EP 42 – Open Forum Show
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, Coverdell, HSA, and more. To submit your questions, listen, search for prior episodes, or sign up for their Weekly Free Newsletter, visit https://directedira.com/podcast
Mat: Welcome everyone to the Directed IRA podcast with Marc Kohler and Mat Sorensen. I’m here. Marc’s laughing at me because I’m here wearing my cowboy hat. If you’re watching on YouTube, you can see how ridiculous I look in a cowboy hat. Very much. It’s not the hat. It’s just even my girlfriend, Michelle. This morning is like, I just doesn’t work for you. It’s not. It’s not. I wasn’t feeling it. I was like, What’s happening at the office? So.
Mark: And it’s true. Some people look good in a baseball cap. Some look good in a cowboy hat. Some look good in a hockey mask. Halloween, you know, just depends on what your, you know, like. So, yes, welcome everybody. If you were catching this on YouTube, you get a little visual benefit, apparently to see it. This is fall weather for me. So I get to wear a sweater, which I love my whole. I have a whole new wardrobe that opens up Mat doesn’t get that in Phoenix, you know, now it’s just. But I love it. So apparently I’ve got my Steve Jobs look today. Ok, I like your sweater,
Mat: So I’m digging it. Actually, you’re going a little Steve Jobs, Jobs, little metro. I’m going a little country. Yeah, Country Cowboy today. So. Well, yeah, this is the show about self directing your IRA. It’s not about what you’re wearing. Yeah, let’s show about hats. So sorry about that. Yeah. You like to
Mark: Have fun here, everybody. Thanks so much for joining us. And today’s a good I would call it a cornucopia. Another good fall word.
Mat: Oh, nice. Yeah, it’s good vocabulary word of the day.
Mark: Like the cornucopia or. And that was in the thing that I was so good to pull that out of my. You know what? But then what’s the movie that had the cornucopia where you had to run into it or get killed? What was that?
Mat: I don’t know.
Mark: Hunger Games. Hunger Games.
Mat: Oh, it was a cornucopia.
Mark: Yeah, it was. It was that little. They had to go get the little supplies in that little Copia, you know?
Mark: So anyway, today we’re going to hit a lot of good topics. Mat Tell us about this last weekend.
Mat: So exciting. We have the self-directed IRA summit was amazing. We did our charity golf tournament in connection with that, the foundation for Entrepreneurship and financial literacy. By the way, you’ll be hearing more about that from us. Go to ESL Foundation. Org That’s not the health foundation. That’s EFL for entrepreneurship and financial literacy. We’re getting that site up. It’s active now, but we’re going to be at more content up there. So but the summit was awesome. We did a full day on Saturday of training and education. We did some breakout groups. We got some ideas from people in the audience. We had a couple of hundred people there. We hit the capacity limits of what we can do with COVID in the space. So we had a great time.
Mark: Yep, and the recordings will be out. We understand as early as next week, sometime midweek, next week or end of next. And if you missed it, hey, great stuff to watch at your leisure. We had breakout sessions where people that attended still need to watch some of those classes they missed, so stay tuned. I’m looking forward to next year. I think we’re going to do two live events next year and one virtual so game on America’s back.
Mat: Yeah, yeah. Well, we’re going to give a couple updates and
Mark: I got another word. I’ve got another word. Nothing like a good juggernaut. Oh, right, OK. For those who don’t know, that’s kind of a corporate retreat where everybody just goes. And yeah, really doesn’t do much just to have a good time. But yeah, everything is a good juggernaut.
Mat: Yeah, like LeBron James playing bass. He’s a juggernaut out there. Yeah, I know a juggernaut is like a force of nature to be reckoned with.
Mark: I don’t know what it is. I’m like feeling like a little thesaurus, you know today. So I don’t know. All right, so.
Mat: All right. Ok, well, all right. Well, we’re going to open for him. We got your questions, too. I want to just maybe Mark and I, we just say a little interesting takeaway we had from the summit. I’ll just give mine first, if
Mark: I really didn’t prepare anything, this is exciting, like what’s the first big takeaway that came to mind? So you go first? Yeah.
Mat: All right, I’ll go first. I’ll let you buy you some time. We did a we did a breakout group, which was Mark’s idea, ingenious. And oh, that was my idea.
Mark: That was my biggest takeaway. You just took it.
Mat: Oh, that was unbelievable.
Mark: You know you can’t. Ok, whatever. Go ahead. I’ll think of a second one. All right. I love where you’re going.
