Episode 4: How to Use an IRA/LLC or Checkbook IRA

Join mat and mark as they break down how to set up the perfect structure to partner you IRA with other accounts or other individuals and build a mega IRA account the checkbook LLC is a unique structure that many don’t understand.
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Mark Kohler: [00:00:06] Welcome, everybody, to this week’s episode of the directed IRA podcast, it’s my honor to introduce the CEO of Directed IRA, the most infamous Mat Sorensen. Was that too much Mat to bring up and start the show?

Mat Sorensen: [00:00:21] That’s OK. I like that. You know, the last place I spoke, they did walk-up music, you know, and they bring you on stage. And what do you want to know my walk-up music what my song, I’d like to know? Yeah, Kickstart My Heart by Motley Crue. You know, got that great guitar at the beginning, anyway, that was mine. What’s your walk-up song if you had one?

Mark Kohler: [00:00:45] You know, I’ve got to get I’ve got to you know, I have to I’ve got to get a good one. I’ll think about that now before we screw around too much here for any of you that have never listened to our podcast. Yes. We try to provide extremely accurate and informative information, but keep it light and fun. We’re both tax lawyers, partners in the law firm KKOS lawyers for close to 15 years now, and the officers of DirectedIRA.com And Mat Sorensen, of course, the CEO. That’s why I jokingly introduce him as amazing. Mat’s also the author of this Self-direct IRA handbook. I’ve got my own few books there on Amazon and Mat and I just love Main Street America. Small Business America pretty much hates Wall Street. And so if that’s your feeling, you’re at the right place. And we have been helping clients self-direct their accounts for close to 20 years. And so Mat I mean, that’s people have got to listen to the show. It’s the best.

Mat Sorensen: [00:01:44] I mean, this is all about Self-direct and we’ve been breaking it down will always continue to do it. So we’re hitting some of the core topics on these initial episodes. And this is probably the most utilized tool in the Self-directed toolkit if you will. This is like the screwdriver, maybe in the tool kit. IRA/LLC what we’re going to talk about today. Yeah, maybe it’s a power, you know, the power tool, maybe a drill.

Mark Kohler: [00:02:16] We’re going into some unique areas today because since I’m not a contractor, I’m just a hack on the weekends. What would be the most used tool in the toolbox? It would have to be either a hammer, one of those screwdrivers, but the IRA/LLC if you self-direct an IRA and you’re not using an LLC, the time will come very quickly.

Mat Sorensen: [00:02:38] Yeah, and it’s not for every investment, but it’s for a lot. So some people call it the checkbook control IRA or a checkbook IRA. We call it an IRA LLC because it’s two things. It’s your Self-direct IRA and an LLC. And we’re going to break it down and tell you how you use it, what you can and can’t do dumb things people do that you can’t that are wrong. We’ll talk about partnering. All those good things.

Mark Kohler: [00:03:05] Mat now, since many of you may know this already. Oh, by the way, a couple of little other housekeeping items, we record this every week for the podcast on iTunes and Stitcher and other platforms, as well as for YouTube.

Mat Sorensen: [00:03:23] You said what I say, Spotify there close to an endorsement contract with us. I just want to not leave them out in case they are listening. Yeah.

Mark Kohler: [00:03:31] And and then also, of course, for YouTube and YouTube is a big deal to us. We think it’s pretty fun to get a Diet Coke and a bowl of popcorn and watch some of these same podcasts on YouTube. Sometimes we put up a whiteboard behind us, but for the most part, we try to keep it non-whiteboard visual so that it doesn’t screw up those podcast listeners on a commute. But anyway, you can catch it at all those venues. We do ask, please, if you find this helpful, subscribe. So whenever we put out a new podcast or a new video, you get a ping and that means on YouTube hitting the bell icon. Mat I got exciting news today. It could be today. Our producer Corey in the studio, he’s giving me updates by the hour. I might hit my silver play button today.

Mat Sorensen: [00:04:22] That’s one hundred thousand subscribers. Yep. Now, as soon as I get my play button. Who are a hundred thousand people out there?

Mark Kohler: [00:04:34] There are one hundred thousand suckers out there. But then I thought, where’s Dave Ramsey? Is he got his gold? He’s at one point nine million is like 20 times more than me now. He’s a little older than me and he’s been out longer than me on the platform. So if you get it. 100,000, that’s silver play button for those of you don’t know if you get a million subscribers, that’s the gold button and that’s what Dave Ramsey’s got, then you have to get to 10 million.

Mat Sorensen: [00:05:06] If you take this YouTube channel concept to regular TV like Mark with a silver play button is like a lifetime. Dave Ramsey with the gold buttons like HBO.

Mark Kohler: [00:05:20] So we’re trying to get there. So anyway, folks, again, we try to keep light. You wrote the book on this. But let me say, what would you think about just saying? Let’s just go off with a couple of myths. Like there are some myths about the IRA/LLC and we could talk about why that makes sense before we get into the how. What do you think?

Mat Sorensen: [00:05:40] Yeah, that’s number one for me. Everyone has to have one. Everyone needs it. I mean, guys, we set them up in our law firm in charge for them. I mean, we set up the IRA account and Directed IRA, like we would tell if we thought that it would be in our best interest to say that it’s a great tool for many, maybe even the majority. But it’s not you do not have to have it and it’s not required for every type of self-directed deal.

Mark Kohler: [00:06:06] Ok, here’s my number one. You cannot be the manager of your own IRA/LLC. I hate that one because there’s a few custodians nationwide. That are like, OK, you can’t be a manager, no, you can, it’s just their policy that you can’t. And we’ll explain some of those rules today, but it is very common to be the manager. Now you can’t pay yourself and can’t pay for your cell phone? Yeah, there’s some rules there, but you can certainly run the checkbook and take control.

Mat Sorensen: [00:06:36] Absolutely. And we’ll go over that manager for an LLC is like president of the corporation. Right. I mean it’s the person who gets authority that can act the LLC.

Mark Kohler: [00:06:43] I’ve got another one. I’ve got one more. I’ve got two myths.

Mat Sorensen: [00:06:50] I was just getting a basic description. Some people I don’t even know what the hell they’re talking about, but OK, you give another myth.

Mark Kohler: [00:06:56] Ok, fair enough. Why don’t you give your basic description?

Mat Sorensen: [00:07:00] We need to have another myth. OK, so. If you’re like, I don’t even know what the hell a Self-directed IRA is guys go back to Episode one, listen to this in order because I don’t want to waste any time. All right. So if you’ve got your self-direct IRA and we know you can buy an asset right out of the IRA, you can buy real estate in the IRA, you could do a note. You can invest in a private company, all these cool things. All right. But many deals, let’s say a rental property or a fix and flip or, you know, you need money tomorrow, want to fund a deal and whatever. Like, I want more control of it. I don’t have to go to my custodian and say, hey, directed IRA, even though we’re great and awesome and we’re on the ball. But I don’t have to go to you guys and say, hey, I need to send earnest money tomorrow. I just signed a contract on a property and I got to write in the name of Directed trust company FBO IRA. And you guys got to sign on the contract and did you get the earnest money sent out? And, now I got to close and can you wire the money to close? And by the way can you sign the closing documents because it’s all in my IRAs name and now I own the property. And can you pay the expenses? I got to pay the insurance once a month, make sure the rent’s coming in. There’s a lot of back and forth with certain assets, like a rental or like a fix and flip that has some transactions. The solution don’t have your IRA own the property, have your IRA own an LLC one hundred percent that you’re the manager of that will have a bank account. The LLC is going to own the property. The LLC is going to be the buyer on the contract and you’re going to a bank account for the LLC. The IRA is going to bust its cash into the LLC. This is X, Y, Z Investments, LLC. Whatever you want to call it, you’re the manager now you’re in control and can sign the contract, cut the bills, receive income, all the LLC bank account that’s separate from everything else you have, but that’s the basics of it. It puts you in a better control position to just manage your investment easier.

Mark Kohler: [00:08:47] Now, what I’d like I’m going to I’m I’m a list kind of guy. I grew up that way with my mom where here’s your list on Saturday. As soon as you’re done, you can go screw around. I’m going to put that. That is one of the reasons why. And not only does it describe the IRA/LLC, but I think that’s one of the main reasons why you do an IRA/LLC, is that so you have more autonomy. That’s a big word. But you have faster, easier control and often times cheaper access to your IRA LLC. OK, now I’m going to give a quick, easy myth and then I’ve got the second what I think the reason why IRA/LLCs make sense. The second myth is. In states like California, where it can be more cumbersome or expensive to have an LLC. I don’t need an LLC, I can just do some sort of trust or I can try to get around the IRA/LLC when it’s the best thing to use and do it in a clunky manner. And that’s OK. No it’s not I think it’s a myth that you can get around the IRA/LLC and use a trust and do the same thing and get asset protection. Nope, that’s a myth. And Mat, would you agree?

