Open Forum Q&A

Self-directed IRAs allow investors to go beyond traditional markets, but using them properly requires understanding the rules, structure, and process involved.

In this live session, Directed IRA Vice President of Sales Nate Hare, along with co-host Daniel Tercey, start with a brief overview of how self-directed IRAs work before opening the discussion to a live Q&A.

This format gives attendees the opportunity to ask practical questions and get straightforward answers about using retirement accounts to invest in alternative assets.

This is not intended to be a deep legal or tax presentation. Instead, the goal is to help investors better understand the fundamentals – what self-directed IRAs allow, how the process works, and what to consider before making your first investment.

Whether you’re just beginning to explore self-directed retirement accounts or already investing in real estate, private funds, startups, crypto, precious metals, or other alternative assets, this open forum is a chance to get clarity on the questions many investors encounter along the way.

This session is ideal if you’re newer to self-directed investing, exploring alternatives for the first time, or want a clearer understanding of the basics before going deeper.

Bring your questions – we’ll handle the fundamentals and point you in the right direction

Still have questions? Book a new account call here: https://directedira.com/appointment/
Visit our website: https://directedira.com/

Directed IRA Homepage: https://directedira.com/

Directed IRA Explore (Linktree): https://linktr.ee/SelfDirectedIRA

Book a Call: https://directedira.com/appointment/

Other:
Mat Sorensen: https://matsorensen.com & https://linktr.ee/MatSorensen
KKOS: https://kkoslawyers.com
Main Street Business https://mainstreetbusiness.com

Transcript

SPEAKER_01 0:08

Good morning, good afternoon, everybody. My name is Nate Hare. This is Daniel Tercy, and this is the directed IRA webinar and a very special open forum. So these are fun to do for us and hopefully educational for you guys, where it gives you an opportunity to just ask any question related to self-directed IRAs that's on your mind. We don't have a specific topic to cover. This is just to address all any concerns you have, misconceptions, and just really dive into a little bit of this product we call a self-directed IRA, just to give you guys a better understanding of what it is and how it works and how you can use it to build generational tax-free wealth for you and your family. Before that, we're going to go over some housekeeping issues, but, or housekeeping announcements. But as we go through the open forum, we've got two ways that you can communicate with us. There's one, if you want to ask questions, we've got a QA box. We're going to be actively monitoring the QA box. Post your questions in the QA box. For the chat, we want you to use that as a community forum. Network with each other. If you've got deals that you're looking for, maybe some private money financing on private money capital. Network in the chat box. Save questions for the QA box, and we'll try to get to all your pressing questions when it comes to self-directed IRAs. It's a pretty proud moment for me. I've worked here three years and I finally made it to the top where I get to answer questions on open forums. I've never done this. It's crazy. We do these all the time, and I've never actually had the opportunity.

SPEAKER_00 1:43

I finally let Nate come onto my QA forum that I do with you all. So I'm sorry in advance, but I have to I have to train him a little bit. I've been doing all of his training lately. Don't don't let his gray hairs fool you. I have to train him.

SPEAKER_01 1:59

Yes, Daniel paved the way for me to answer the open forum. So I know you guys have seen me on the other programs talking about private lending and all those things. So uh I love the opportunity to just answer questions. These are the types of questions we get all the time when we have phone calls, when we're at events. So uh we'll we'll jump right into that.

SPEAKER_00 2:15

And if if you guys remember, yeah, uh we had Lindsay on. Nate is basically going to be a Lindsay. They're both very extra experienced, so having them on is always actually really great for you guys. I know I I think I'm pretty good, but these two are definitely much better than me.

