Ep. 22 | The REAL Opportunities with Self-Directed IRAs
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Speaker 2:Welcome back to the podcast, everybody. Episode 22 already. Self directed IRAs. But before we jump into this week's episode headfirst, let's take a brief moment and thank our sponsor.
Speaker 3:This podcast is sponsored by Legacy Lock. If you are new to estate planning or simply need to review your current plan, Legacy Lock has you covered. Legacy Lock has a unique platform that enables you to easily complete your attorney drafted documents conveniently from the comfort of your home or office. Your first step to this peace of mind is visiting www.teachingtaxflow.com/legacy.
Speaker 2:I am John Trabalski, one of the hosts here at the podcast. To my right and always on my right is Chris Pecura. How are you, Chris? I am wonderful, John. How are you?
Speaker 2:Oh, fantastic as always. So another great topic for us, one that I didn't know we are asked a ton.
Speaker 4:Really excited for Scott Mauer from Invanta IRA to join us today. Scott, welcome. How are you doing?
Speaker 3:I'm doing great, Chris. John, pleasure to be on, and I look forward to chatting with you guys today.
Speaker 4:Well, I'm really excited. I'm always excited about our podcast, but John knows I get super excited when we could bring someone from our private CPA practice that we trust and we are very comfortable referring clients to into the teaching tax flow, which is a much broader, audience, to lend some knowledge. And that's one of the blessings that I am able to bring in people that I work with and talk to on a on a normal and regular basis. So not only is, you know, Scott someone that we use, but now he's got on the on the podcast. Absolutely, Chris.
Speaker 4:And and, Scott, I'm gonna put you on
Speaker 2:a pedestal. So you got you got big shoes to fill here. So today, we're gonna talk about self directed IRAs. So, Chris, kinda taking a little nugget from your, your description there for legacy lock. Two things.
Speaker 2:Right? We wanna look at ease of enablement. So, Scott, walk us through a little bit. What exactly is a self directed IRA for those that aren't familiar with that?
Speaker 3:Yeah, John. The self directed IRA is a retirement accounts. It's, you know, an IRA is an individual retirement account, but it's, an account in which you can invest in assets that you know and then perhaps you can control better. A lot of people associate IRAs, four zero one k's, and and retirement accounts with mutual funds and picking stocks and maybe some US treasuries and another publicly traded asset. The IRS will allow you to invest in a lot of different types of assets, not just what's publicly traded.
Speaker 3:You just have to have a custodian who's willing to hold it. That's what we do as a self directed custodian. You can use your IRA, your old four one k funds to buy real estate. You know, say, we're single family rentals, flips. You can invest in multifamily.
Speaker 3:You could invest outside of real estate into precious metals, you know, gold and silver, you know, private hedge funds, start up companies. There's just so many different things you can do, but a self directed IRA at its core is just, like, an account in which you are making the decisions on what investments and what assets to hold. Excellent. And that that is the perfect description
Speaker 2:of that. Right? Very clear what it is. So a question based off that description. So let's let's take somebody who's we'll just call it the w two employee.
Speaker 2:Say they're dumping ten, fifteen, 18, 20 percent in a four zero one k. Just kinda prime you up for that. Let's definitely talk about a rollover. But, question, is say somebody is getting an employer match, for example. They're they're afraid of, like, oh, wow.
Speaker 2:If I get off my employer matched four zero one k, I don't wanna touch it at all because I might lose that match. Is that is that a common question that you guys see or no? Sometimes because we we you
Speaker 3:know, people, when they're looking into self directed, they wanna take advantage of, you know, an opportunity that they see, they have the money in the IRA or the four one k use. They're looking at at the different accounts they could they could pull funds from. The only the problem that exists with current four zero one k so we're talking about accounts, yeah, where you're you're putting your money in as an employee, deferring your salary, and then your company is doing a match on top of that, is while you are still employed, that four one k can be restricted from being rolled over and rolled out of the plan. Now if you're over 59, usually, that's a threshold at which you can roll money out even if you are still employed. But the other thing to keep in mind, I mean, a lot of people might fixate on, oh, this is my current four zero one k.