Mat Sorensen: [00:10:08] Absolutely. I’m getting tired of that one because I get it. You know, probably once a week, at least, someone coming in here telling me and a lot of them set them up at other custodians and we won’t touch them. And here’s another thing. Let me just say this again. We have more clients in California than in any other state. We have a law firm office there if we thought they were legit. It’s like shooting fish in a barrel, setting those up in California. Everyone wants one but they don’t want to pay the $800 bucks to the franchise tax board. We get it. I would set it up all day if we thought it was good. But let me give two reasons why it doesn’t work, because I want to send people this podcast now, this episode when they say, but why can’t I do the trust? So let me give you the technical answer and I’ll be fast, OK?

Mark Kohler: [00:10:52] Ok, but I can of worms now I got Mat Sorensen a rampage. Now I love it when he gets going.

Mat Sorensen: [00:10:56] This soapbox is going to be here for a minute. All right. So. An IRA is a trust by law, like when you set up your IRA, you actually it’s basically a trust. You’re the guarantor putting money into it. Your IRA custodian’s the trustee and you’re the beneficiary during your lifetime. And when you die, it goes to the people you list on your beneficiary designation on your account. It is a trust by law. It’s federally created by law. And you got to meet the requirements of an IRA. And the trustee of that IRA must be a bank credit or trust company where trust company or the trustee of your IRA when you set up an LLC or excuse me, a trust like these business trusts or whatever the heck you want to call them. Yeah. Well, who’s the beneficiary of that trust? I mean, who’s the guarantor of it. Well, the IRA setting it up, OK, most states only individuals can be a guarantor and establish a trust. So you’re in like California or some other state. I don’t know what the hell you did is this really a trust can. I’m an individual. I didn’t set it up my IRA did. The IRA can’t die. So how is this going to pass on? The IRA doesn’t die. You die, but you don’t own this trust. Your IRA does. And then I have another issue, OK? Is all of the of that’s why no attorney. I know there’s probably one or two in California that will do it. Go to them, get a attorney opinion letter, make sure you got malpractice if you’re doing it. But the other thing is the trustee under a IRA must be a bank, credit union or trust company. Well, if you just make yourself a trustee of the trust in your IRA, already is a trust and the IRS can have a problem with that and say your IRA is a trust, it just put money into another trust that your IRAs own a percent and use make yourself trustee. Then you just get around the rule. And doesn’t the trustee requirements still apply to this new trust you created, which, by the way, is probably a bogus trust, doesn’t even work because an IRA owns it and became the guarantor. So I got a lot of problems with that, and I just I like to touch them, that’s all.

Mark Kohler: [00:12:58] I’ll add one last problem and there’s probably some other minor ones for sure. But and to say what Mat just said, by making yourself trustee of the trust of which your trust is the guarantor of, if that even makes sense, you probably committed a prohibited transaction to get that word out on the table. And we’ve got podcast’s coming up on that. So that’s what really Mat saying, is that if you make yourself the trustee, you may have just shot yourself in the foot. But the last big problem is how do you document this? I mean, as some prospective lawyer, even out of law school, is going to go, OK, I got to draft a trust agreement with all these moving parts and make it operational and then go to the bank with this agreement and go to the IRS and get a tax I.D. number and but all to get around $800 dollars.

Mark Kohler: [00:13:49] People it’s a cost of living in California, do you know where I’m podcasting from right now? California. It’s great here. It’s nice, I get it. But there’s a cost to being here. I don’t live full time in California. We come visit a lot and I don’t pay taxes in California. I just am a visitor on occasion. So but people. OK, so let’s get off that soapbox about you out there. When you start looking at these checkbook LLCs and these IRA/LLC things, you’re going to have people in California that try to talk you out of doing it because of a cost that I think they caused far, far more problems for you than saving money.

Mat Sorensen: [00:14:25] Yeah, if you’re going to do it, just get a lawyer to do it, make sure they have malpractice and get an opinion letter. When we set up an IRA/LLC in our law firm KKOS Lawyers, we give you an opinion letter with it that said this is how it was set up, this is the legal basis behind it. Here are some of the cases about it. Make sure you stay within these guidelines.

Mark Kohler: [00:14:40] So now, Mat, let me say this. We’ve done four now, we’ve done three myths. We got kind of salty on these myths, too. We did. We got guys we’re going to work out in here. I’m driving.

Mark Kohler: [00:14:54] Yeah, we love it. OK, so let’s just take a breath, everybody. They’re not that complicated. I think that’s another myth. And I’d like to add that to the list. So there’s four myths there. I want to get to around number. I love in my list round numbers. And then Mat gave the number one reason for a IRA/LLC is access and ease. Let me T up what I think is number two and let Mat talk about it, because I’ve been talking too much. Number two, the reason why I think IRA/LLCs are so frickin cool is you can pool multiple accounts or people. That’s one of the major reasons. So explain Mat just in general, how that works before we dive into the how to.

Mat Sorensen: [00:15:32] Yeah. So we call that the Multimember IRA/LLC. And essentially what that is, is you can have multiple accounts. This could be your Roth and your traditional this could be your account, your spouse’s account. You’re like, hey, alone, we can’t really buy a property or do the deal we want to do by ourself. But if I throw in my IRA for one hundred and fifty grand and my spouse has an IRA, one hundred fifty grand, we can be 50/50 in an LLC, then goes out and buys this three hundred thousand dollar property we want. Perfect. OK, but if we didn’t combine them together we couldn’t do that and we, but that’s the deal we want. So it’s a perfect opportunity to combine multiple accounts even if you’re prohibited. Remember from the prior podcast, the Self-directed rules one. By the way, if you don’t know what a privitative transaction is, go back and listen to that one. We don’t want you or your spouse or your IRAs transacting between each other. But when you co-invest into an LLC at the same time, you’re buying the initial ownership of LLC in the beginning. There’s no transaction, so it’s not prohibited. So you take the initial ownership in that example 50/50. You break up the ownership always based on the dollars invested and it could be 70/30 because your IRA put in 70 percent, your spouse’s put in 30, it doesn’t matter. And now that LLC goes out and buys the property. So that’s called the multimember IRA/LLC. It’s a little more complicated. Like in our law firm we charge $800 bucks if an IRA owns an LLC 100% if it’s a multimember, those multipliers, it takes more work and process. There’s more people involved. $1,500 plus state funds.

Mat Sorensen: [00:17:02] I think Mat it’s actually $850 or the price will be. So if you’re listening to this podcast down the road, I think the price would be increasing to $850. So we haven’t raised prices in almost ten years. We’ve been trying to be very, very affordable for them to break some news to me today, I think that’s out there.

Mark Kohler: [00:17:23] I’m just going to plant that seed. Now, if you call up and it’s still $800, count yourself lucky. All right. Now, that was the number one reason-use control and access. Number two was I could pull together. I’m going to give one last number three and then Mat we’re going to put into the how to. Number three, this is probably and I got a ting of emotion just thinking about number three, because I think number three, I gave the most common, but I think this is the coolest. Number three is you’re leaving a legacy. Now, what I mean by that, many of our clients that are self-direct, they’re a little older, they’ve had a chance to build up a 401k at work and they’ve rolled the money out to an IRA or, you know, they’ve got some means. They build up an IRA worth investing, which typically means if they’re a little older, they’ve got a family, either nieces and nephews or children or grandchildren. If you know what’s freaking cool, you can set up an IRA LLC with your kids, Roth IRAs, with your grandkids, Coverdale IRAs, with your spouse’s health savings account, with your brother’s 401k. I mean, the family can come together and invest together. And it is so exciting. I had two phone calls today just in my own personal family circle regarding this, because I’ve got a son in law’s now that I’ve married my daughters and they’re like, oh my gosh, you know, they’ve they married into the Mark Kohler craziness.

Mark Kohler: [00:18:54] So they’re excited. We’re doing some deals together. But I want to teach my kids this concept. And I think it’s so fun that you can have a family board meeting and talk about investing in your IRAs. Yeah, really cool. So, yeah. So how do we do it?

Mat Sorensen: [00:19:12] Combining funds together. All right. So let’s walk over how you do it, because let’s talk about the single-member LLC, how you do it, and then a multimember little couple of different notes on each a single member LLC. This is a brand new LLC. Let me say this first. You’re not starting with oh, I’ve got this whole LLC that I’ve been. That’s right. I just don’t have anything in it anymore. I want to use it. And you can’t do that. You own it. I’m got to change the ownership from you personally to your IRA. We just committed a primitive transaction step one. We haven’t even done anything yet be invested in anything. So you’ve got to start fresh, let the owner from set up. Now you’re going to file articles with the state like a regular LLC.

