are paying you to lend your crypto. This is not like getting interest at your bank where you’re like, oh, put it into this money market account or the savings account. Then we pay you interest on it. You’re lending it to some X, Y, Z, LLC that’s going and doing stuff with that. OK, it’s unsecured. It’s not FDIC insured. So like Gemini, the company right now, that does it with Gemini’s call called a Genesis Management LLC or something like that. And and so it’s pretty risky. There’s a lot of risk to that. So we might be all but I can get a five percent yield on it. And if it just sits there, I’m getting nothing. OK, cool. I mean, you can also not have any crypto and they don’t pay you back anything so and so even I looked at it myself for my crypto and I was like, hmm, might as well. My crypto is just sitting there. It’s just sitting there. Might as well make some money just like cash. But I’m like, why did I buy crypto. Did I buy crypto to make two percent, five percent whatever. No, I bought it because I think it could go to the moon and it’s going to go higher. I’m in it for the the gain on the value of it. So am I going to risk that by lending it out to XYZ LLC? It’s pretty risky now. I mean, you could still do it. I’m just saying, like, you will get disclaimers from us in it that you understand what you’re doing and and you have to sign off on the actual promissory note. You’re actually there’s an actual document where you’re loaning the money now on the websites and everything. This is for Gemini and others. It’s like click, click, click, click. Like a lot of people, they’re not reading this crap. There’s all these terms and disclosures that we make. We print it out and make you sign off on it. So I want to make sure people understand what they’re doing. And that’s good. Yes, you can do.
Mark Kohler: Ok, well, we’ll finish on that note. And since Mat introduced the show and brought everybody in, I want to say thank you. I really look forward to this show every week. It’s a lot of fun. Mat Sorensen is so smart. I learn something from him every show. No kidding. And a couple little two or three things I learned today. I’m going to just repeat this. I think it’s kind of fun. A lot of times you want to take notes and in my mind I haven’t written this down. I should. I learned that my father-in-law or mother-in-law is not prohibited to me in a transaction, but I’m prohibited to them. Number two, I learned that the RV, the car, and a manufactured home that can be hitched up to a Ford F one fifty two, fifty three fifty or Hemi. Is a personal property and subject to UBIT, and I kind of knew that, but it’s always nice to have Mat verify that I knew the car was, but the RV is a hard one. And then third, I learned about this Gemini lending that it is an unsecured loan. I know that you can loan it in a more secured fashion if you’d like. You don’t have to use the Gemini platform, but it can be a little more tricky finding the borrower and making sure it’s secured. But those are helpful, little helpful tips for me personally. So I hope all of you learn something new. Maybe I said something interesting or helpful to you as well, and I’ll just hold out hope for that. And thanks, everybody.
Mat Sorensen: So, yeah, thanks, everyone. We’ll be back next week. And if you’ve got a question, you’re like, man, why don’t you guys ever talk about this? Go to DirectedIRA.com/podcast. Put in the question if you have any compliments you want to give to to me, you know, go ahead and leave those there. Any criticism for Mark you can leave it there,
Mark Kohler: Too, and I’ll expeditiously delete both of those
Mat Sorensen: And keep it clean so
Mark Kohler: Thanks everybody see you next week.