Top 10 FAQs for Self-Directed IRAs

Episode Transcript

(00:00) I think that’s the biggest takeaway is invest in what you know like if you’re a real estate investor why would you go invest in Tech startups I mean you can I don’t mind you crossing over and maybe you want to diversify your investment but from our experience the most Savvy investors the ones that have the biggest accounts that do the best is they do the same stuff over and over again and it’s what they know and what they’re good at well one of the tax benefits of self-directing is it’s you’re getting a bigger Roi because you’re investing in
(00:25) what you know with maybe some inside knowledge again or expertise and then that gain is not taxable so it just feels better today we’re going to talk about the most frequently asked questions from none other than the Matt soron the CEO of directed IRA and he asked specifically for this podcast because he’s sick and tired of these questions so he’s like can we just shoot a podcast on this is that what you said is that my inside voice that is exactly what I said and then Mark said what are the questions and I said we’re going to
(00:54) make them up as we go the nice thing is is we’ve both done the 10,000 consults with clients over the years we’ve directed our own IRAs we have a company you know opening thousand accounts a month helping clients self-direct their IR got a little experience here so we got a little experience and perspective and we want to help you know the common questions particularly for those of you that are getting started this is part of our getting started Series so we want to hit these questions and try to put things in context and maybe put to bed
(01:20) some of the questions you had in your mind about self-directing yeah now I wanted to help you with question one very common is Mark single and I just want to get that off the table uh that I got married about 3 months ago to my beautiful Patty and uh so I’m sorry everybody but that’s FAQ number one and chuck all right so number two all right now Mark you know he’s not going to be on the golden Bachelor you know the producers reached out to Mark to see if he wanted to be the golden Bachelor yeah true story yeah it is it
(01:50) is I was on you know some list maybe very short list or maybe not we bit at that but yeah golden Bachelor so Patty feels even more special she’s like I didn’t have to go through 25 ladies you know that’s this guy yeah you should use that you got to use that I know I’m going to you work that one for many years to come all right well let’s get to the point of this which is the self-directed IRA questions but I want to First make sure you understand what a self-directed IRA is if you just sprung on to this specific episode that doesn’t count as
(02:15) one of the that does not count as number one okay so I want to make sure you understand we’re talking about a self-directed IRA we’re talking about an IRA account this could be a Roth traditional SE solo 401K a retirement account where you can invest in real estate you can invest in private companies in crypto in small businesses in startups your IRA does not have to buy a stock a mutual fund or an ETF you can if you have a broker dealer IRA and that’s what most people are familiar with but you don’t have to if you’re
(02:41) interested in these alternative assets like real estate and small business you know you can invest your IRA into those types of companies it takes what’s called a self-directed IRA we’ve got an entire podcast on this tons of resources at our website directed.com on how to do this and this is where we want to hit the top 10 frequently asked questions okay so once we start breaking down that topic that endeavor that opportunity even if they watch our podcast or go through our website some folks will call up and say by the way a
(03:15) question and you’re like okay let me help you with that because we’re very friendly very kind we are not complaining yeah when people call up and ask and there’s no dumb question oh absolutely everyone was new like you should the dumb questions I asked when I first heard about this which is actually yeah he asked a lot of dumb questions that like 20 years ago I was like you can’t buy real estate with your IRA can you mark was like no I’ve actually heard help some people do that I was like really well you know maybe you nailed it
(03:40) is that question number one I don’t know I’m I’m I’m actually excited what you would say is number one yeah I think the number one question people have is what can I invest in and then and the corollary to that is like what should I invest in is that so that’s question one and two question one one but I’m teeing up two okay so number two is what can I invest in okay what can I invest is number one mhm oo this is get fun okay so let’s go back and forth I’ll say one you say one you we go go FAS you didn’t want to answer that no I can but I mean