Mark Kohler: [00:19:51] Oh, you’re you’re totally already complicated. All right. I want to Mat my Mat I’ll be honest with you and if people get to know Mat and I really intimately like it, work with our firm, you’ll know our strengths and weaknesses. And I would admit it right here publicly Mat is smarter than me. I really feel he is. I think I can be more creative than Mat and I’d like to recognize that. And you bet. I love you and I think I can break things down into the basic steps a little bit better. And so we complement each other. So let me say this first. I’ll tee it up for Mat, where you just you get step by step one is you’ve got an IRA account, so you’ve got an IRA account. Now, this could be a 401k. It could be an IRA. It could be an HSA. It could be a Roth. So let’s say you’ve got a Self-directed account. You have to get it at a Self-directed custodian. So now many of you that are already on this level of our podcast or you’re listening, you’re probably already there, but it’s worth saying some people just listen to a podcast, Kohler, because someone told to do it. So you can’t call Merrill Lynch and do an IRA. You’re going to have to get your IRA to a Self-direct custodian, step one. And then step two, you’re going to have to engage them to say, I want an IRA LLC. And this is typically a direction letter. You’re going to our website directed IRA. You go to forms and you’re going to say, I want to direct you to invest in this LLC, and they’re going to go, OK, that’s what you want to do Here’s some of the things we’re going to need.

Mat Sorensen: [00:21:26] It’s called direction of investment IRA/LLC is what the form is called. It’s easy to find. And if and if you’re using, let’s say, our law firm, they’re going to do this form for you. You’re just signing it up.

Mark Kohler: [00:21:39] So you’ve got an IRA. And if you’ve maybe said, oh, I want that simplicity or I want that access or I want to pool money together, so I’m going to get started. So if you’re going to pool money, you’re going to want to make sure all the family members or people that you’re going to pool money with have their account at directed IRA. You can set up your directed IRA account at night in your underwear. You can sign everything with DocuSign in the morning, your account is set up. So that’s step one is make sure you’ve got a quality account. If your money’s in it you want, make sure that your money is transferred over to your account and that you’ve got that that form ready to go perse or you know that a law firm is going to do it for you. Then step two, you’re going to call the law firm and you’re going to go law firm. I need an LLC because you can’t go to legalzoom to do this. Legal zoom is all the custodians are not going to allow that. There has to be about 15 provisions in an LLC to allow for Department of Labor Arissa IRS. And that’s why we give a comfort letter. You don’t want to just pull some frickin LLC off the shelf. You will jack this up. So you want to add some of these bases to I’m talking too much, but you see where I want to go. I want to just get some basics out.

Mat Sorensen: [00:22:51] Yeah, let me say this. Even just a few process things. How you get the EIN for the LLC is a little different when it’s an area than an individual. How you file the article is there are different options between manager, management, member, manager. You got to do different with an LLC. They probably don’t care about it individually as much. And so there’s some process things that if you miss it, it’s going to get the IRA/LLC rejected. I just did a webinar this morning to Wealth Council, which is a large group of attorneys in estate planning and business space on self-directed IRAs. And we talked about IRA/LLCs we’re out there teaching it. You don’t have to use us. We’re good. We got it down. But to use someone. Yeah, and we’re good. But just make sure you’re not finding some doc online. I’m not saying that because we want to make money like I’ve sent you someone else knows what they’re doing. I’m just saying what happens is then you get your LLC rejected either here or somewhere else. They’re not going to fund it. We don’t want it in our files. We don’t want our examiners and regulators looking at it being like this was a piece of crap. Why did you do this? So we want it to be right. And then clients get mad because they’re like, I did it wrong, but I didn’t know and I got to close tomorrow or I’m in a hurry. Everyone’s always in a hurry and there’s not enough time to fix it. And so I just keep that up.

Mark Kohler: [00:24:04] And you can see when Mat said you’re going to file articles with the state, I think there’s like six or five or six things to say before that because it’s not a directed IRA and say, OK, I want to direct you to move my IRA money into this LLC directed IRA is going to say send us the LLC now directed IRA knows if it comes from KKOS lawyer’s–done. We know we’ve already verified the attorneys at directed IRA have approved that form. Now if you go to legal zoom and set up an LLC, whether you go to directed IRA or somewhere else, they’re going to reject it. That’s what Mat says. Reject it. It’s not the IRS that is rejecting it’s not the state that’s rejected it. It’s the custodian that’s going to put the money in your LLC. They’re going to make sure you’re not going to put it in some nefarious LLC that’s got prohibited transactions because it’s not in their best interest for you to create a prohibitive transaction either because the IRS all in their business.

Mat Sorensen: [00:25:03] Yeah, and this basically is just legal requirements have to be in the document and every IRA custodian that allows IRA/LLCs to have them. I’ve trained many of them that I have a checklist in my book, in the IRA/LLC chapter, in my book, The Self-direct IRA Handbook. There’s a checklist on what needs to be in the documents if you want to get to the nitty gritty yourself. OK, so what’s the next step, Mark? What we like. We got the documents. I like how it works, how does the money get in there.

Mark Kohler: [00:25:29] Yeah, I like that because and thanks everybody for letting us just kind of ponder this, because our attorneys, we have five attorneys and we’re doing consult’s every day around the country. When Mat said we have a lot of clients in California, we have more clients around the country than in any one state. So don’t feel like you have to. Again, try to figure this out on your own, I think also when you ask your custodian to prepare the LLC, I think you’re asking for trouble because they’re not law firm and they’re not going to give you a comfort letter. What they’re trying to do is double-dip. They’re trying to make money on your account and on setting up the LLC. But how can they be setting up your account and also playing lawyer? Because if you jack it up, you know what they’re going to say. We’re not your lawyer, will you set up my docs? So I think, again, at this basic level, you’ve got your account set up. Now you’ve got to go forum shop. You’re going to say, I need a lawyer to draft this. And we get that call in that question all the time. So when you meet with the lawyer, I think before you even file articles, you’ve got to decide what state am I going to set this up in? Yeah. Yeah. What’s the advice you give on that Mat?

Mat Sorensen: [00:26:47] Yeah, I was just going to check today’s episode is brought to you by directed IRA and KKOS lawyers.

Mark Kohler: [00:26:54] I’m sorry.

Mat Sorensen: [00:26:54] The sponsors of today’s episode is.

Mat Sorensen: [00:26:58] We’re a little preachy today. More than more than usual but yeah. OK, let’s hit the state what state to set it up. And we generally like to set up in the state where you’re going to buy real estate. That’s your first choice. That’s your first choice. Second choice is maybe you’re doing cryptocurrency and IRA/LLC is great for crypto. You link your crypto wallet to it. I will get some videos on that. A chapter, the second edition of my book on it. We’ll probably set up in a state where you live. Now you’re going to be like again, the Californians. Well, but I’m in California it’s $800 bucks. I’m sorry. There’s really no way around that until you move your butt out of California.

Mark Kohler: [00:27:36] So your manager now. Before that, let’s say let’s stay on the state thing for a minute and Mat said it quickly, so I want to reiterate this. So you want to take your IRA and get an LLC so that you can go buy rentals, buy and flip rentals? We’re going to say our first question the attorneys are going to ask you is, where are you going to buy your rental? And you may say, I don’t know. Well, if you live in Nebraska, but your rentals are probably going to be in Tennessee, we want you to have a pretty good feel for where you’re going to buy your rentals. And if you say I haven’t decided yet, we may start the process, get all your information, get it ready to go, which doesn’t hurt. So again, that’s that’s water that it’s things there’s things that can be done. But if you haven’t really decided where you’re buying your rentals anyway, that’s kind of a big deal. And we’ve got education resources to help you out. You can jack up your IRA quickly, too, and by not by just shooting from the hip. Oh, I’m buying turnkey rentals here. Here. No, get engaged. Realize where you’re going to invest. I think that’s a really good thing to decide on because we don’t want to set up an LLC in Nebraska. And then on day two, you start buying rentals in Tennessee. Now we’ve got to register at for in Tennessee. Not that that’s hard, but it’s going to run you two to four hundred bucks. And we’re like, we could have saved that.

Mat Sorensen: [00:29:00] Yeah, yeah. And it’s OK, like, you know, just be ready. Hit us up right when you know what you’re going to go, you know we can jump on the L.L.C., but don’t hit us up when you’re like, all right, I’m closing next week. What? Yeah, I don’t got time. And in certain states you’re not going to get it done in time, even if we expedite and we bust over here. So make sure you’re giving yourself some time. I’d like to say give yourself two to three weeks. I like that so that you have enough lead time to get it set up. And if you’re in a hurry and this happens to and you’re like, but I need the LLC, I want to get the contract named LLC, but I got to get an offer in today, pick a really unique name, don’t pick A, B, C Investments LLC, pick maybe Kohler ABC Investments LLC or something really unique.