Mat: I’m getting detailed on this. All right. Ok. All right. I love where you’re going. So and we got put people in groups and they had to come up with ideas on things your IRA could own and invest in
Mark: Eight to 10 people, 20 groups.
Mat: Yeah, it’s really interesting to see all the ideas that people came up with. One of my favorite was air some guys like your IRA can buy air marks like riding on the board were like,
Mark: What is that great, everybody? Yes, you heard that right? Your IRA can buy air.
Mat: Yeah, OK. No water like water rights, but it can buy air too. And so it’s funny. We were like, you know, sorting through who came up with that idea. And let’s get some context to it. And I’m like over there, just like, you know, Mark’s writing on the board and I just like, pop out the word Spaceballs because it’s like it’s just like popped into my brain because there’s a classic scene in the movie Spaceballs where you buy air and it’s like a luxury to have like a a, you know, like a can filled with air that you open up and you like, breathe in that air from that amazing planet. And Spaceballs, I can’t remember. You know, it’s a Mel Brooks scene. It’s hilarious. But. Your IRA can buy air rights, and so what some people will do is they will, in particular commercial or urban centers, you can buy air rights like the air above a building to protect views and sometimes investment groups buy these and hold them for investment purposes. A lot of times it’s like a neighboring property owner that doesn’t want a building to go up higher in space, so they’re going to buy it to protect their views from air rights. So there’s no restriction. Your IRA could absolutely own air rights.
Mark: Yeah, I when someone said I’m going to sell air, I immediately went to Billy Crystal in city slickers when he was depressed and ready to go on his little hiatus into the into the ranching world. He told his wife All I do is sell air. I’m worthless. All I do is sell air. And but I was interesting. Air rights, air time. Yeah. And so you can buy and sell air rights and gosh what our world has come to so nuts. You know what? What was your sense growing? I’ll say what
Mat: I was going ask for your takeaway, but
Mark: Ok, well, yeah, I was going to date myself and just say, well, back in the 80s, growing up in high school, you didn’t buy a bottle of water. It just didn’t exist. Is that weird?
Mat: Like you just I know me neither. I didn’t. I mean, yeah,
Mark: Maybe if you’re going camping, you’d buy one of those crappy milk carton cartons of water, you know, so you just didn’t die.
Mat: But you know what’s funny on that? I remember my dad because he worked at a convenience store and like, like, it’s like a manager of convenience stores in Utah called Holiday Oil. And I remember him as a kid coming home be like people will just pay a pay for a bottle of water. They were like they were amazed that they put it on the shelf and people bought it. They’re like, What is happening? Are these people stupid? It’s just water.
Mark: It is phenomenal.
Mat: Yeah, that’s messed up.
Mark: It’s crazy. So my biggest takeaway? Was it, by the way, that little group session we had, I think, over forty five ideas that we wrote up on the board generated from all these groups, there was a lot of duplicates, right? So it ended up kind of being forty five to 50 with these groups, but it was fun for everybody, I think, to see the diversity of ideas generated in that in that experience. Probably my biggest takeaway was something someone said last night who was an attorney. I was talking to an attorney that attended the event, and she said I was really blown away with the diversity of the group. She goes, I expected it mostly be accountants, lawyers, financial advisors. They’re learning self-directing. And she was like the majority were just business owners, investors and. And she goes, Man, when I got into my group, it was like moms and grandmas and grandpas and kids. There was a 17 year old in the room we gave it. We gave away a gift to the youngest person in the room, who is 17 with a Roth IRA and a grandma. Eighty five years old. Self-directing her Roth IRA in crypto. I mean, it was just
Mark: You know, everybody’s in the room just like, what’s going on here, you know? So I think that was a neat experience
Mat: Was good and cool. And if you missed it and you feel like you left, you got left out, know we got the recording and there’s going to be a couple next year live to do it in person because that’s the best way to to get this, to get the energy and see it live and just absorb it. Yeah, OK, OK.
Mark: Q&A today. All right. What do you got? Let’s do it.