(04:09) I’m trying to keep you know our listeners engaged here make it fun okay real estate that is the most popular well you’re supposed to say another one really fast you missed the whole point of this game private funds crypto small business [Music] lending I gu was a little br I’ll go with private lending okay private okay oil and gas sports teams cows gold Jets planes I got an in funny story on that one wow um wow it’s so funny that when we play this game I feel like it’s passport you lost well please some you gra let’s
(04:54) unpack some of let unack when we drop those words let’s work backwards maybe yeah so so let’s start with real estate yeah and it’s fun what we’re trying to let you know here is like you can almost think of anything yeah and and you can invest with your IRA and so it may seem a little dorky that we’re playing it this way but um it’s really the world is your oyster yeah and we want you to invest in what you know okay that we’re going to get to question number two here is okay these are all the options but what should I invest into let’s come to
(05:20) that in a second here so you have a lot of options here the key rule as you’re looking at this is these are investment assets we’re not about talking about assets for personal use and we’re talking about real estate this is investment real estate this could be a rental property this could be long-term short-term rental this could be lending on real estate okay I could be lending to other Real Estate Investors Mark and I have both done these types of deals with our own IAS and those are very common types of strategies um this could
(05:45) be a Fix and Flip This Could Be partnering into an LLC with other people where your IRA is the cash partner and there’s other work Partners doing a real estate deal let’s get to small business this could be your IRA being the cash investor in a small business this could be your IRA invest in a startup that’s raising Capital that could be the next big thing yeah it’s SK the limit the only thing we would say is it it has to be legal um under the law and obviously that would make sense so like you guys don’t have any
(06:16) illegal options for no but so now other than you can’t invest in things that are illegal under federal law or whatever like the Cannabis yeah not good you cannot invest in life insurance with your retirement account you can’t buy Collectibles cuz those that wine collection turns into a bot bottle collection classic joke yeah that’s now there are Collectibles you can buy actually there there’s some exceptions like gold silver Platinum plaum with certain Purity requirements but like the stamp collection the art the wine
(06:47) collection the comic book collection no good yeah the stamp collection just ends up in the mail and then third you cannot invest in S corporation stock because s corporations are for individuals but those are just some of the last restrictions to think about what I cannot invest in and I like that you said something in there that leads us to FAQ number two is what should I invest in yeah so it’s like what can I and what should I and I I love what you said was like what you know yeah and I think that’s the biggest takeaway is invest in
(07:18) what you know like if you’re a real estate investor why would you go invest in Tech startups you know what I mean like if you’re a tech person and you’re in that space in that world why would you invest in real estate I mean you can I don’t mind you crossing over and maybe you want to diversify your investment through other purposes like that but from our experience the most Savvy investors the ones that have the biggest accounts that do the best is they do the same stuff over and over again and it’s what they know and what they’re good at
(07:42) and I think the misnomer because I in the 80s I was a huge fan of the movie Wall Street Michael Douglas oh my gosh was the best um and we heard the term insider trading and I think we’ve been programmed when you watch the news or invest that if you have inside knowledge that’s illegal like you cannot invest in something where you have inside knowledge well that is an SEC Securities and Exchange Commission law to protect and investors and people and companies with Integrity that if it’s a public company you can’t invest if you have
(08:14) inside knowledge but when it’s a small company a private company it’s a special little unique something you know going on in town you know an overpass is going to be built on the freeway and this land is going to be worth more than three years or you have you’re a doctor and you know that my gosh an invention of this sort of medical device would change the world or I mean any inside knowledge you have in your industry and you want to invest your retirement account in it go for it but if it’s a public company
(08:41) and you’re buying stock or trading stock based on that knowledge that’s where you get into trouble so just know that you again invest in what you know that’s what you should invest in yeah and I think just like you can buy a bad stock or a great stock you can buy a bad real estate deal a startup an oil and gas deal any of the assets we said you could invest in you can make bad decisions there and so but this is the risk return stuff that you get to decide and you’re taking control of your retirement account you get the benefit of The