Speaker 3:But, you know, especially in this day and age when people are changing jobs more frequently than in than in years past, a lot of people leave employers and they have those old four zero one k's. You know, former employer plans, They're just sitting there. They got left behind when the you know, they got concentrated on the new job they were starting. They forgot about that old plan. Those monies, once you're no longer working there, can certainly be rolled over.
Speaker 3:But, you know, to your question, I think if you're still contributing to your four zero one k, you absolutely still should be getting you know, if your employer is offering you a match, you should be doing what you can to get there. That's free money, within the $4.00 1 k.
Speaker 2:Absolutely.
Speaker 4:Yeah. And that and that's exactly what we're gonna talk about is the challenge is when you're employed at a company, it's very restrictive. Like Scott said, in service distributions and rollovers are typically prohibited. So but with job mobility now, you can you can self direct and you can roll over. So to put money in a self directed IRA, it could be either be a rollover or it could be a contribution.
Speaker 4:So either way and and there are several other self directed type of accounts, and and we wanna make sure we have Scott back on the podcast in the future. So we're gonna just focus on the self directed IRA on this podcast. So, obviously, you can roll over into this type of account. You can make contributions into this type of account. Can you have a Roth self directed IRA?
Speaker 3:Absolutely. And and a good going back to almost John's first question, you're defining self directed IRA. Self directed is referring really to your ability to invest in, you know, we call it alternative assets. But at their core, a self directed IRA is still either a traditional or rollover IRA. It could be a Roth IRA.
Speaker 3:It could be a SEP IRA, SEP, if you're self employed. Could be a simple IRA, if you have a small business. So, yeah, at their core, the I the self directed IRAs are still traditionals and roths and steps following the exact same contribution rules and limits, same distribution rules. Again, the difference with the self directed IRA is when you have the money in the account, is what is the investment vehicle you're gonna use, obviously, to grow that account for your retirement?
Speaker 4:It's kinda like saying, you know, you've thinking about if you went to Subway. Although they're not sponsored, John. I don't know if I should say. You've got the bread. Right?
Speaker 4:And then you've got the the bread could be self directed. The bread could be a third party fiduciary like a a Fidelity or one of these other companies. But what's inside the bread is what your investment is. And the nice thing about self directed is you can have these alternative investments. We you know, there's there's so much fluctuation in the stock market, and that's kind of what mainstream and a lot of entrepreneurs, real estate investors, and just people in general are really opening their eyes to all the other options out there, not only real estate.
Speaker 4:You can invest in notes. You can be lend you know, a lender. We're gonna talk about rules on that. Precious metals, like we said, a certain business you could have a variety of alternative assets within that self directed IRA at very, very reasonable cost, and and you do wanna work with a reputable company as your fiduciary. That is so not only is it a requirement, but that's so important.
Speaker 4:You work with a company like Advance IRA that's trusted, that works with those typical those type of investors, quite a bit. I do have a question. Is, someone that let's say you have someone that inherits an IRA. They're a beneficiary IRA beneficiary IRA. Could could you have a self directed beneficiary IRA, and and are the required minimum distribution rules the same for self some of these questions I know the answer to, but these are questions that
Speaker 3:we get in the teaching tax flow private Facebook group defeating taxes. Did we get these questions just in our community? So Yeah. So you you absolutely can self direct, an inherited IRA or or a beneficiary or IRA, and the distribution rules, again, are the exact same. That is that is one consideration, I think, for people.
Speaker 3:If you're looking to use an inherited IRA or beneficiary I IRA when you're self directing is the fact that you most of the assets in a self directed account are not nearly, as easily to liquidate as maybe a mutual fund or stock account. So when you do have the RMBs or if you're looking into the future, if you, you know, you you inherited IRA this year, you have to you know, if you're if you're not a spouse, you're inheriting a parent's IRA or a friend's IRA or a brother or sister's IRA. You have to distribute that account fully within ten years. So that'd be something just to obviously to consider if you're planning on using that money to lock up an investment that's illiquid that you wanna hold for a number of years to have that exit strategy in place of of being able to get out of that investment and still meet the RMD requirements, with the inherited IRA. Because, again, they are the exact same.