Mat: Ok. All right, this is a question from Amy from Florida. She says, Hi, Mark and Mat found your podcast this summer have already caught up on all of your episodes. Love it now I’m working my way through the Main Street Business podcast. All right. Excellent. That’s our sister podcast. She says two questions Hope are quick and easy. First. How do I go about getting insurance on a rental property owned by my IRA LLC? I’m cautious of prohibited transactions, but most insurance companies want to run my name and dob for insurance claims when quoting for the IRS will see rental property space. Your question is is how do I go about getting insurance? That’s OK, Amy, that they’re running your date, your date of birth and you know your info, your manager of the LLC. And at the end of the day, it’s your IRA. You’re the owner of the IRA. So that’s OK. You’re kind of the responsible person involved here. There’s no prohibited transaction in them doing that. And your LLC, though we want to get the policy in the name of the LLC. And this is one thing I see some clients kind of mess up or their insurance agent, frankly, mess up. One thing I’ll see that’s a problem, actually, is they’ll just put the LLC in their personal name as insurance. And it’s a rental property dwelling policy, but they’ll say, Well, I added, your LLC is an additional insured. No, that’s not really the right way to do it. Get the policy separate. Even my like, I use State Farm for my IRA LLC, and it’s in the name of the LLC. It’s clear I don’t use State Farm for my other insurance. It’s just separate. But a lot of times if you just go to your, if you have an agent and you do it that way, they just want to bundle you into what they already have and do it under your name. So you’ve got to kind of make that. That’s the biggest issue. Just make sure it’s separate the insurance in the LLC name and the LLC is paying the bill.
Mark: Um, on this note, I think this is a good takeaway for everybody out there, even if you have a rental property without an IRA rental. Yeah, I’m just going to rattle this off. If some of you don’t really see one kink in your armor could be. The end in a lawsuit. Mat and I have this story called the Juicy Nugget Story, it’s. Well, we’ll share it somebody you got. Stay tuned for another show today on that, but it’s called the Juicy Nugget Story. And but what it was was a lawsuit that this company thought they were impenetrable, impenetrable. Another big word today where they were, they were. They were just they were protected and there was one kink in the process and the the plaintiffs ran away with it, got all the money they wanted. And so if you have rental property, let me just rattle off some of the parts of your armor. If you’re thinking maybe a little medieval scene here, you’ve got your headgear, you’ve got a breastplate, you’ve got armor on your body, you’ve got maybe armored boots, you’ve got you’ve got to have all the pieces or you’re going to probably not make it. So when you have a rental property, whether it’s in your IRA or not, that LLC should be on title, the LLC should be the one with the insurance policy. The lease should be in the name of the LLC. They should be paying their rent to the LLC bank account. The LLC bank account should be paying the mortgage. I don’t care if you guaranteed the more people free can let the LLC pay the bill. Bank doesn’t care
Mat: For your IRA/LLC You can’t guarantee it, of course, but yes.
Mark: Yes, yeah. So the LLC is paying the mortgage, the LLC is paying the bills. You are communicating to the tenant consistently. As the manager of the LLC, you are no longer the owner of the property. And all of these little things, including minutes for your LLC. Every year, the LLC is doing a tax return if necessary. The LLC is paying its annual fee to the state. We call this company maintenance and all these little things are important. And if you miss one or two, especially two or three, but even missing one of them could cause a problem in the lawsuit. And so if a tenant gets hurt and even that’s the same. Well, anyway, we don’t need to go down. Please listen to some of our podcasts on asset protection and asset protection basics in our Main Street business podcast, and you’ll you’ll be amazed at some of the info that will help you in that process.
Mat: So, yeah, OK. All right, another question here. So that was good, too, which was does a former step-parent count as a disqualified person? For example, my mom is married to my stepfather about 20 years ago, when I was 10 to 30, so they’re no longer married, but I’m still friends with my stepfather. Legally, he’s unrelated to me, but want to get your thoughts about the spirit of the law since he’s basically helped raise me? So, no, he’s not a disqualified person, actually, even if he was still your step parent. He’s not disqualified. Ok, you have to be its child’s descendants. And so unless you got adopted, a step parent is not disqualified to your IRA, even if they were your know we’re still married, so you’re good. They’re like, you’re trying to abide by the spirit of the law to just make sure your deals, you know, straight. You’re not doing anything, any funny business. That’s a that’s a technical term. And we good and I love your questions, Amy.