(09:08) Upside you also suffer if you make the bad decisions but I think that’s kind of the American way and that’s what’s really I love about self-directed IAS is it’s up to you like you get to decide and we give you all the options we don’t restrict you and say it has to be on the menu it’s got to be one of those stocks or ETFs on the menu we’re like we don’t care you’re entrepreneurial you’re an investor which is most of our clients they’re very Entre rural we let you invest in what you want or the opportunities that present themselves to
(09:33) you it might be a private fund that you hear about or friends are investing into or you know you get access to those that’s very popular and you don’t have to be a wizard or like you know but you might have opportunities that fall your way where it makes sense to use your IRA to invest all right well can I I wanted to guess what number three was you want you go for number three that’s I guess I thought we were voling and well okay all right I’ll throw it out there um is there a penalty or tax to move my IRA
(10:01) into a self-directed way like do I I might cuz I’m I’ve been told I’ve got to take my money out to self-direct so is there a penalty or tax is that a common question yes that is a common question let’s I mean okay go for it so so give them the bad news the the bad news is well there’s good news there is no bad news I’m like What’s the bad news Okay um the nice thing is is there’s no tax or penalty okay when you’re using a self-directed IRA let’s say you got a brok Brer dealer Ira you’re at TDM a trade this is your
(10:32) Roth IRA or traditional IRA doesn’t matter let’s say it’s traditional for the example and you’re buying stocks or ETFs okay and you’re like all right I got $300,000 account here but there’s this $100,000 investment I want to do private fund let’s say all right well TD marit trade won’t let you do it because it’s not on the NASDAQ or the New York Stock Exchange so how do I do it well you transfer $100,000 to your new self-directed Ira at directed Ira no tax no penalty and now that 100,000 is at your self-directed IRA and can invest
(11:04) into that private fund into that private investment that’s not publicly traded see TDM a trade is just a broker dealer and won’t let you do it we are a self-directed custodian the best that’s out there and we’ll let you invest in whatever is allowed by law which includes a private fund but it’s like going from Charles Schwab to Fidelity okay you’re going from in my example TDM AIT trade to directed Ira we’re an IRA custodian all the same as TDM Merit trade we just have a different set of options for for you so you can decide
(11:31) what you want to invest in I like it another way of uh that I’d say this is just keep in mind when you self-direct you’re not taking money out of any type of retirement account you’re just changing who the custodian or the broker is that is holding your account you’re going to say oh you don’t let me do that I’m just going to move my money over here and so whenever you self-direct no matter where your money is at it’s not coming out and anybody that tries to send you the money or oh you want to do a 60-day roll over oh you want a
(12:01) distribution they are not getting what you’re doing stop get on the phone with one of our reps at directed IRA and they’ll help walk you through the steps of what to tell the company that has your money it could be an old employer it could be something like that so you got to be careful telling someone that has no clue what you’re doing um what to do yourself so it’s kind of the blind leading the blind so the point is the money is never coming out you’re just moving the type of account and any Ira can be self ired and you just have to go
(12:31) to a place that allows you to do it I love it number four what’s number four FAQ number four what are the tax benefits to self-directing your IRA oh okay and we’re going to come to the cons in number five here okay what are the tax benefits what are the tax benefits self-directing your IRA okay when you’re thinking about your self-directed IRA okay and you’re thinking about your IRA let’s just talk about Facebook stock okay let’s say publicly traded you bought $100,000 of Facebook stock and it goes up to $150,000 you sell that you got $150,000
(13:00) of cash back in your IRA well you don’t pay any tax on that right whether it’s a Roth IRA or traditional IRA you’re making money in your retirement account you don’t pay tax on the gains or income well let’s say you’re doing the same thing with real estate you bought a property for $100,000 in your IRA it goes up to 150 you sell it for 150 that whole 150 goes back into your IRA no tax on the gains okay this tax advantage nature of your retirement account works the same for private assets as it does for publicly traded Assets Now remember
(13:31) your traditional account is growing tax deferred so I’m not paying taxes on making money nothing’s hting my 1040 my account’s growing I get to reinvest every penny which is huge when you’re talking about your retirement account which you’re investing for 20 30 years typically and then in the Roth account of course it’s taxfree it’s coming out totally taxfree at retirement so that is essentially the benefit all the investment growth I’m having that account I’m not paying tax yeah I like and I’ll say it another way I like