Speaker 4:Right. So if you're if you're near that RMD threshold, required minimum distribution threshold, buying raw land on speculations probably not the best option. But, I mean, if you're in your early forties and you see a piece of land that you might want to develop and continue to contribute to that IRA to develop, then it might make sense because you do have to consider the liquidity of of the assets. So that's some obviously, you know, so so someone is if someone has those type of questions, I know Advanta has a ton of great resources on the website, videos and that sort of stuff. What's the first step for someone that's kinda just thinking about is it, you know, is it not a self directed IRA?
Speaker 4:A lot of times they hear about them, but is it is it something for me? What would the first step be?
Speaker 3:Yeah. I mean, I think the first step a couple different things. You could go to so we go to our website at advanceira.com, but we also we have kind of we have our own podcast. You could go and listen to it and get information there. If you lid link to our YouTube page on our website, we we do about one or two webinars a week, on either self directed IRA topics specifically or stuff that is you know, things that are ancillary to that, like, you know, having a a CTA talk about tax laws and how they affect IRAs or having a real estate investor talk about buying real estate, that you could do with your IRA accounts.
Speaker 3:And, certainly, our YouTube page is a wealth of knowledge. But, honestly, Chris, John, I think the best thing to do is simply call us, and we could because you can get some great general information. I think you we can all agree. You go to the you go search for whatever you wanna learn on on Google. You're gonna find some really good general information, but it's rare if you have a specific question that you're gonna find that specific answer and you need to talk to somebody.
Speaker 3:So that's what we're always available for is to give us your individual fact pattern, what you're looking at doing, what type of accounts you have, and let us dissect that and then and then give you back, you know, the feedback that you're looking for on this specific question. If you just if you're somebody who likes to just kinda do some stuff on their own, our website is a fantastic resource. And then, obviously, there's phone numbers on
Speaker 4:there, links to get in touch with us. And then we'll link up the YouTube channel and and the podcast as well. And, I mean, there's a lot of changes coming down with the secure 2.1 two point o act, sort of change retirement significantly, for people, hopefully, for the better. We'll we'll see what happens, but being aware of those rules are are is really important. So yeah.
Speaker 4:And now I know you wanted to ask a question about certain assets within the IRA.
Speaker 2:Yeah. So even specifically so I mean and before I get into that, so one other question too, just to kinda reiterate too. It's you know, Scott, you had mentioned that there's a lot of resources out there for, you know, what they are, options. You know, is it right for everybody? Is it not?
Speaker 2:I'm sure that's a question that you guys get a lot. Right? Is, you know, is that your sport the squeeze? Because anything that's self blank is sometimes intimidating to people. Right?
Speaker 2:They they say, wow. I've been comfortable. You know, they're I may have a more conservative approach where I'm comfortable letting somebody else do it. So do you sometime and and I'm not gonna use the term sell or convince anybody to do that because, obviously, that's up to the individual. But am I assuming correct that that's usually a conversation that takes place with a fair amount of individuals?
Speaker 3:For for some, certainly. I mean, a lot of a lot of people do come to us with the investment already in mind. Like, they've they've already made the decision that I wanna invest in this multifamily project and and, you know, they found out they could use their IRA to do it. So it's more about finding out what what the process is and how it works. But certainly for a fair number of other people, even for some of those, it is evaluating if using their IRA is the the right way they wanna go, or do they rather have their money, held somewhere else.
Speaker 3:So I think one of the good things to mention to to that point is that self direction is not an all or nothing strategy. So you can have an IRA with a Fidelity and investing in mutual funds and stocks, and you can have an IRA with Advanta that is holding your real estate, is holding your precious metals, etcetera. You can move money between those accounts. So that's the important thing. I think if somebody who's kind of a little bit on the fence, hedging a little bit, not sure, they can always dip their toes in the water a little bit, and see how it works out.