Mark: All right. I’m going to jump down to Christian. Question says my wife is starting her career as a therapist and will be self-employed at 1099 worker. Can she get a deduction for contributing into my work sponsored health savings account? That is she that she’s on? Or does she have to open her own HSA account? Well, Christian, I love your question because I would like to there’s fundamentally two or three things here that will help everybody listening today. First, the HSA account health savings account can be self-directed. We had a breakout session at the summit just on that topic. So maybe maybe going, well, why is this Christian guy talking about HSAs on this podcast? Well, because an HSA is a very, very powerful tool to self-direct build money tax free and comes out and it comes out tax free for medical. So, yeah, good thing. So that’s why we’re talking about it here now. Oh boy. First, in this example, Christian and his wife are married, so their health savings account is a family savings account. Whether you are a single mom, single dad with kids or married, you qualify for the family account. The deduction this year is seventy two hundred dollars. And so Christian and his wife can put in seventy two hundred dollars into an HSA. That’s whether or not she’s a therapist. That’s whether or not they have a W-2. That’s whether or not anything. All you have to do is qualify with a high deductible plan. So Christian, the first thing is you’re you’re you’re thinking of the HSA is yours work. She’s an entrepreneur and all of you flush that. Hell no. Yeah. An HSA is like an IRA. That’s individual. It goes with you everywhere. Whether your work sponsored it for you or not or she got it or not is kind of secondary. Mat What would you say, right?
Mat: I can tell. Yeah, yeah. And an HSA account. I mean, it can go back and forth between being family or individual to like, let’s say you have kids and now the kids don’t qualify, you know, they get older and so or you get divorced and who gets it? So but so. But if you were married, I mean, you’re this HSA, you can do the seventy two hundred bucks. So now it’s another possibility that she could have separate insurance or she’s not a nurse, but I presume you guys are going to qualify her. So. Yes, I don’t. Easy. Your answer is actually easy. It’s just, yeah, make sure you’re doing the family contribution. Get up to seven hundred bucks. Who cares where the money is coming from? Doesn’t matter if it’s from her self-employment income. You’re putting in more from what you’re getting at work, even though it’s not coming off your paycheck. Get it in. Get the deduction.
Mark: And I like what Mat just said, I was trying to explain the principle, but I like saying yes, she can contribute OK. She does not have to open her own account. That’s the easy, quick answer. Complicated. Yeah. And I was trying to help give everybody a little feedback here that you may have an HSA that sponsored through work and they’re throwing some money in it. Well, if you’ve got an HSA qualifying plan through work and they’re putting a little money in an HSA at work, you can open a self-directed HSA over here directed IRA. Yeah. And but in combination between the two, you can only put seven thousand two hundred dollars in that example or, if you’re single, thirty six hundred dollars. So you could have three HSAs this year. Don’t care, but because you have a group health care plan in this example, as a married couple, you have a group health care plan. You’re going to generally do a family HSA and you can have one at work and one separate and one self-directed and one not. But you would work together, and the fact she’s self-employed has nothing to do with it. This is a tax deduction on the front page of your personal return. So anyway, Christian, keep studying HSAs. I’ve got a chapter on health care in my book and we’ve got podcast dedicated to HSAs on the Main Street podcast as well as this one. Keep studying. It’ll all click and you’re going to love it.
Mat: Yeah. All right. Cedric had a question on inherited IRAs. Kind of like. So thank you both for your work on this. I have a 2020 inherited IRA now. That’s an important distinction here. When Cedric said Twenty twenty, I understand I have ten years from twenty twenty to distribute this IRA. The IRA owns an LLC that owns real estate. What happens at the what happens at the distribution to the LLC switch from being owned by the IRA to being switched by me or something else? Thanks, Cedric. Ok, so now the law changed on this in 2019. So if you have an inherited IRA that you got in 2019 or sooner, you can take that. You can do what’s called a stretch IRA over your lifetime and stretch that IRA out under your lifetime. It’s a separate procedure. Pretty awesome strategy, though. On the other hand, though, if you inherit an IRA in 2020 or later, a new rule came into effect that says 10 years, you only get 10 years, you don’t have to take any distributions during that 10 years every year, like you don’t take an RMD every year. But at the end of 10 years, you’ve got to have the whole thing distributed out to you. Now, in your example, Cedric, to your question, what happens? I got an LLC that owns real estate. I don’t want to sell the real estate, and you’re presuming from your question because that’d be the easy thing, right? Just sell the real estate, get the money in the LLC, close the LLC, send the cash from the inherited IRA down to you. Done close out the IRA within 10 years. But if I want to keep it going, you can do an in-kind distribution of the LLC interest. At the end of 10 years. We’ll have to get an appraisal of the property. You want to get the bank account for the LLC. Let’s say the property is worth five hundred thousand and you got 50 grand in the LLC bank account. We’re going to value the LLC at five hundred and fifty grand, and then we’ll you can do a transfer of the LLC interest from the IRA to you personally pursuant to an in-kind distribution. Your IRA custodian needs to be involved in this, by the way, and then you’re going to get a 1099, though. That is a traditional IRA for 550 grand. So, yes, you could just distribute it all at the end of 10 years, just someone’s going to be a tax that if this is traditional, so that’s how it worked. And then you could keep the LLC, you own the property moving forward now. And now it’s going. Start showing up on your personal tax return.