Mark Kohler: [00:29:45] I love this and see we’re talking about this is this stuff even before you’ve created the LLC. That’s insane. Where timing, naming so Mat before you go to name. That was on my list too. I like what Mat just said about timing because a lot of people think, Oh, I’ve got Robert Shapiro on the TV setting up LLC in the middle of the night, that we think the public thinks LLCs are faster than they really are. And when you’ve got IRA’s involved, it’s even longer because the IRA money has got to go through the custodian to get to a new bank account for your LLC. So there’s an extra step people aren’t used to as well. And so I think deciding where you’re going to invest and getting that consultation with the lawyer out of the way as soon as possible and then giving yourself two to three weeks before you’ve committed to a transaction because you’re like we people I got closing in four days. We’re like, and you just thought to call us now. Yeah. Oh, so tiny but so important.

Mat Sorensen: [00:30:49] Ok, let’s hit. Go ahead.

Mark Kohler: [00:30:52] If you’re watching YouTube, I’m biting my knuckles because poor Mat is being so patient with me, OK? I’m like, oh, one more thing Mat mentioned California. Here is the way you can get around California $800. Totally, legitimately. Most of our Californians, by the way, are not investing in California, they live in California, they’ve got the bank to live there, they love it, they love the lifestyle. They’re ingrained in it with their community and their family. They’re stuck. I get it, but. They’re investing outside of California. So here’s the way that literally the statutes in the Supreme Court of California has allowed you to get over this rule is if you’re going to do a multimember LLC with your family, let your daughter, let your son who doesn’t live in California, be the manager. Once you’re not the manager of the LLC and you’re not investing in California, they can’t charge you $800. So that’s so whenever we do a multimember IRA/LLC and the primary clients in California, I’ll say, whose are our members here? Well, I got this idea this afternoon. No, no, no, who are the owners of those IRAs? Well, Bob, my buddy, his IRAs, he lives in Arizona. He’s going to be the manager now. You can still control through the document of the LLC that you’re your buddy. Bob’s not going to rip you off because he’s got to follow what the members say. But I think that’s a good point too Mat, don’t you?

Mat Sorensen: [00:32:19] The only thing to do with me on that is a lot of times people put in those things to save $800 and it’s more of a pain in the butt like, well, I got to go track down my daughter because she doesn’t know what she’s doing. And I’m or this friend of mine, I’d really rather have control I don’t like him actually having complete control, even though we’re willing to be partners. I wish I was just on here so I could just do the things I want to do. And so sometimes with baggage with that. So think that through, though certainly an option in the right situation, it can totally be a good workaround.

Mark Kohler: [00:32:51] Ok, naming. OK, do you put Sorensen on all your LLCs.

Mat Sorensen: [00:32:56] Definitely not. I see. Ok, I do have, I do have an MNS because my initials MNS but I got an MNS real estate. So let me say this. I use an IRA/LLC, ok, Mark uses an IRA/LLC, my has a 401(k) attached to it. Marks has an HSA, so we use the structure ourselves. Like I’m sitting in the company here where I can approve everything if I want it’s easier even for me to use an LLC. OK, so that that helps you understand that the just the ease of it. So OK, naming it.

Mark Kohler: [00:33:31] Ok, now this is where you don’t even know people like was Thursday of last week. I texted Mat. No, no, no, it was on Saturday I was teaching a workshop literally people were watching me on the zoom and I called Mat because Mat is the guru. He I am so grateful to know him and I’m blowing smoke up the skirt. I get it. But he really does know this law. And so I called him. But when it comes to privacy, I’ve written a chapter on that in my book. I geek out on J.J. Luna. I love watching Jack Reacher and all this. By the way, I’m not a prepper people and I’m not a conspiracy theorist. I do have a real address out there and my wife order so much on Amazon, you can find out pretty much where I’m at any moment on the satellite somewhere. But I will. But I do study privacy. I have dreams of being more private in my life. My wife just won’t let me be more private. But I. I love privacy.

Mat Sorensen: [00:34:29] You can alwasy find him at markjkohler.com though.

Mark Kohler: [00:34:34] Here, here’s where privacy is important to know the difference. If you’re going to market yourself, if you’re going to market your company, you don’t want to be private about that. Mark J. Kohler Inc. It’s out there. Social media. I’m out there but my assets are private. See the difference. So when I, when I want to create privacy from possible predators, from a possible lawsuit, from identity theft, who knows? I’m going to make my assets private, but not my operational business private, in fact, completely opposite. So I consider IRA IRAs and my 401k money very private. So I want to choose the names of the LLC. That’s very innocuous, anonymous, indescriptive, you know, all those good adjectives. So yeah, into word IRA in it Mat you don’t even ever.

Mat Sorensen: [00:35:28] I never do. I mean it confuses people like it confuses the bank. What you’re going to do later is you’re going to have a bank account in the LLCs name. You’re getting a regular LLC business checking account and you’re going to need the articles that are approved the state and the EIN. And as the IRA custodian, we’re going to put the money into that LLC. OK, we’re going to send a check or a wire into that account. So. All right, so we got the name down. You’re going to get a good name for privacy purposes. And I just want to say, if you’re in a hurry in particular, don’t pick a really generic name that someone could be using because it might get rejected. We’re going to search it before we file. But best in those instances to pick a unique name that it’s really unlikely someone’s going to have.

Mark Kohler: [00:36:07] Yeah, in a couple of thoughts, you don’t need a DBA and again, you’re not going to need a trademark trademark conversation is again for your operational business. So this IRA/LLC will have a very innocuous, unique name like Green Green Tree Holdings, whatever.

Mat Sorensen: [00:36:24] I have one other comment to go ahead.

Mark Kohler: [00:36:26] Ok? I want to be clear when I say IRA, we bump into people all the time that named their L.L.C., Brian Jones, IRA, L.L.C.. I’m like, are you kidding me? Your name’s in it and it’s an IRA. Don’t put your name in it. Don’t put the word IRA in it. Just call it something innocuous that no one can ever figure out what’s in it.

Mat Sorensen: [00:36:48] Yeah, I did have one client when I told him that pushed back on me because he buys properties at auction and everyone knows his name and the auctioneers because he’s got a cashier’s check off of it and stuff and has his checks. It was easier for me to throw his name on it for the auction process and getting certified funds and his checks cleared because he had really fast deadlines anyways. But here’s one other thing on the name. Don’t pick a long name. If it’s going to be rental property, some tenants can write a check to that thing. And if you’ve got like a forward L.L.C. name it isn’t going to fit on a check.

Mark Kohler: [00:37:24] People that come up with I love that I can say this on a podcast because I can’t say it in a consultation, but I have clients that choose the weirdest names that I couldn’t even spell. I’ve got to be of the National Spelling Bee and a nine year old could spell it origin, please. Insane Ville.

Mat Sorensen: [00:37:43] I have I’ve had some funny ones. I had this one. They did a prestige worldwide, which is in the movie Stepbrothers. That’s the name of Will Ferrell and John C. Reilly’s company that they set up Prestige Worldwide. It’s hilarious. Now, it’s actually got approved in their state as they got it.

Mark Kohler: [00:38:04] Yes, I’m waiting for somebody to open Vandelay Industries for sure that for you Seinfeld fans or the Bluth Company.

Mat Sorensen: [00:38:13] That the Bluth Company. OK, now.

Mark Kohler: [00:38:17] All right, let’s see. Let’s see where we are at here, everybody. This is really important. And I said, you may think you gosh, you guys are being so basic, but there’s a little golden nuggets in all this because even the most savvy investor that set up Fifty LLCs when it comes to an IRA/LLC, it’s a whole new world. And I have clients to call me they’re worth millions that have done this over and over again in their own life. But when it’s an IRA, there’s little unique things. So I appreciate everybodies patience to go through this.

Mat Sorensen: [00:38:44] I mean, a couple other points, if I may.

Mark Kohler: [00:38:46] Yeah. And then we’re going to file our articles. Yeah, OK.

Mat Sorensen: [00:38:51] All right. So remember who owns this thing? You don’t the IRA owns it and so you need the account first. And this process, you’re going to have the IRA account set up first. You don’t need all the money transferred over. Just get the account set up. You can get the LLC documents going at the same time, Fidelity or TD Ameritrade or wherever your current IRA dollars are, are getting transferred over. All right. So those two things can be done concurrently. Getting the LLC going and the transfer. But step one is get the IRA account set up.