(13:58) sometimes the way I say it does not resonate at all with any of you and then you hear Matt going and you’re like oh that makes sense and vice versa so I’ll say it another way what are the tax benefits the way I’d say it is you you’re able to get such a bigger Roi when you self-direct and so that tax savings is exponential yeah I mean if you have money in a 401k or IRA and you grew up with that methodology with your parents and then you went into the corporate world your average return was 8 to 10% 10 if you were lucky right and after all
(14:32) the fees you see your retirement account slowly creep up well one of the tax benefits of self-directing is it’s it’s you’re getting a bigger Roi because you’re investing in what you know with maybe some inside knowledge again or expertise and then that gain is not taxable so it just feels better it just it gets the snowball gets bigger let me just give you an example of this CU I was talking to a real estate investor does a lot of private money lending with his IRA and outside of his Ira I was just talking to
(15:02) him last week had a big group I did a webinar for him it really good and he loves his retirement account because he’s one of these numbers guys former engineer that gets into all the numbers and he says man when I invest my personal money and I’m doing private money lending he’s like I’m getting a 14 15 16% anual rate of return on my money but when I’m doing that personally I pay federal income tax I’m in the highest tax bracket 37% I’m paying state income tax his State’s about six or 7% he’s like I’m paying
(15:33) over 40% that is eating in to my 15 16% return I’m really taking home eight or nine wow and then I’m reinvesting that money next year and I’m trying to grow it then he says when I looked at my retirement account as I’ve been private lending that it is insane how big my retirement account is from the little amount of money I started with compared to the private money I was investing outside my retire retirement account because every dollar I make in my retirement account gets to be reinvested into the next loan and the next loan and
(16:04) the next loan and when you’ve done that for 10 years it is insane the rate of return and the bigger your retirement account’s going to be so just think of it that way is that Advantage you have of every dollar of profit gets to go into the next deal on the next investment could be exponential because we’re talking about your retirement account not what you’re going to take out in two or three years we’re talking about in 10 20 30 years yeah that tax deferral or taxfree methodology is the CER with the ROI and that rate of return in
(16:32) of the inside knowledge of self-directing love it all right now number five I love to ask I mean how much does this cost is it is it going to be a lot more expensive because I’m paying a a financial advisor maybe a fees in my 401k um I don’t know it’s hidden I don’t know if I self-direct is it going to be the same cost or what does it cost to do this yeah so our annual fee is $4.
(17:03) 95 and then it’s 50 bucks when you buy or sell something okay so that’s our our fee and I think that’s to open an account so I’m just going to open up a retirement well I have a half a million it’s got to be more right same thing 495 yeah $495 you got a million dollar account a half a million dollar account $100,000 account $50,000 account it’s all the same annual fee so I set up my account $495 but you’re going to charge me one or two% like my stock broker whenever yeah we don’t charge based on that so we’re just an annual fee we want to keep the fee
(17:30) simple okay and affordable so that people can do it now some people do say well man it’s not free my account uh TDM trade is free it’s free when you buy what they sell you know what I mean it’s kind of like you know and then not even then I mean they have their fees buried in there yes they have what’s called payment for order flow when you’re buying or selling stock they’re actually getting paid which is a little bit of spread from what the sell price is to what you actually buy it for and they they make a little bit of money when you
(17:58) sell to what the person’s buying too so you just don’t see it because it’s happening at the transaction level so um so they’re making money and then you’re 401K by the way the average fee on a 401K in the US is one and a half% you got a $100,000 account you’re actually paying 1,500 bucks okay a lot of people they just don’t see it because you’re getting nickeled and dimed on how that fee adds up so ours just totally transparent we’re not making money on your per percent on this there’s no hidden fees you know we’re simply
(18:27) getting paid by you or in this come from of your IRA or you can pay us by a credit card so when you’re opening account for the first year the annual account fee is $4.95 you got a $50 account processing fee to open it up and then $50 to make your first investment so your first year you have $5.95 because you’re going to buy something okay right yep and then it’s going to $4.