Mark: Ok, good. Good. Good. Good answer. Well, boy, you guys ask very difficult questions. I’m going to jump over to crypto. Got a lot of fans that are doing a little crypto investing. And keep in mind, in the big picture, crypto is just another asset. In fact, the IRS has defined it as a personal property asset. It’s not considered stock, it’s not considered a marketable security. And if you buy it and sell it within 12 months, it’s short term capital gain. If you hold it longer than 12 months, that’s long term capital gain. But whether you’re buying air water rights, land real estate, crypto stocks, bonds, mutual funds, it’s just another type of investment and just big picture for some of you that haven’t delved into that market yet. So Marlon asks if I want to get involved in crypto mining business if I have a traditional IRA from a different company? Do I need to convert it to a Roth versus just keeping it in a traditional IRA? Well, again, Marlin, I think your question begs a couple of other points or the first you’re bringing in the Roth issue and blending it with the self-direct at issue. So this is good for everybody to hear. And he says he has a traditional IRA from a different company, what I think he’s saying is I have a traditional IRA at Scottrade or TD Ameritrade, so let’s just he’s not from a different company. It’s with a different brokerage. That would be the words I use. So Marlins got a traditional IRA at a traditional Wall Street brokerage. You need to transfer that to a self-directed traditional IRA. First, that’s step one. So you’ve got to move it from a location that won’t allow you to do crypto mining to a custodian or trust company that will. Now that’s us. That’s Directed IRA. We’d welcome you with open arms. Move your traditional IRA over to a traditional IRA here. Then you bring up this Roth thing and you say, Do I need to convert it to a Roth? Well, that’s up to you. You don’t have to. I love Roth. Mat loves Roth in the long run. We’d like you to do it in Roth. I think it will. Typically, we’ve done shows on this. The Roth typically wins every foot race in the long run, especially, so we would recommend you consider that, but you don’t have to. So first step one Move your traditional IRA to the to our trust company, then number two, ask yourself, should I convert that to Roth? What would the tax bill be? And how much would I convert? And yada yada? But getting it to a self-directed format is separate from getting it into a Roth format. Mat anything you down, Like that so far?
Mat: No. Yeah, those are separate those two things. And if you want to go Roth, I mean, that’s the thing in the long run, you don’t pay tax on the way out. I think a lot of people just here do crypto in a Roth and they just think, What can I do it in a traditional, yeah, half of our accounts are doing crypto in a traditional account, right? They’re going to pay tax on the way out, but they don’t want to have to convert right now to Roth and pay the big taxes. So there’s there’s trade offs, of course. But like Mark said, we had a separate podcast just specifically on that question.
Mark: You know, on that one last point. For all of you out there, he threw out the M word, not Mat Sorensen, but mining. So Marlin, you’ve got another. Set of circumstances to deal with once you get it to Self-direct and then deciding whether it’s Roth or traditional, then you’ve got to decide how am I going to do this in a mining format? Because mining generates what’s called Upbit, because it’s an operational business, it’s going to pay some tax. So we have a strategy for a blocker corporation that your IRA Roth or traditional would own to do the mining and then as you generate revenue, we’d like to roll that over to a sister LLC to just hold your cryptocurrency. It’s really a two entity structure when you go mining. I would highly recommend you go to YouTube. Type in Kohler crypto mining and Mat, and I’ve covered it on our podcast before with diagrams. But there’s some good YouTube videos of mine that take you through some diagrams on how it would look, and our law firm can help create those entities. It’ll save you hundreds of thousands of dollars of taxes to do it properly with a Roth, with the two entity structure. So lots to learn there, Marlin. Keep studying.