Mark Kohler: [00:39:24] So we went through you’ve got your IRA accounts set up, all the IRAs or accounts you’re going to use. You’ve thought of what state you might work. You’ve set up a consult with the law firm that you’re comfortable with. We agree. We highly encourage you to not overpay for this. We told you our fees. We’ve seen clients pay four or five times that, and it’s just a highway robbery. So get a second opinion. If the price seems a little outrageous, if your attorney has never done this before, it doesn’t mean they’re bad attorney. We’re all good at different things. Just but you may not use your regular attorney or accountant for this consultation. That’s OK. So get your consult going. You’re going to get that pick and figure out a name. You’re going to think about your timing so that you don’t put yourself up against a wall and then, OK, I think we’re ready. The law firm is going to file for the LLC. And before we even get to operate agreement and ownership percentages, because that can be unique, let’s just talk SS-4 that’s your EIN. This is where a typical attorney’s or accountants can screw this up again, because they’re like they overthink it. You see, when you fill out an SS4 to get EIN, there’s a box L.L.C. Well, in the real world you go L.L.C. But when an IRA owns it, a practitioner that doesn’t do this every day, they freak out. Is it a trust? Is it an IRA or whatever and then they screw up the SS-4. So this is so you want to make sure that you do check the box, it’s an LLC, get an EIN and when you go to the bank for crying out loud. You’re not going to need the operating agreement, you’re just going to need your articles and EIN acceptance letter and what your EIN number is, do not tell the bank it’s an IRA. The banker’s brain will explode. They’re going to call the personal banker over. They’re going to get you know, they’re going to call the red phone for the president of B of A in Chicago that there’s some Yahoo here. You know, it’s just like, it’s almost like security shuts the building down because you’re trying to open an account in the name of the IRA. Keep the bank on a need to know basis. The 18 year old setting up your account does not need to know what you’re doing.

Mat Sorensen: [00:41:33] It’s an LLC bank account. Now, there are some smaller banks. If you’re like, you know, I’d rather work with a smaller bank that knows what the hell an IRA LLC is. There are smaller banks that do it and they know what they market for it. They love those accounts. They’ll hold your hand. They’re good in all 50 states. But, you know, they’re not the nation nationwide bank that you’re probably at right now now than the National Bank. Let me just say, the reason why they don’t do this is because they don’t have to. Wells Fargo is limited on how big they can even grow. Right. And the other banks are like, we don’t it’s like you’re a square peg. They’re a round hole putting an IRA/LLC in it just doesn’t fit the boxes and they’re not going to train 20,000 bankers. This is small business bankers on how to set these up. So so there’s resources for like, you know what, guys? I really didn’t have a good experience at my bank or I want to work with one that knows what an IRA/LLC is. We got the contacts. Let us we’ll get you in the right direction.

Mark Kohler: [00:42:22] And just to give you a common problem so that you don’t pull your hair out, like, why didn’t Mat Mark talked about this? When you go to the bank and say you don’t say the word IRA. Cool.

Mat Sorensen: [00:42:34] LLC business checking account. I need to set up an LLC business account. Here’s my tax I.D. Here’s my articles.

Mark Kohler: [00:42:38] And they’re going to say, are you the manager? And you’re going to go, I’m the manager. Here’s where a problem can occur. You’re going back to my example. You live in Oklahoma. You’re setting up a Tennessee LLC with these national banks or even regional or certain credit unions. They’re going to go, well, hold it. We’re here in Oklahoma. You’re trying to set up a Tennessee bank account. You need to register in Oklahoma. And you’re like, no, I don’t. I’m doing business in Tennessee.

Mark Kohler: [00:43:06] And so you can hit a wall there. Don’t let them tell you that you’re wrong or that we’re wrong. It’s the bank. Remember, bankers are from, you know, Pluto, men are from Mars, women are from Venus. They they have no concept of how to do business. So don’t let them freak you out. We have clients call us up and go. You were wrong. No, you went to BofA. You’re really going to trust B of A over us, right? And so, like, no, you’re right. And it’s just there. So if you’re in a situation at the bank where they’re trying to force you to register in your state, sometimes you have to get on the phone and call a branch in the state where you’re going to set up your bank account if you’re ever going to go visit the property or go walk through or do a little bit of head hunting for your property. That’s a great time to go det up the bank account when you’re on the road. But if you just know you need a national bank account so you don’t have to deal with this. Call the office. That’s what Mat’s saying. We got we got an online banking system done.

Mat Sorensen: [00:44:04] We have to send you. So, yeah, OK. One other thing when you said the bank account, here’s a question they’ll ask. Well, we need you to put a minimum deposit of $50 in it, OK? Don’t get suckered in. All right. If you’re going to use a bank like that, wait until you get the check. We are going to cut a check to the LLC because one of the things when you say when you want to set up, you’re going to say how much I want to put in the LLC. Yes, I remember you got to leave $500 in your IRA. That’s our minimum requirement. Most other custodians have that or a similar number to say you have we have five hundred dollars cash in your IRA. All the rest of it can go into the LLC. So just keep that in mind on how you’re calculating this. The rest of the LLC. And if it’s going to be a check cut and they don’t want to open it without a deposit, fine. Walk that check in deposit when you open up the account. If you have a good relationship with the bank, lots of clients do. They’re like, I’m a business owner, I’ve worked at the bank for years and they know me. Just call them up, get the account open and say there’s going to be a wire coming in, guys, for $150,000. Can you chill out? I’m buying some real estate. You know, there’s going be a wire in the next few days. Open the account for me. Give me an account number so can get a wire in

Mark Kohler: [00:45:08] I think this is a good point in the show, too, because we’re almost done here. And we could talk about, well, in fact, two points. One, when you have that consult with the lawyer, they’re going to answer these questions and more and tailor it to your situation. We’re trying to give you the general procedure, the general myths, the general wise. And if some of you were like, well, what about this? Write it on a yellow pad. And that’s the purpose of the consult. That’s the beauty of this. When Mat says, our law firm and wherever you go, you want to make sure you get this from the law firm you work with, they should give you a comfort letter that says, here’s how you do it. And it’s if you don’t follow these rules, it’s on you. But if you follow our rules, we’ll stand behind you. That means if the IRS comes knockin. And you did what KKOS lawyers told you to do. We’ll take the heat, that’s the purpose of comfort letter. So all these little questions write them down and the lawyers will go through it. Number two Mat’s book has a whole chapter on this. Get his book right now. Just go to go to Amazon.com and type in directed self-direct IRA hanbook and IRA handbook. And if you want to go by the book directly from Mat site, you can go to SDIRAhandbook.com And that’s great. Third, the reason I say we could talk about this for hours. We have a summit. We did a summit for two days answering questions about Self-directing. If you’re going to Self-direct, you’ve got to go watch the summit. The recording is so far, is it? How much is the recording Mat?

Mat Sorensen: [00:46:47] I think it’s $199 right now. It used to be cheaper

Mark Kohler: [00:46:49] When you go to SDIRAhandbook.com, you can buy the summit and sit down and watch it. And there’s a whole section on this too. You want to absorb this? You’re the captain of your ship. In fact, our lawyers are going to tell you you got to bone up on this a little bit. You just can’t say, oh, I’m just going to set up an IRA LLC and walk out the door.

Mat Sorensen: [00:47:14] Absolutely. Because you kind of got the gun. You know, this is the we hate that analogy, but like, you’re driving this thing now, OK? You’re in control and you can also wreck it. So I moved from a gun to a car there in my analogy. So let me hit a couple other points, because I think these are really important.

Mark Kohler: [00:47:32] Yeah, we got more to say. I’m just saying, if I just wanted to say Mat, I really don’t think that this podcast is the end of this discussion. If you’re going to just read Mat’s chapter, get this summit for two hundred bucks. And number three, what was number three? The summit, the book on your consultation, make sure you go into that consultation with the list and have your whole family on the call. We’re cool with that. We’ve had phone calls with 15 family members where everybody’s got their IRA at the table and everybody’s asking questions. We love that. That’s great.

Mat Sorensen: [00:48:06] Yeah. OK, topping the list, OK. All right. Let’s go over the most common structure, the IRA./LLC. Your IRA owns the LLC. One hundred percent. That LLC is single member. That means there’s no tax return required by the IRS. Now once that LLC is set up, you’re going to need to renew it with the state that you’re in. And most states have a $50 annual fee or so or somewhere around their some are, 10 or 20. Some are one hundred Californias or eight hundred or so. But there’s no federal tax return for the LLC when one IRA own it 100%. Now two point the one the multimember because we talked about the benefits of partnering in multiple IRAs, family members, friends, whatever everybody is coming into the LLC. And now we combine all these dollars to go do a cool deal. A couple of things you ought to know on that one, we’re always going to set the ownership in that Multimember LLC based on the dollars invested. OK, I mentioned that earlier, but we’re always going to break up the ownership based on dollars invested. Everyone’s coming in at the time of formation. The second thing to go on, and this is a drawback, there’s a partnership tax return and a Multimember LLC. He’s got more than one owner. It’s not a single member anymore. The partnership, the IRS wants a partnership tax. And even if it’s your IRA and your spouse’s IRA now, there’s no tax due on a partnership return. But there is a tax return that’ll have to be filed the 1065 partnership return. So that’s it. It’s kind of an administrative thing you’re going to have to do every year, OK?

Mark Kohler: [00:49:42] I think it’s important we’ve got our prohibited transaction podcast or several of them, and I’m sure we’ll shoot more and more. And by the way, we do an open forum where we answer questions you want to again subscribe to this podcast if this is your first experience with us so that you’re getting those open forums too. It’s always interesting to hear what other questions people have around the country.