Speaker 3:But, yeah, what we don't so you said, good point, John. We don't sell or convince. I lay out the options and tell people how it's gonna work and then let them make
Speaker 2:the decision from there. Excellent. And on that note too, so, you know, talking about self directed, are there any investments that are prohibited? So kind of the, quote, unquote, no zone, you know, not not a possibility?
Speaker 3:There is. And so the IRS when IRAs were created in 1974, they laid out rules for what you basically could not invest in. So they didn't make a list of all the potential investments because back in 1974, they wouldn't have listed crypto, right, as a cryptocurrency would have been a permissible investment. They wouldn't even know about it. So they've simply said you cannot invest in life insurance, and you cannot invest in collectibles like artwork, antiques, things of that nature.
Speaker 3:Don't get a lot of questions day to day on that. That's that's pretty cut and dry. The other restricted area, though, especially, pertinent to real estate investors, is your IRA cannot cannot make an investment into an asset in which you're gonna personally benefit from it or in which you're personally involved with the transaction. So in a quick example, somebody had a piece of real estate they own personally, as a rental property. They can't sell it to their IRA account.
Speaker 3:That that would be prohibited. If your IRA purchased a piece of real estate for rental and it the property wasn't being used, you're not allowed to stay in it because then you'd be getting a personal benefit. So there are some restrictions when it comes to what we call self dealing rules, which extends to the IRA owner, their spouse, and then their parents and grandparents and kids and grandkids. That's who's considered disqualified. So you do have to be careful on that, and that and that is definitely an area which, again, we we don't quote advise, but we certainly can go over the rules and sort of lays out the scenario, what they're looking to do, and we'll make them aware of of the pitfalls they need to be aware of.
Speaker 2:Well, that was actually letting the letting the one of my questions. I think you pretty much answered there. So say there was a property that, you know, your extended family owned, we'll call it we'll call it a grandparent or an uncle, or it was something that you may be buying from or have interest in from an estate that that's with your family. So those those are those are a no go. Those are
Speaker 3:a no go, except you did mention when you said grandfather. So my if my grandfather owned a piece of real estate, I I couldn't buy it for him with my IRA. He's disqualified. If my uncle did, my uncle is not disqualified. So it's only directly up and down your lineal tree.
Speaker 3:People are surprised to learn that they could, you know, have transactions between their IRA and their brother or sister. Like, siblings are not not prohibited. So you you could, in theory, deal with them as long as it's on a on a fair market basis.
Speaker 4:Well, and I think that, you know, kind of wrap just thinking about the real estate and the real estate side of it is that with interest rates fluctuating, going up, with lending, you know, most people that are real estate investors do run into headaches with lending, having the in a lot of times I don't wanna say that a lot
Speaker 3:of times people's, assets are trapped in
Speaker 4:a retirement plan because they're not trapped, but being able to utilize those to to invest in real estate, really, I I've seen people do it very successfully. And they're they're depending on the situation. It could it could be very, very fruitful and, even within the Roth, which is which is great. And you can pair some of our teaching tax flow strategies, like, you know, if you have assets that are devalued, convert it to a Roth, then buy the buy the real estate and the Roth. So,
Speaker 3:Yeah. And, Chris, I think you mentioned talking about private lending goes back to something John was kinda hitting on a little bit too, the the benefit of, you know, people who've if it's self directed, how involved do I need to be? Well, in the real estate investor perspective, there's there are people who are out there, you know, managing their tenants and acting as a landlord or managing a rehab project, which is certainly much more involved. And and and do I wanna get that involved with my IRA account? Or your IRA could act as a private lender where you're simply providing the cash and you get a monthly monthly payment or quarterly payment back into your IRA.
Speaker 3:There's multifamily real estate investments set up very similarly. So there are different degrees in which you would need to be involved in some of those investments, but, again, still being open to the possibility of, you know, doing something a little bit different with dry IRA account that might be more lucrative or or, you know, something you feel more comfortable with than than where the money is currently parked.