(18:45) 95 every year as you’re holding the asset and once you have four more assets you get charge an extra $100 per asset but most people that’s you know less than 10% of our clients have more than four assets so your Count’s going to be the $495 what I love about it is all of these little nickel and dimes that you had or hidden fees in a normal retirement account are gone it’s very transparent you can pay for these fees out of your own pocket and just say I want to let that money ride inside my retirement account I don’t want the fees coming out of there you have that choice
(19:14) or that Latitude particularly if you got a Roth account most of our Roth clients are like don’t eat into my Roth account I can only get so much in or I’ve got to convert more dollars that I pay tax to so charge my card please yeah no you can pay personally it’s not a prohibited transaction it’s one of the exemptions you can personally pay your account fees and I love it because the more money you have self-directed the less the fees really are as a percentage because the fees are the same whether you have a 100
(19:38) Grand or 500 Grand or a million uh to go invest in what you know best but I think the main takeaway here is it’s actually cost less than Wall Street to self-direct on average because it’s going to be a flat fee every year no matter what the dollar amount is and you get to choose the amount of flow that you want so that’s exciting okay number six FAQ is self-directing for me oh am I the right person selfir my son Dylan asked me this the other day and we had a really good conversation yeah and I get that a lot particularly from friends or
(20:13) family they’re like what do you do and I explain it to him they’re like huh should I do that and I’m like I don’t know and some friends and family I know well enough to be like that’s for you that’s not for you okay so we love pitching the concept take control of your retirement account invest in what you know we’re not restricting you on what you can buy but sometimes a Wall Street ETF might be good for you yeah and let me go over a couple scenarios you don’t want to be involved you want to set it forget it you’re going to let
(20:42) Wall Street you know Crush you on fees and they’re going to make most of the money but you’re like you know what let me just get my money invested maybe it’s the S&P 500 or some ETF or Target date fund whatever it may be I get that I’m not saying don’t do that I’m just saying if you want to go next level the self-directed IRA is next level if you’re entrepreneurial if you’re a real estate investor so you know real estate why are you not investing your IRA and the stuff you already personally invest in I guarantee you you’re out there
(21:07) finding real estate deals you’re going to find Opportunities to invest your IRA why are you using your IRA or 41k to a buy stock or a mutual fund where you’re freaking guessing um also if you have opportunities that come along sometimes you’re not a good self-directed investor right now but in three months there might be a deal or opportunity that comes by you’re like I want to invest in that private deal I want to invest in that small business or I could participate in that real estate deal my friend’s doing they need 100K they need
(21:34) 50k and now you’re in the game because an opportunity presents itself and I think there’s another perspective here too is that you may have the lifestyle or the connections where deals are coming but you haven’t got enough money in your retirement account yet and so it’s it’s like okay I can’t wait to do this I got deals and I in the meantime I’m going to start contributing right away because you need to have kind of that initial Mass to inertia or whatever to get critical mass sorry I’m not I’m not an engineer uh anyway but I got to
(22:06) get enough to work with to really help this self-directed engine do its thing and that’s okay just know that that’s don’t say well I don’t have enough money well let’s get enough money get on a plan of attack where you’re going to make your contribution for last year still is still available to you this year and start contributing and then do the little ETF do some sort of no load fund or very low fee fund S&P 500 something simple where you’re getting 5 7 8 10% who knows but all of a sudden in two years all right now you got a
(22:40) checkbook ready to go yeah and what I’ll say too is most of our self-directed investors they’re doing more traditional Investments and they’re doing self-directing they’re not 100% self-directing we have a lot that do but most of our clients are doing some other traditional Investments even in their Ira or maybe their spouse’s IRA still in the stock market or something and so you might have a little bit of balance of that some of you might be all in on it because you have enough of that deal flow and enough of that opportunity
(23:06) so everyone approaches this a little bit differently but I think the key thing is is at the end of the day you want a self-directed IRA to buy a non-publicly traded asset an alternative asset real estate crypto small business whatever it may be and so as you’re looking at those assets just know that’s a little more than putting in a ticker you’ll be a little more active but now you could have private funds where it’s very passive so it’s just a little bit different um so I hope that gives a little perspective as you’re thinking
(23:35) about is this for me yeah don’t feel the pressure or guilted into it just have a plan for it I think listening to our podcast getting educated making your regular contributions and it’s funny how the universal work like all of a sudden deals will just come out of nowhere it’s like I want I really want a white car all a sudden you start seeing white cars everywhere and so but you don’t have the budget to buy a white car so let’s be working on both let’s be building up those accounts let’s getting it educated
(24:02) and be looking for that white car and guess what it’s going to come by and boom you’ll be ready for it when it comes yeah the other thing is just get educated on this topic that’s one way if you’re learning about it you’re excited but you want to find deals or make sure you’re doing it right binge the podcasts go to our webinars our YouTube channels come to our events we have the self-directed IRA Summit coming up on April 26th in Austin Texas sdas summit.