Mat Sorensen: [00:50:03] Let’s talk about manager, we do I want to hit that one next, but that’s what I’m.

Mark Kohler: [00:50:07] Mat that’s right where I was going. So I was going to say, why is that? Prohibited transactions is we said, you can be the manager, but let’s maybe talk about what I’m going to just give a couple of things that the manager can and can’t do. And then Mat, the guru here, will wrap up the loose ends. First, yes, you can be the manager. Yes, you can sign the checks, yes, you could fly to Tennessee and go look at the properties you’re going to buy. In fact, we highly encourage you to do so. But the LLC is not going to pay for your plane ticket. It’s not going to compensate you for going it’s not going to pay for the rental car. You are just going as an investor as if you were buying stock in Microsoft and you said, I’m going to go to Seattle and look at the Microsoft campus. But is Microsoft going to pay for your trip? Nope. So if you want to go look at your investment with your IRA/LLC, I think that’s wonderful. But it’s not going to be a tax write off inside the IRA LLC. We can talk about other methods to maybe get a write off for that because it’s part of your other business, maybe. But your IRA LLC cannot pay you to do it. It can’t pay you to be the manager and it can’t pay for your expenses. But you can certainly make decisions, control the checkbook and. And be in control, as always, Self-directed, you’re in control. What would you say that I missed that you can or can’t do?

Mat Sorensen: [00:51:27] Yeah, so I always kind of describe it as you can do an administrative and investment oversight tasks. Now, the paperwork, the decision making, the signing of checks or contracts, that’s all cool. It’s once you cross the line of physical work or paying yourself that, we run into it. So the fix and flip that you want to put on the tool belt and swing the hammer, we have a problem with that. If you’re like, I’m just going to show up and supervise things, OK, we’re OK with that. That’s administrative and management oversight. So you want to stay in that lane. And when we do, the IRA/LLC we have a dos and don’ts guide actually that walks through these things that says make sure you’re doing this and make sure you’re not doing that, OK?

Mark Kohler: [00:52:08] Yeah, I’d like this on this dos and don’ts. This is a good transition. And by the way, I told Mat at the beginning of the show before we went live that I wanted to share some of our favorite examples of IRA/LLCs. And we’re going to have many, many podcast’s over the years where we talk about mega IRAs and creative ways to get crazy rates of return. But look for that’s going to be the climax of the shows. We’re going to share some of our favorite. I got a couple of new ones I’m doing, too. But when we talk about tasks, remember, this is an LLC. It is an investment and someone’s got to do bookkeeping. Do not think that you can just throw caution to the wind. So you either have you can do the bookkeeping. Like we said, that’s administrative. But once you open this bank account and you start investing, set up a quickbook’s company for it, hire an accountant to do the books, get your kid to do the books, you can do the books, but you can’t pay your kid to do the books. So, again, anybody that’s involved in the LLC can certainly you could rotate that. We’ve seen clients say first year you’re in charge of the bookkeeping. Next year you’re in charge of the bookkeeping. So everybody takes a turn. That’s fine. They just can’t be compensated to do it. And when Mat talked about company renewals with the state that’s called company maintenance, if your company gets dissolved because you threw caution to the wind there, that could cause major problems or ripple effects with the IRS. So we have a company maintenance program at our law firm. $150 a year, the ladies will make sure your fees paid every year. Your minutes are done. And that’s right. You want to do your minutes. You want to maintain a little book here so that if there is a lawsuit, which I want to come to as well, so company maintenance and bookkeeping have to be done in an IRA/LLC, just like you would in a regular LLC.

Mark Kohler: [00:53:55] I like it. OK, let’s talk about Mat, do the pro rata, do the pro rata, the ownership thing, you were going down that path for a minute.

Mat Sorensen: [00:54:05] Let’s talk about getting more money and let’s say you’ve set it up and you funded it. All right. And let’s say you did the single member LLC, which again is the most common. Your IRA owns it 100%. Okay, I just want to make sure we get that because you keep talking about the everybody else, all these people involved. Most common is it’s just you and your IRA owns it. One hundred percent. If you want to put more money in that LLC, easy, it’s not a prohibitive transaction you can put more money in. There’s a revenue ruling on it. It’s in my book. That basically says it’s not a prohibitive transaction. In the same, IRA is putting in money of the same LLC 100%. OK, and there’s a little pushback some custodian’s had over the last 10 years. All have kind of gotten around to it. But I just want to note that if you get a little pushback. All right, now, let’s say you’re the multimember, though, and you want to get more money and let’s say you had three people’s IRAs and there you each own let’s say it went 30 percent first, 30 percent second and 40 percent on the third owner ok. It’s 100%. Did I do the math there? All right. It’s getting late on a Friday here I’m running out of battery. All right. Let’s say you want another $10,000 in there. But what’s going to have to happen is IRA, one’s going to put in three, IRA two is going to put in three. IRA three is going to put in four, if you like. Well, IRA three doesn’t have any more. Any money. They maxed out their contributions. They can’t put more money in. They have zero money to transfer over from another IRA. What do we do. You’re stuck. If that’s disqualified, people if that’s like you, your spouse and your daughter, let’s say IRAs, you can’t do it. That’s a downside on this multimember with disqualified family is you have to go pro rata as you put more money in. So if the LLC needs more money, everybody’s got to put in based on their ownership percentage. Now, let’s say it was an LLC between me and a friend and my IRA own 50 percent and his IRA owns 50%. We’re just friends. We’re not disqualified. We’re not family, and it needs $10,000. And let’s say he can’t do it. But I’m like cool I’ll throw in the $10,000 into cover it. No big deal. We’re not disqualified. Doesn’t matter. Even if ownership changes and goes up a little bit for me, it’s only going at his expense. But if I was putting money into the LLC for my IRA, my daughter’s IRA owns 40% and she could have put money in. Well, now, if I put that money in to cover hers, the ownership needs to adjust a little bit. And if it doesn’t, my IRA is doing something to benefit her IRA, which is disqualified so causes this prohibitive transaction.

Mark Kohler: [00:56:33] And now Mat just opened the crack of the door to this partnership law. That’s very unique in that whenever you have two regular Joe Schmo’s off the street or Sally Joes off the street, whatever, and they form an LLC that lets not leave the Sally Jones out of here.

Mark Kohler: [00:56:53] Yeah, yeah, I know. We do know. And we have more female listeners than male listeners. I want to take credit for that rather than the. That’s a credit to your fabulous tan. And yes, right now I’m just joking.

Mark Kohler: [00:57:09] This is very self-deprecating humor. Ladies were joking about it. But OK, so if you just have to regular people off the street to form an LLC and someone’s got to put more money in and someone doesn’t have the extra cash, you could do all sorts of horse trading. You can create notes. You can say ownership doesn’t change. We’ll figure it out later. You can do special allocations, all sorts of things, but not when IRAs involved. You have to make adjustments because it needs to be fair. The IRS doesn’t want any funny business going on. So so would Mat said, hey, if I got a partner over here that’s not family, not prohibited in my IRA has to put more money in. Well, then it’s only fair that my IRA ownership goes up a little bit or we book a loan that he I loaned him money to put in his share and he owes me and profit’s going to have to be distributed in a unique way in the future. You can do all that if they’re non prohibitive parties, if it’s family and you need $10,000, whatever your ownership percentages, you’ve got to put that percentage of $10,000 in.

Mat Sorensen: [00:58:16] And we say family, we mean the disqualified family, like parents, kids, spouses, your brother and sister. Totally cool. It is an LLC IRA/LLC with your brother or sister. No big deal, you know.

Mark Kohler: [00:58:26] Now let me back up to and say this so that you see where we came from. When you get on the phone with the attorney, then you go, yep, it’s just my own IRA forming an LLC. I want checkbook control. It’s going to be in Tennessee. We’re off to the races. They’re going to go answer all your questions, talk about maintenance. But if you say yeah, but I’m going to bring in three other IRAs and a 401k and an HSA and a Coverdale and my grandkids, Roth or whatever, we’re going to do multimember, they’re going to say, OK, I need to know exactly how much money each person’s going to put in or will see. I already screwed up my own rule. I need to know exactly how much retirement account. Each how much money each retirement account is going to put in. See, the vernacular is very important. So they’re going to ask how much money is each retirement account going to put in? Now, where is the custodian that each of these accounts are located, hopefully at the same place? Third, what is the account number for these accounts? And then our paralegals are trained to create a little spreadsheet, go, OK? 100%, we’re going to put an $82,000. Well then that’s that’s 100%. That’s the denominator. Now, your money you put in is going to create a percentage of that. And so we’re going to figure out everybody’s ownership down to a 0.0002 or whatever it is. So that’s called pro rata if you’ve never had to deal with that. So expect it. It’s coming.