Mat: Yeah. All right. Ok, yeah. Mike had a question since about buying company stock where you work, kind of. Sometimes it’s options or they have employee stock purchase plan. So Mike asked, I work for Publix supermarkets. They allow you to buy stock in the company, but it’s restricted to employees and it has to be bought in the employee’s name. He says I have a self-directed Roth account. And can I send payment for public stock? I want to purchase what would be the name on the check and who is the money from? He said if the payment he says, he talks about wanting to help his parents get by the stock too. But basically the question is. Can my Self-direct Roth account by this public stock as part of its employee stock plan where I work? The short answer is no. And the long answer is here’s why. Let me give you the why, I guess, is see, IRAs can only make investments. IRAs can only buy things, but they can’t get a special deal. Now you’re getting a special deal to buy this stock because you work there, it’s the same thing when employees get stock options at a company, and we have this question probably every other day here at directed someone calls in. They got stock options in a big company or some startup that’s gone huge up in value. And they’re like, I want to exercise them and buy these stock options.
Mat: I just reviewed one yesterday. We had to reject the stock options in their name. They got it because they worked there, and now they want to buy these shares with their Roth IRA and exercise the option. You can’t do that. Ok. You personally earned that right to that stock option. You own that right to that stock option personally, to give it to your IRA to buy is prohibited because you’re disqualified to your IRA. And that that option is really work. It’s basically compensation to you for your work in the company. Same thing here with this stock purchase plan, even though it’s a little different than stock option. You couldn’t do it with a self-directed Roth account. Now some companies and there’s very special carved out plans have for one type employer plans where you can buy the company stock. I don’t know if Publix supermarkets is publicly traded, but it’s possible you could do that in a company 401(k) plan there. But that’s very complicated. You’d have to do it directly through the company. The short answer is again, no, you won’t be able to do it with your self-directed IRA. And I hope that’s a good, good lesson for those on the stock options to just know your IRA can exercise stock options. I like it.
Mark: Ok, this question is from Kazu in Hawaii. Aloha. And of course, she’s got our attention, or at least my attention. I’m a whatever a bleeding heart. But she’s like, This is the the bikini storeowner in Hawaii. So, you know, she had me at bikini. I know her. Yeah, no. She’s been a great client over the years. And yes, we helped set up her entity and she’s making the world a better place. I just want to point that out.
Mat: Ok, yeah. One bikini at a time, one
Mark: Bikini at a time. Yeah, you keep. You keep going, girl. All right. Now, she said, I wanted to start an LLC with my Roth to invest in the rental business, but realize that it’s really hard to do it now, especially in Hawaii, under the COVID influence situation for real estate market. Yeah, because real estate is skyrocketing in Hawaii. Buying rental property in Hawaii is hard, period. So my first comment to Kazuza is and this is to everybody, just because you live in Hawaii, does that mean that’s where you’re going to buy your rentals. Just because you live in New York doesn’t mean you’re going to buy rentals in Brooklyn. Just because you live in Phoenix doesn’t mean you buy rentals in downtown Phoenix. People, the world is a much smaller place than it used to be your frequent Hampton Inn and a southwest flight away from checking on a rental property. Just look around the country and find the best rental market for your situation, Kazuza. I would ask her, Where’s your grandma live? Do you ever go to the mainland? Where do you go on the mainland? And she may say, Well, we go to Vegas quite a bit. Well, let’s start looking in the greater largest Vegas areas for rental properties and all sorts of Airbnb investments that are a lot more flexible in Nevada. So my first point is to think outside the box with that. Number two then she says, I’m thinking of buying stocks because of this real estate market. That’s crazy for now and see where COVID takes us or the real estate market. Please create a video to teach us the perfect scenario with details of how to start investing in stocks with a self-directed retirement account. I’ve seen your prior videos on this, but I’d really like the details of each step. Well, I’m going to actually probably shock you here because there’s no video exists and here’s why. And Mat I I’m anxious to see how you might amend My statement, Typically Kazuza, we don’t want you to do stock investing in a self-directed account. You can. We’re OK with that. We have that feature. And if your money is kind of sitting here for a month in between transactions, boom for under 100 bucks, you can start your stock brokerage account portal with your self-directed account and you can buy some ETFs and stock and all all to your heart’s content. But we see that as kind of a stopgap measure when you’re in between transactions to use that service. Frankly, you’re going to get a bigger bang for your buck. Stay in it. Td Ameritrade or Scott trade or some sort of online brokerage account where they have very, very low fees and maybe a more sexy portal for analyzing stocks and all that. Take your retirement account and put it with one of those online brokerages. If you’re going to trade stock for the next two years, don’t bring it over here yet until you’re ready to open the LLC and do real estate. So I think I’d be doing you a disservice showing you how to self-direct your IRA in stocks at our office. Stay at the traditional brokerage with an online portal until you’re ready to come over, and then you can talk straight talk trade stocks in between transactions. Mat. Yeah.