(24:26) com and you’ll meet other people that are self-directing your rers you’ll meet other people that are doing deals understand what they’re doing you’ll see people that are raising Capital you hear the strategies and structures Mark and I both teach and so we have a lot of people that have came to our events and been like that’s when I finally decided to take action I put a little bit of time and investment into it I overcame any of the fears I have and now self-directing for me well now I I’m I’m the type of guy that when I want to feel accomplished during the day I’ll put
(24:50) things on my list and cross them out because I already did them so that I can feel like hey I’ve already got some things done today yeah so I I almost want to count number seven is how I get more educated on the topic because how do I learn more because that was one of my 10 was how do I learn more you just freaking answered it and and so this is what Mark does when he has a to-do list he already he puts the stuff on the list he’s already done so he can have the satisfaction of Crossing it off well because I did something damn it you know
(25:16) I just going back in time little time time machine I think it counts time machine task performance I think it counts that’s number seven okay now I’ll give you do I learn more I’ll give you a couple little tips on this too just you know okay get a little more juice out of this squeeze is we’ve got books on it I got the self-directed IRA handbook if you’re the person that’s like I talked to my accountant about this or my adviser and they told me it’s risky and it’s complicated well guys we have all the answers I wrote a book with over 100
(25:44) citations that explains what the self-directed Ia is give it to your freaking accountant or adviser if they if they got a bunch of questions because they’re uninformed on this issue so um Mark got a book a chapter in his book on tax legal Playbook on self-directing what your CP isn’t telling you guys some content on it in there too so and we already gave all the other stuff so just know we know that there’s a little bit of Education you need that’s why we do this podcast that’s why we’re always out doing webinars why we’re doing events
(26:09) why we wrote books on this you mean they have to get involved we ought to call this self-directing yes there we go let’s call it that we’re not telling you what to do people yeah oh my gosh yeah but I want someone else to do it for me H self-directing may not be for you that’s not you that’s not you I want Matt direct can I get Matt directed.
(26:30) com I just want you to do for that’s not for sale that’s not for S okay um all right now number eight and I don’t know how to couch this one because it is a big one and we’ve got it you know stay timely here is a lot of people call or when I’m at a dinner party or whatever say well how do I get started yeah and I know that’s a little broad but it’s got to fall into some one of our top 10 how would you frame it well I think a lot of people initially think well I have an IRA Charles Schwab let’s say and they’re like and I called them and I said I want
(26:58) to do a real estate deal and they said I can’t do it you know we get that one a lot cuz they’re like all right I heard about this and I have an IRA yeah I want to get started how yeah all right so here’s the problem if you called Fidelity to do a real estate deal with your IRA Fidelity said you can’t do it and that’s not because IRAs can’t buy real estate that’s because Fidelity IRAs can’t do it so the the critical point here is you need the self-directed IRA good news you know two guys here that have a self-directed IRA company called
(27:24) directed Ira that happens to be the best go to direct ira.com we open up your account you can transfer over that Fidelity Ira or maybe it’s an old employer 401K maybe it’s a new contribution whatever it is we have a prior podcast on funding and getting the money in the account but then you get the money in the self-directed ira now you can go do that deal in the example here the real estate deal maybe use an IRC structure for that real estate deal see there’s a little steps here other podcast episode chapters in our books
(27:50) content we’ve got out there not complicated you just need to learn the steps so that’s how you get started you got to open the account and what I would just say is book a call with our team to directed.com right on the homepage you can book a call with our team they’ll walk you through the process they’ll hold your hand they’ve helped thousands of other self-directed IR investors and so we’re here for you to help you get it done it’s not like you just got a sub a ticket on our website or we’re trying to fintech it out no we’re here to help you
(28:14) along the way yeah you’re going to talk to a real human in Phoenix Arizona that’s going to yeah help you and you’ll understand them and be able to get started imediately now I I just wanted to add a different spin to that too how do I get started obviously opening opening up the account and and transferring over the dollar amount you want to put in there and then you’re off to the races blah blah blah but I’m just going to offer another perspective too is how do I get started ask yourself that question am I a good candidate for this we already