Mat Sorensen: [00:59:50] Let me say one other thing on the multimember. You can mix in individuals, too. We’ve given a lot of example IRAs in it? But you can mix in individuals. So this could be my IRA and Mark personally. This could be my IRA, my dad’s IRA and some of my personal funds. All right. You can have the multimember IRA/LLC that has individuals in there with cash. All right. Even if it’s disqualified. And again, we break up the ownership based on dollars invested.

Mark Kohler: [01:00:18] And why would we do in fact, let’s throw it a unique one and we’re going to wrap this up. We always try to keep our podcast one hour so that Mat and I have the gift of gab. We could keep talking, we get billed, we pay, we bill by the hour. So it’s like, hey, all right, we’re trained.

Mat Sorensen: [01:00:34] We’re trained that way. Yeah.

Mark Kohler: [01:00:35] Let’s say here’s a fun type of IRA LLC. Then we’ll maybe get into some examples and encourage, again, all of you to watch the summit, read the chapter on the book and schedule your consult. For partners. A 401k puts in 25%. A Roth IRA puts in 25%. John comes in and says, I’ll do on all the work on this rehab, I don’t have any money, my credit sucks, but I’ll do all the work and I’ll do.

Mat Sorensen: [01:01:09] John’s not family to the IRA and 401k, unrelated.

Mark Kohler: [01:01:10] Contractor, knows his stuff. I’ll do all the work for 25%, OK. And then Mary last partner says I don’t have an IRA/LLC and I don’t want to do the construction but I’ve got $25,000, let’s do it. So she puts in her own money, John puts in his labor and that could even be credit. In another example they’ll sign on the loans or something. And then 401k puts in $25,000 and IRA puts in $25,000. Now notice that anybody puting in money. Got the same ownership percentage per dollar. Yeah. That you arbitrarily said John got 25% for doing the work. If you change John’s percentage that’s ok. But then it has a ripple effect of making sure that everybody’s par value of the money they put in is the same equivalent ownership percentage per share. Anyway, I say that right. Sound good.

Mat Sorensen: [01:02:07] Yeah. Yeah I got it. I got you. I don’t know if you set it right, but it sounded great. Thank you. I sound very smart. Yeah.

Mark Kohler: [01:02:18] I have one more point and then examples, so Mat maybe you have a wrap up point and then we could do a couple of examples.

Mat Sorensen: [01:02:24] Ok, well, one thing I was going to know is the Elfy also has some asset protection to it.

Mark Kohler: [01:02:29] Ok. I would say we’re on the same page. OK, so you’re right.

Mat Sorensen: [01:02:33] Ok, all right. So there’s some asset protection to us. We got the convenience and autonomy you got. You’re in control. You got the checkbook, you’re running the deal. You can do something today, signing the contracts. Everything’s in the LLCs name. You’re in the driver’s seat. We’ve got the partnering aspect of it. We can partner multiple people or IRAs, even at work partners we just talked about into the LLC. Third benefit is some asset protection for the same reason you use an IRA or use an LLC when you buy a rental property in your personal name. If something happens on the property, you don’t want to get sued personally. You don’t want your IRA to get sued. They’re going to sue the LLC and they can only get it with the LLC has they can’t come after you, the one responsible for directing the IRA, nor can they come after the IRA itself. All right. So provide some liability protection for your IRA.

Mark Kohler: [01:03:22] Yeah. And I want to say this in a different way, too. This is where this California Land Trust, Delaware statutory trust crap causes a problem, too, because you’re directing this trust. But what are you you’re the trustee. And a trust doesn’t give asset protection inherently like an LLC. And so you’ve got all these clunky things going on. And then when you self-direct your IRA to buy Rentals without an LLC, is a custodian in trouble if you didn’t go fix the railing in the back because of Termite’s? No, the custodian just did whatever you said. And so if I’m a lawyer representing the tenant that fell off the balcony and broke my neck, I’m going to sue the person that Self-direct directed that IRA. Now, if you have an LLC, I can only get at what the LLC owns. I can’t go after the manager personally. Now, this is where people get jacked up. They’ll say, well, my IRA has asset protection anyway. It does. So if I’m in a lawsuit now, this is very interesting people, if I am driving down the road texting and driving and I kill someone. Heaven forbid. But it’s happening every day now. This is involuntary manslaughter. I talked to a prosecutor the other day out of oh where were they? I talked to prosecutor. It was old lawyer, law school friend. And they said they actually went for voluntary manslaughter, like drunk driving. It was brutal. So anyway, if you’re texting and driving and kill someone, they cannot touch what your IRA owns because that’s asset protected that’s O.J. Simpson. When O.J. Simpson got in trouble for the Nicole Brown Simpson thing, they couldn’t touch his 401k same concept. But we’re talking about your IRA doing business now. It’s not you texting and driving. It’s your IRA owning a rental. Now you’re on the hook if you’re a slum landlord, just because it’s an IRA doesn’t give you carte blanche to be an idiot. So now that’s where the LLC comes in and you get that asset protection of being the manager. So that’s the difference. Don’t let someone talk to you out of an LLC because you’ve got asset protection in any way. No.

Mat Sorensen: [01:05:37] Yes. Remember, the asset protection of an IRA is for your personal liabilities that they can’t get. It just means you personally to then get into your IRA. You can file bankruptcy personally and the creditors can’t come at your IRA. But your IRA’s responsible for its own liabilities for assets it owns, like the rental property that are the fix and flip that something happens and the IRA owns it without an LLC. So now you can use the LLC for lots of things. You have a lot of real estate examples. It’s common for crypto clients, even a lot of clients, to hard money lending on short term loans. They want to work the deals faster. Maybe they’re doing non-performing notes and they want to collect on them easier. You’re using an LLC and being the manager. So there’s lots of good instances where the IRA/LLC makes sense. But remember, you don’t have to do it for everything, OK? And that’s what part of the consult could be. And getting educated on this is to know when does it work for me?

Mark Kohler: [01:06:27] Can I ask you a question Mat? And I don’t know the answer to this When would you say there’s a certain type of asset you have to use an IRA/LLC?

Mat Sorensen: [01:06:38] I think the fix and flip you have to. If you’re managing it and there’s a lot of money going in and out, I think, for the risk involved for every contract that’s got to get paid, supplies got to get bought, you know, there’s a lot going on there. And let me say this, too. We talk about the checkbook. You can have a debit card with the LLC too. Let’s say you’re the fix and flip and you’ve got to order stuff online or, you know, you got a cabinet custom thing you want to do that can wait for a check. You know, you find some at Home Depot, but do not get a credit card, OK? And don’t get sucked into that because you want the points and everything. You don’t get a credit card because you’re generally signing a personal guarantee which violates the IRA rules, but you can’t have the debit card.

Mark Kohler: [01:07:18] What about what IRA wants to buy a Airbnb in Cabo San Lucas, Mexico?

Mat Sorensen: [01:07:26] Yeah, I mean, that one’s tricky. That one. I would recommend a property manager for a number of reasons. Right. Well, you could do an LLC, but Mexico is not going to recognize your LLC. And in Cabo, like most beach towns in Mexico, you have to use an actual trust to go through a bank in Mexico to do for a non-Mexican citizen to own a property. So that was a maybe it wasn’t a curveball, but that was it was a change-up maybe.

Mark Kohler: [01:08:00] I’m sincerely asking these questions Mat. I know you’ve got to text your assistant and tell them to tell them that you’re going to be late for your appointment here, that we’re five minutes over. But let me ask this, because I think can an IRA own assets out of the country without an LLC?

Mat Sorensen: [01:08:17] Yes. Well, no. Good point. So I like to tell the country. Yes. Without anything, you know. So let’s say you come to a shack. I want to buy a foreign asset, real property, be the most common one. Last one I did was Belize. Mexico is a little quirky because of this bank trust thing you have to do in Mexico. So that’s why I kind of gave a dorky answer on that. That’s what can let’s say you want to buy Belize is when I did recently. You set up a US LLC. We’re not going to let your IRA, nor will any IRA custodian go to buy real property in a foreign country. We don’t want Directed Trust Company on some foreign asset. We don’t know what the heck the language is. We don’t know anything about it. I mean, we don’t know how the tax laws and rules and what our registration requirement down there. And you don’t want to pay us to figure it out. Trust me. So the easy solution is we’re going to set up an LLC in the US. If you lived in Florida, this is where that client lived. We did a Florida LLC, his IRA own the Florida LLC, one hundred percent to Florida LLC went up and owned up Belize LLC, which owns the property. And it’s not an LLC. It’s the Belize equivalent of an LLC, which in turn owns the property. And that’s a good way to get around it. And we’ve done many, many times with clients over the years.

Mark Kohler: [01:09:29] So to buy foreign property in an LLC is almost required. Yeah, and then number two, cryptocurrency.

Mat Sorensen: [01:09:37] It’s not required. There’s some ways you can buy it with an IRA without an LLC, but it’s way more expensive because they charge like a 10% fee to do it. So if you’re buying a lot, it’s going to be pretty dang expensive. Most crypto investors that are heavy with their IRA definitely use the LLC because you have to link a bank account to it and you’re not going to link your IRA account to it. You can’t do it in an actual designated bank checking account, which you can do with an LLC checking account. And so and I got a video on that. How do I crypto with your IRA? On my YouTube channel and a whole chapter of my book.