Mat: Yeah, I totally agree with that. And I think remember there’s different phases of where everyone’s at in terms of the self-direct spectrum. Self-direct is really the end here. This is like, OK, I’ve already I’ve got I’ve got disciplined saving. I figure how to save and get money in my retirement. I. Then you get a kind of merge into a I’m starting to invest my money, I’ve gotten some a few years of contributions in there. I’ve got a good little nest egg that I’m building here and now I’m investing. And for many of us, it’s like we’re buying an ETF. You’re buying the S&P five hundred, you’re buying a mutual fund. Maybe you are starting to kind of pick and choose stocks you like and you want to trade and you’re like, Well, I’d rather own Apple than own the S&P five hundred because I think Apple is going to be more valuable, OK? You can make your guesses on what’s going to go up and what’s going to go down in the market and or educated, you know, analysis, whatever you want to call it. And but a lot of people in just me, I’m just like, I buy the S&P 500. Even Warren Buffett and, you know, says, you’re a fool if you think you can beat the S&P 500. And he challenged all these hedge fund managers to try and beat it, net of fees to try and beat the S&P. Five hundred and one only one took him up on it and the guy lost, and he was a well-known large hedge fund manager. So. So maybe you just do something safe while you’re kind of getting ready to go investing, but the next phase is self-direct. Once you’ve kind of figured out investing, then you can say, All right, I want to do a little better than this mutual fund over here. I want to do a little better than this, the S&P five hundred or whatever stocks I’ve been buying. Now, I start looking at a real estate deal that provides better returns as cash flow that has appreciation. Now I start looking at maybe a note that pays 10 percent interest rather than the seven percent return I’m getting on my mutual fund. And those little incremental gains in rate of return over 20 30 years of investing is drastic. Make some major differences. And so. So just think you might be still just investing and wait for the self-direct opportunity? Don’t rush to get over here. Maybe you are just investing, but I’d say a couple other things. What about lending on real estate? You could lend on real property in Hawaii. That might be something to consider if you do like having something local. It’s not just if you want to get in real estate and, you know, real estate. Think of other ways to do real estate. Private money lending is one that’s common, particularly for like accounts that we have in Hawaii. Don’t just throw some ideas out there.
Mark: I like it. Well, now Mat, you kind of highlight. Could I jump to another question since you, I think you went down a great path of the. Yes. Evolution of IRA investing. You should write an article on that. That evolution of self-directing retirement, I saw Mat. He’s looking for a pen.
Mat: I something the evolution
Mark: Of this self-directed investor. There you go. There’s your title, the evolution of the self-directed IRA investor. I’ll read that just if you get any money on that, I deserve a little love. I want a little royal, please.
Mat: Ok, I’ll give you 50 percent of everything. I make off that. Yeah, which I
Mark: Know was zero. Ok. This is another HSA question.
Mat: Make it one hundred percent. You know, you know. I love you.
Mark: All right. This is from Zachary. And this is such a good question, I have never answered this on either podcast, ever. Are you ready? Mat This is this is a big deal. Now I’m going down the HSA route again, folks. We have argued over this for years. If you think I’m kind of weird going on HSA kick today. This is not an uncommon Mat and I have argued which was more important fund your Roth or fund your HSA. He’s probably convinced me Roth wins it by a nose, but it’s the Roth so powerful for long term wealth building and retirement. But the HSA is such a close second because that health savings account, you can start taking money out of immediately at any age for health care, and you’re going to need it. I don’t care who you are. Guess what? You’re going to get sick and old and die, if not sick and young and die. So sorry, it’s a little buzzkill there. Ok, now here’s the question from Zach. If I am a 24 year old health care dependent, oh my gosh, that’s great. I got to commend you. You could not have phrase this better. I know I rephrase clients questions sometimes because like, you’re asking it wrong, but Zach nails this. He says, if I’m a 24 year old health care dependent but not a tax dependent of my parents, am I eligible to contribute to the family limit in my personal HSA? Or am I still capped at the individual limit? You’re capped at the individual limit, but here’s what’s interesting, everybody, I wanted to give them that quick answer, but here’s here’s where this is going. Remember how you’ve seen in the law since the Affordable Health Care Act sometimes referred to as Obamacare, which I think did a lot of good things, is that you can keep your kids on your health care plan till they’re age twenty six, even though they may not be a dependent on your personal tax return. And the reason why is that sometimes it’s hard for young people to go out there and get on a group plan. They may be working part time, they could be going to college. And so they said, we need to let kids up until age. Twenty six stay on their parents health care plan, even though they’re filing their own tax return. So, well, what happens if the parents have a high deductible plan? Several things, the parents, because they’re married in this example I’m setting forth get to go fund a group plan or, I’m sorry, a family HSA account, but because their son in this example is not a tax dependent, their HSA funds cannot be used for their kid because he’s not a tax dependent, even though he’s allowed to be on their health care plan. So they got to go fund their HSA. That’s great, and they can pull it out for themselves, but they can’t pull it out for their son, Zachary, even though he’s on their health care. Insurance plan. Now, what about Zach Zach’s out there going well, I want an HSA,
Mat: But I can’t got a high deductible plan.