(28:45) brought that up so okay I want to be engaged I think I have some deal opportunities out there I have some Network that I think I see this okay cool I’ve see some opportunities number two be thinking about the dollar amount okay I’m going to go I’m going to deploy 50 Grand I’m going to deploy 100 Grand you could do more or less whatever but just say okay i’ I’ve got an idea I know how much I want to deploy at that point I say open up the account because you already know that you’re going to take action what I don’t want is for you to
(29:15) say I’m going to self-direct and open an account do you have any idea what you’re going to do no do you have a dollar amount in mind no let’s make those decisions at least generally so that we know that cuz we want to see you succeed with this and when you succeed everybody wins your family around you your friends you’re going to be out there telling everybody oh my gosh this is incredible I’m investing my money so ask those couple qu but once you have that I think it’s important to open the account because now you’ve started the car
(29:42) you’re or you’re on the road you back the car out of the driveway now it’s like where do I go and and then it’s going to help motivate you to make that next decision and all of a sudden you’re going to see that white car on the road and you’re going to start seeing those opportunities in front of you and you’re going to be ready to pull the trigger cuz the last thing you want to do is be like I’m going to do this and and I’ve got the money oh there’s my deal oh okay well oh I just missed it it was I I it’s going to take me a week or two to get
(30:09) everything you know set up and transferred that may be on the the far end of the spectrum time wise but you want to give yourself some latitude so get the account going and just at the right time yeah love it great okay we got two more FAQs number nine all right let’s go over nine I think this is a common question are there any tax traps orx tax pitfalls I should know about when self directing my IRA and I’ll just hit the first little bit on this there is a tax some people talk about called ubit or ubti unrelated business income
(30:39) tax or unrelated business taxable income basically the easiest way to think about this and we got chapters in our books and webinars about this but the easiest way to think about this is Ias were created to receive investment income when you get investment income in your IRA capital gain income rental income royalty income from oil and gas or technology you’re selling an asset there’s a gain right that’s all going into your IRA you don’t pay tax on that interest income is you’re lending money you’re not paying tax on that if your
(31:08) IRA is getting business income not dividend from a sorp you know if it’s getting business income from owning a it owns a restaurant or it’s invested in a Distribution Company or a Consulting business right it’s the cash investor in that that income coming through an LLC where no corporate tax was paid is considered business income and subject to this ubit or ubti tax so it’s something you need to know about sometimes you can structure around it there’s a lot of tricks into that and how to get out of it as a tax lawyer you
(31:36) know I made Millions literally charging we some we got strategies so but is a is an area and I think a lot of counts like oh don’t do that because of ubti even yesterday I was talking with a uh investment manager you know very smart successful person is like what about ubti and and how does that work with it and so I explained that little rule there what applies and when it does so most of the Investments we see do not that does not incur that tax but you need to know about it yeah and I I’ll just one example would be and
(32:06) I you said it but I’ll just say it a different way is your IRA or 401K buys the building that’s going to rent to the restaurant wonderful no ubit your 401k Ira buys the restaurant and going to rent from someone else now you’re in an operational business and the IRS has said you got to pay your fair share in tax to create a Level Playing Field with the other restaurant owners but you want to buy passive income and investment property knock yourself out we’re good with that now number 10 I I kind of can I hit one other thing on I’ll I’ll keep
(32:38) it brief because it is a question people ask which is udfi oh yeah that’s right okay unrelated Finance system yeah this is the stepsister to ubti what this is It’s a tax when you use debt to leverage and buy more Assets in your IR so if you got like a $100,000 Ira let’s say and you want to buy a property for 300 Grand you can actually get a loan from A bank called a non-recourse loan well they’ll lend you the 200k your IRA puts in 100 so now you bought a $300,000 asset but the IRS is like but that profit you make
(33:07) from that 200k there that wasn’t IRA contribution or dollars that was debt non-retirement account dollars so they pay they make you pay a tax on that called udfi just and just the proportion of debt they’re like you can make take all the profit on your IRA portion yeah and so a lot of people poo poo on this and say well why would I do that I don’t want to do an IRA guys that’s great I’m only paying tax on the debt and generally it’s capital gains when you sell it that’s typically when we see this because you can take depreciation
(33:35) for rental income to to offset that it’s only on the debt piece you pay the tax and I was able to buy an asset three times the value that I could do over here with my stock account or my mutual fund so I take that same $100,000 Ira I can go buy a 100,000 of stock or a h 100,000 of mutual funds I can’t leverage that to buy more stock you can’t get margin to trade stock in your IRA but you can l to get more purchasing power to buy real estate and the IRS only taxes the profits it’s only when you make money on the debt piece so um so