Speaker 4:Absolutely. And that's where you wanna you're gonna wanna lean lean on Advance IRA with all those resources to get a good base level of knowledge or certain rules with especially when it comes to real estate, how active it could be as far as rentals and and making sure you you don't basically treat your IRA like a business. We don't need to get into all of that right now, but that get that good base level knowledge and then talk to Scott and their his team about this as an option for use. Scott, before we get your contact information, which we will put in in the show notes with just with all the advantages of, YouTube channel and and a podcast information, we have something that we call, special guest rapid fire that we're gonna ask you some unrelated questions that are Oh, boy. Alright.
Speaker 4:Alright. Good luck, sir.
Speaker 3:Good luck. Thank you.
Speaker 4:Thank you. We already discovered in the show prep that you're, a Tampa Bay Lightning fan. So I wanna ask about your favorite sports team. There's not
Speaker 2:a lot of meat there anyways, Chris. Being from being from Detroit, we don't we don't have to embarrass him too bad.
Speaker 4:Hey. Well, he won Stanley Cups. That's for sure. And the Weddings have Yep. In a long time.
Speaker 4:And I had a hairdo, and we ran one one.
Speaker 3:Alright. That's 02/2009. Right? Detroit back to back? Mhmm.
Speaker 3:Or or February yeah.
Speaker 4:I mean yep. Been a while. Alright. Here we go. So what celebrity or person from the past would you like to have dinner with if you could?
Speaker 4:Oh, boy.
Speaker 3:You wanna stick with the hockey theme? My grandfather has heard a lot of good stories from Phil Esposito, who's the the father of the grandfather of the Lightning. He's told a lot of he told my grandfather an interesting stories about Gordie Howe. Mhmm. Oh, wow.
Speaker 3:I'll I'll go with Gordie Howe and learn about how they played hockey back in the old days when he was the scorer and the enforcer.
Speaker 2:Yeah. That's true. I've actually met him and his son on numerous occasions. So incredible guy from what I remember.
Speaker 3:Favorite TV show? I like Succession. Alright. Favorite stack stabbing, not bad. Favorite cereal?
Speaker 3:Rice Krispies.
Speaker 4:I love Rice Krispie Treats also. I like all these Dins. Favorite beverage? A good bourbon. Alright.
Speaker 4:Well, you're gonna have to come up to Nashville and and check them out then. The next time you're here next time you're in town, let me know. Final question, ideal weekend.
Speaker 3:Ideal weekend would probably be a nice little vacation, just a weekend over on the beach, which we have, obviously, where I'm located, but, we don't get over there that often. But just so we can go and just disconnect and hear the waves, and it can't be too hot a weekend, though. We get some blistering weekends here in in Florida. So but that's a nice nice relax by the beach,
Speaker 4:hotel pool. Perfect. I exactly. No. I love that, Tampa Clearwater, Anna Maria Island.
Speaker 4:The whole Gulf Side's really, really nice. Scott, the best way to reach you?
Speaker 3:Best way to reach me, but just by phone. Number is, 804250653, and my direct extension when you dial that number is 1123. Awesome. We will put that in the show notes like I said. We'd love
Speaker 4:to we look forward to seeing everyone in the teaching tax flow community. Definitely jump into our private Facebook group, defeating taxes. We have tons of great content in there, and, we're really excited that I I think I I don't know if I mentioned, but Scott is going to be a content creator for teaching tax flow. We are gonna have a mini lesson on self directed IRAs and roll that out even more. So thank you so much, and you guys just have an awesome rest of the day.
Speaker 4:Absolutely.
Speaker 2:Thank you again, Scott too. And and, yeah, as as, Chris had mentioned, definitely join into that teaching tax flows, private Facebook group. Just apply. Right? There's about 55 questions.
Speaker 2:No. I'm kidding. It's basically you just check a box and say you're gonna be nice, and you're welcome to join that. Anybody can chime in anytime, any question. Easiest way to get get our team involved in some of the conversation.
Speaker 4:And rate, review, subscribe, the Teaching TextFlow podcast. Thank you, Scott, and have a awesome rest of the day. See you guys next week.