Mark Kohler: [01:10:14] Yeah. OK, well, do we want to just share two fun examples before we leave. You get two. I get two.

Mat Sorensen: [01:10:20] I’ll give, I got one and then you can give one maybe because I don’t know I got two back to back but I got a good one. OK, and this one’s a little more I want to say complicated. It’s frickin cool though. OK, this is I’ve taught this in my supercharger IRA class, OK. And I’ve had a whole recording on this 45 minutes or 30 minutes in my summit. If you want the down at the long one. I have a client, I had a client came two years ago as a real estate syndicator. He wanted to basically raise money to go buy real estate. But he wanted his Roth IRA or Roth 401k to do it because he wanted to build money up tax free in the Roth. And we went through a lot of reasons why that you couldn’t do it, but we found a different way to do it. We just had his Roth IRA own an LLC 100%. He’d put $50,000 into this new LLC. And every time he did, a New Deal is a new LLC. He sets up property one and he’d name them after the property he was going after Green Avenue, LLC, the apartment building on Green Avenue, and he did. Multifamily stuff kind of buys them fix and flip, basically a multifamily. And this flip and fix process is three to five years, by the way, it’s not like a six month thing, but he’ll go and he’ll put like twenty five to fifty grand in the LLC and fund it on a one hundred percent. He goes the property under contract. He’s just going to spend about 20 to 30 grand at least getting it under contract is earnest money and the rest he’s going to spend on some inspection cos he sends his contractor in because he’s always got the kind of stuff he wants to do on a rehab, he’s got like a construction manager that goes and bids the thing out, figures out, here’s what we need to do to kind of do our thing that we do. So he’s got some money into it. But before he closes, he goes out and he raises one or two million dollars from other investors who come in and buy into the LLC later. And so but he’s going to keep maybe twenty five to one fourth to one third of the ownership of the LLC and the other seventy five percent to two thirds of the LLC is going to be owned by these investors putting in cash. Well, think about it. My client’s putting in twenty five to 50 grand and he’s going to go raise a million or two that and but he gets to keep twenty five percent to thirty three percent of the ownership. That’s basically almost 10x his return immediately just upon funding the LLC. And so there’s some key steps you have to do in that sequence of IRA owns it 100% at the beginning gets the property under contract with the valuable asset, put some money into it so it has an asset at risk, brings in the investors who are not disqualified. It’s not like his parents or a spouse coming in and other investors unrelated who buy in at a higher value, essentially. And now he goes and acquires the building and he’s got a 25% stake in a multi-million dollar apartment building. He paid $25,000 for.

Mark Kohler: [01:13:05] I love it. OK, now this is where the yin and yang of Mat Sorensen and Mark Kohler really payoff because for some of you big hitters out there, you got that. You loved it and you’re like, oh my gosh, I need a phone call with one of the associates. And by the way, let me say, you don’t have to talk to Mat Sorensen or Mark Kohler. We’ve got six associates that do a fantastic job walking you through these issues. So if you call the law firm, they’ll help you out.

Mat Sorensen: [01:13:34] Ok, not my not that little concept would work with a duplex, with a single family. And I just happened to get the bigger one.

Mark Kohler: [01:13:40] But now my example is, is more simple and lower dollar value. And this is why I say the yin and the yang is that some of you that are big hitters, we can handle that. But I also love the little base hits the little small ones that really get you there, gateway drug to self-directing and they get things rolling and they get your family involved. So here’s an example of what we’re doing. And I just closed the deal. The delivery has not taken place. Contract is to be signed, but we got our handshake. So if you’re Yellowstone fan with Kevin Costner, Amazon Prime, this is right up your alley. OK, so we have a little LLC that we formed in our family. And I won’t tell you the name of the LLC because I want to be private about, again, assets we keep private. So but I’ve got an LLC, it has eight partners. It’s got all of our families, Roth IRAs, every one of us have Roth IRA. And you may say, well, I make too much money. Oh, you can have a Roth go YouTube Kohler Back-Door Roth or Sorensen Back-Door Roth. We both have videos out there. We can walk you through it. So no matter how much money you have, you can have a Roth IRA.

Mat Sorensen: [01:14:55] We have a backdoor Roth IRA page at directed IRA that goes through the steps and has a special app for it that does the whole thing for you. Yep.

Mark Kohler: [01:15:03] Oh, if you just call directed IRA live chat. We’ve got a little chat window during business hours the team will get you set up with a backdoor Roth immediately. OK, so in this Roth IRA scenario, each one of the family members have only put in about a thousand to two thousand dollars. About a Christmas ago, I told the kids, I said, whatever you put in your Roth IRA this year, I’ll match it. So I did kind of a family company match, and it was just they all got a 1099 for it, by the way. But I put a little money in everybody’s Roth IRA, depending what they did. One of my kids put in like two hundred dollars and they were like, you were serious snooze, you lose. So based on that LLC, what everybodies a Roth IRA has, they have their investment in it. So we have about $16,000 in this little LLC. Nothing, you know to be on CNN about, but what we’re doing in this L.L.C. are several things. One of them I’m going to show right now is we are going to buy four pairs for $5,600. And let me you may ask what four pairs a pair is a mother cow and a baby cow. OK, so I have a rancher out in southern Utah that I just had a phone like with these like the the.

Mat Sorensen: [01:16:20] Harry, David pairs like what are these pairs, these are must be delicious pairs.

Mark Kohler: [01:16:25] Yeah, now I apologize. I want to say this is $4,800 dollars. A pair goes for about $1,200. That’s a mom cow that has already had a calf. Now, if the mom cow is pregnant, it’s actually cheaper. But once she has the cow, because obviously, you know the buns in the oven, we don’t know if it’s going to come out well. So but once mom and baby calf are born, we are going to buy the four pair for $4,800. Now, you usually buy pairs in the spring. So I cut the deal now because a lot of ranchers are making their plans for the spring. So here’s our numbers. We’re buying four pair for forty eight hundred dollars. Cool. Now what do you do with this. Well they go out to the ranch or puts them out. I learned all this over the last couple of years with this ranch, a buddy of mine. And I want to be like Kevin Costner someday. I actually went to Jackson Hole and bought a new cowboy hat. So I look cool. But anyway, but in a nutshell, you put these two cows out to pasture throughout the year. A rancher is going to charge about 19. Anyway, I’ve got the numbers all written down on a pad of paper. I didn’t bring it to this podcast today, but they charge a monthly fee to under the feeding and inoculation to keep the cows healthy in the fall. You have two options. One, you can sell the calf off at auction or you can keep the calf and let him, if there are some female calf, they could start giving birth themselves. So what happens is either you sell the calf, you keep the the mother cow and she just has another one and the other. But you build up your own little herd. So we’re building up a herd of calves and cows in our little IRAs. Our little Roth IRAs. The net return after expenses on a pair is you’ll make about $900 to a thousand every year after cost. So on this little these four pair, I’m going to average about a 16% return. And a mother cow is good for about 10 years of birthing. So then you get to sell her at auction and get all your money back. So I’m going to generate a 16 percent rate of return with these cows. And if you have a male calf, they sell for more because they could be a bull and or steer and they sell for more. You plus, if you get lucky on the price of meat, the rate of return can be better. But this could be from anywhere from a sixteen to 25% rate of return on our little Roths. Now you may not think that’s much, but you watch a Dave Ramsey video on the rates of return in a Roth IRA at an 8, 10 or 12 percent over the lifetime of my kids is they’re starting to invest. This will be easily a million dollars within about 15 years. I know that sounds insane, but you can do amazing things with a Roth IRA. So if you want to go to YouTube, type in million-dollar Roth Kohler. And I’ve got a great video there that explains as well. But Mat, that’s what we’re doing. We’re buying cows.

Mat Sorensen: [01:19:26] I don’t think anyone expected that to be the example to be given on the podcast.

Mark Kohler: [01:19:34] You watch Yellowstone and you’re like, I got to do that right now.

Mat Sorensen: [01:19:39] Well, man, we broke some new territory today on the podcast. Thanks so much, everyone, for hanging in on it. The ILC is a really cool tool, really common. And it’s used for a lot of good reasons that can really be a valuable tool to have out there for those who use Self-directing. So thanks, of course, for listening. We’ll have another episode coming up. Make sure if you’re new, go back to Episode one. If you’re like, I don’t get this, I’m lost a little bit. Go back to Episode one. It’ll help. We’re trying to do it in sequence. So you learn these concepts in sequence and stay calm and self-direct on.

Mark Kohler: [01:20:12] I love it. I was going to I wondered if you’re going to do the slogan. There it is. OK, keep come self-direct on. See you next week, everybody.

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