(34:07) just know about that again we got more content about how that works and um but that’s the other sometimes issue that’ll come up yeah and as you start to learn about self-directing and catch our podcast this is that learning and knowledge that’s going to just open up this whole new world to you now I’m going to propose number 10 cuz we only have 10 I love it I think you already saw where I was coming did you see my note no I okay here’s what it is I saw it but I couldn’t think yeah fair enough my dad was a doctor I I write in h gics
(34:32) um number 10 is someone said it’s prohibited to self-direct what is prohibited because there’s some prohibited rules out there and you guys haven’t brought that up what’s prohibited what what do I need to know about being prohibited great question so the nice thing is is there’s only three restrictions on assets you can’t buy life insurance Collectibles and S corporation stock everything else your IRA can buy so what is prohibited has to do not with what you’re buying it’s who is your account transacting with so if
(35:04) I’m using my IRA there’s something called a prohibited transaction if my IRA transact with someone who’s called a disqualified person that causes this prohibited transaction and the disqualified person is really the key issue so who’s the disqualified people well you are first your spouse your kids your parents for those of you in Utah all your spouses right oh my gosh I’m going to use it every time I explain this I know Sister Wives it’s a great shelf it’s just it’s just the you know the gift that keeps on giving I grew up
(35:33) in Utah okay so you’re allow like Dennis can do dentist jokes seel explained that yeah yeah you know he’s Jewish he can give Jewish jokes all right okay so um but let’s say your IRA for Just For example here let’s say you own real estate already personally and you’re like man I bought this property for 200 Grand and now it’s worth 500,000 if I sell it I got to pay tax on the $300,000 gain what if I sell that property for $2 200,000 to my IRS and then my IRA sells it for 500 I won’t pay any tax yeah the IRS thought of that
(36:04) that’s what this prived transaction is preventing they knew you would manipulate this we would tell you to manipulate this if you could if this rule didn’t exist all right so it’s restricting you from transacting with yourself so now of course if that if you find a real estate deal that’s worth 500 you can buy it for 300 go buy it with your irate but it can’t be from you it can’t be from your spouse your parent your kids so those are restricted parties if you’re Ira transacts with them buying or selling or even let’s say
(36:31) your IRA own’s real estate and is leasing it to one of them that could cause this prohibited transaction which disqualifies your IRA yeah another way I like saying it is what’s prohibited transacting with your IRA yeah selling your IRA buying from your IRA leasing to a family member from your IRA you leasing from something your IRA own just anything transacting now with that said you can invest with your IRA there’s a podcast just a recent podcast we did on creating llc’s with your IRA you can put your arm around your IRA and go hey
(37:05) let’s go invest together but you can’t put your arm but you can’t put your arm around your IRA and say let’s transact together like I want to sell you something or you buy me something no oh we’re going to put both of our money family money your spouse’s Ira your IRA and pull it and go invest in something new and buy from a third party all day long so the prohibited rule is fair I I believe in it I don’t want people screwing over the IRS that causes me to pay more in taxes but if I want to go out and invest with
(37:35) my IRA I can and so learn about that I like this I was wondering where you’re going I was like I believe in it I support this role and I’m Mark kler I’m running for pres that would have been nice yeah I support this message no I well I missed my opportunity there to you know give my pitch for president but I will say this show is sponsored by uh the political action committee Mark ker for president yeah yeah and we’ll be back in 2028 when are you running well I’m running for the HOA of Boa Vista in my local community
(38:05) so you have to be a resident and then you can vote for me for president I’m going to drive around on a golf cart and just keep those butt for you know parking poorly yeah um Seinfeld Morty sign that’s right Morty um you know I’m you’re going to be running on his record you know yeah oh you thought I was running for president of something big like United States no no no just a local HOA okay all right well thanks everybody for tuning in uh please make sure you’re subscribed to the Channel please make sure that you’re subscribed to the
(38:31) podcast give it a thumbs up please share it with your friends and family we’ll be back next time until then stay calm self-direct on and thank you everyone for listening a quick disclaimer and reminder this presentation does not constitute an attorney or CPA client relationship and it is always in your best interest to consult competent legal and tax professionals when conducting your own personal transactions we also want to make sure you know this is not investment advice or financial advice we’re just trying to give you education
(39:01) ideas and strategies you can take to your professionals or conduct your own research on we’ll see you next time