Mark: I got I’m part of a high deductible plan, even though my parents, God bless you, we’re paying for it. Zachary is allowed to go open an individual HSA. Thirty two hundred bucks this year and fund it and use it and grow it and self-direct it because he’s a part of a health care plan on his parents. Is that?
Mat: I hope that I learn something new today? Yeah.
Mark: I had to research it. But yeah, I’ve never talked about that before. Now here’s the one I’m going to go call an audible, and I think this is
Mat: Really I thought we were going to finish on that one. You know, you always want to finish arguing, that’s it for me. Yeah, that’s it for me. All right. I’m to play here. I’m George Costanza.
Mark: George Costanza just walks out of the conference room. I’m done. What happens if it’s a mom, a single mom with Zachary? So single mom. Different. Right? Very different. So single mom has Zachary on his on her health care plan, but she is now no longer on her tax return. Head of household. Because Zachary’s left house, he’s no longer a dependent on her tax return, so she cannot fund a family plan for $7200 because she’s no longer a family on her tax return. She’s single. She’s no longer head of household. So once Zach leaves the house, she takes her family HSA plan and it’s now converted to a single plan, or she keeps the same plan. She’s just not allowed to put seven thousand two hundred because she’s not a family. She’s single, so she’s going to actually convert to a single plan. Zach goes out and sets up his single plan, but they’re still on mom’s group. Health insurance boom. Although your brain?
Mat: I love it. That was cool. I like that. That comes up more and more. You know, it really does. It does. So. All right. Well, did you have one other final question because I was really going to let it go with that one we got?
Mark: You throw out one final question. You get to choose one last. Ok, now you answered Cedric’s question, right?
Mat: Yep. Well, one is, I don’t know. There’s David. This would be my last question because we got to get out of here is, he says, I own an office building in an LLC and I rent out individual offices to various businesses. Now he personally owns this. Would it be a prohibited transaction for My IRA LLC to sign a lease with the Building LLC that I personally own? Yes, David, so your IRA LLC cannot transact with you personally or LLC you own personally, he says. He says if not, could the IRA LLC sublease from one of my existing tenants and I increase the rent on that tenant correspondingly. No. So if you were LLC that you own is leasing to tenant A and Tenant A is like, we’ll give you some space that you can use for your IRA LLC. That would be prohibited. And I probably see where he’s going because he’s this IRA LLC, I think is a blocker. Maybe he uses it for mining and he wants to get his mining rig into one of his subcommittees, is one of his tenants spaces and maybe sublease it back, I think is what it looks like. But no, your area will see can’t go in and, you know, lease in that building that you own or even to a sublease where you’re kind of cutting the deal back on the other end, personally, that that would get prohibited. Yeah. Yeah, that wasn’t exciting and cool as your answer, but no one more.
Mark: It’s good. Well, I love it that we’re just out there trying to answer a variety of questions for everybody, and I want to just throw this out. My heart’s full. It was a fun weekend, seeing everybody in Phoenix just excited about saving. Is that weird? I just Americans are kind of crappy at saving, and so obviously we’re preaching to the choir if you’re listening to this podcast. But get out there, keep spreading the good word, let people know they can build a retirement and live even more incredible, financially lucrative and wealthy life. And that’s that’s. Incredible news. Life changing for people to hear, so thank you for being here. Well, we’re with you. So yeah.
Mat: All right. Well, look out for the self-directed IRA summit recording. If you missed it, it’ll be up on SDRA Summit. And of course, if you have questions on self-directed IRA topics, solo KS HSAs retirement accounts, any of that stuff. Get over to directedIRA.com/podcast. Hit the Ask a Question button. You can throw in your question there. We sort through those and try to get to an open forum show at least once a month to cover these questions. And thanks for being here. See you next week. Next week.