Summit Details And Live Discounts

SPEAKER_01 2:28

The only difference is I'm much, much younger than Lindsay because she's much, much older than everybody here. So but very experienced. Uh I just I like to razz her. Very experienced. We've got 13 years of experience uh right here. Daniel's been in the industry with multiple companies. We've both been with multiple companies. So uh you've got the the best of both worlds here. So quick announcements first. Uh, if you guys have been following directed IRA for at least a year, you know that we put on two phenomenal events. Uh, one of them is coming up in just a few weeks now. Uh, this is our self-directed IRA summit. I believe we're on our 13th annual self-directed IRA summit. So we've been doing this for quite some time. Yep. Uh, and this is a one-day crash course, everything about self-directed IRAs. We're gonna take you from A to Z. Uh, this is an event that was started by our CEO and founder, Matt Sorensen, who wrote the best-selling book, the self-directed IRA Handbook. Uh, and this is our one opportunity to get people in a room on a platform and just learn everything that we like to teach about self-directed IRAs. Uh, we're gonna cover account types, we're gonna cover uh investment strategies, we're gonna cover fun things like the difference between an HSA and a Roth IRA. Uh, how do we make in certain investments like into mineral rights or cryptocurrency or real estate or debt funds? Um, this is a great event and it only comes once a year. We normally do this event live. Uh, live's great because we love the live audience, but live requires travel for people. So it just doesn't cast a wide enough net. And we decided that we're gonna go to virtual this year and cast the biggest net possible so anybody can attend and participate from the comfort of their living room. We have a special discount for you guys for being on the webinar today. So if you go to S D I R A Summit, that's S D I R A, as in self-directed IRA, sdirasummit.com, you can find tickets. Tickets are there is a price to tickets. However, if you use the code SD2026, you get them for free. Yes, you get free access to the virtual event. And this is gonna be April 17th. Uh, I we're just had a meeting this morning. We went over the agenda. Trust me, you guys don't want to miss this event. So you can either scan that QR code or go to SDIRA Summit.com. And when you punch in the uh code SD2026 at checkout, you will get the ticket for free. So make sure that you guys go jump on, register. It's gonna be a great time. April 17th. Uh, the next thing I want to mention, and we'll we'll circle back to this, is we are doing a special discount for you guys for being on the webinar today. If you are not a client, or maybe you learned something about another account type that you weren't really familiar with. We've got six different tax-exempt accounts that you can use to invest in alternatives. Uh, and quite frankly, most people only have one, maybe two accounts. I see investors really take this concept of tax-free wealth building to the next level and open several accounts, either for themselves, for their kids, for their family members to cover their health expenses, education expenses. We're gonna dive into that. But we do have a special promo for everybody that is on here live. Uh, and we'll circle back to this, but we're gonna give$200 off every single account you decide to open. And all it requires for you to do is just book a call with one of our IRA account executives. It doesn't obligate you to doing anything, but I want to see people take action. And if you've been kind of sitting on the fence, kind of thinking, like, maybe is this right for me? Is this not right for me? You know, how does this work? Uh, this is the opportunity to just get off the fence and actually take some action. So you save$200 off every account you set up if you put on the code put on the application forum 200. Just want to throw that out there before we start because we're gonna start talking about account types and things like that. And we'll circle back to this in a minute. So that's it for announcements. Let's get in to the questions.

Self-Directed IRA Fees Explained Clearly

SPEAKER_00 6:46

All right, everybody. So uh just a few more things. Just remember, Michelle's also in the chat. She'll be answering questions. Um, and then you guys will see me looking away from the camera every now and then. It's because I'm also feeling the questions as well, right here from the desk. And I think because Nate touched on the promo code, the discount, we'll just start with the very first question, which is what are the all-in annual costs, uh, the custodian feeds, transaction fees, and things like that.

SPEAKER_01 7:10

So that's a great question. It's a question we get all the time. You know, what how much does it cost to self-direct? Uh, first, let's talk about what people are familiar with. There, if you have an IRA with Fidelity or Charles Schwab, you typically don't see fees, but you really are feed. Um, you're feeding the broker fees, the transaction fees, the commissions that the advisor gets. Um, so on on those types of accounts, I would say the average retirement count actually pays about 10% in fees. Our accounts work a little different. Because we're not selling investments or providing investment opportunities, our clients are telling us what they want to invest in. We're just a transactional-based company. We just have a fee for having to do something on behalf of our client or on behalf of their retirement account. So, three main fees: one account establishment fee, 50 bucks. That's just a one-time fee. When you open an account, you pay 50 bucks. Wham, you got a self-directed IRA. Uh, the next fee that you typically see is just gonna be the annual account fee. Now, this is the only recurring fee that you have, and this is just the custodial fee for us to do the tax reporting, manage the account, do all the things that we need to do. Typically, that's$4.95 a year, and that's per account. Now, one thing I want to point out is I've worked for several other companies, and not all companies charge per account. Some companies in our space charge per investment, some charge based on the value of your account. Either way you slice that Apple, the more active you are, the more fees you pay. We've never been uh on that bandwagon. We're more grow your account and we won't fee you to death. So we just charge an annual account fee of$495. That's per account that will include up to three investments before there's any fee change. So you got the$50 account establishment fee, the$495 annual administration fee. And then anytime you need us to deploy funds for an investment, there's just a$50 processing fee to deploy the funds, either buy the investment and then sell the investment. So that's really it. I mean, there's some other small fees here or there, um, you know, overnight packages, you know, wire fees, things like that. But the things that you're gonna see on the account establishment investment is just those three fees there. I also want to make this point. If you guys are considering opening an account, there's two options on how you can pay those fees. You can either have them deducted from your account or you can put the fees on a credit card. So let's just assume you got$400 a year in fees. Do I want to take$400 out of my Roth IRA to pay a fee? Well, I all I did was just take$400 of tax-free money that can't grow tax-free anymore. I always think it's best to pay the custodial fees for your self-directed IRA on a credit card. Get some points, get some miles. It doesn't reduce the value of your IRA. Um, but that in a nutshell is how the fees work. We're simply transactional based. When we need to do something, we do it on behalf of you. So you can buy alternative investments.

Checkbook IRA LLC Basics

SPEAKER_00 10:11

All right. Let's go to sorry, forgetting, moving away from the microphone. What's the difference between a checkbook IRA and a self-directed IRA?

SPEAKER_01 10:21

Okay, I love that. Okay, so let's dive into that. So self-directed, let's just beat down the misconception on what self-directed really means. An IRA is an IRA, is an IRA. And when we talk about IRAs, it's it's an individual retirement account. An individual retirement account is governed by the same set of rules. Doesn't matter if you have an IRA at Fidelity or an IRA at directed IRA. The IRA itself is the same. Okay. It's a tax exempt trust that you manage, that you invest so that you can retire. Okay. So IRAs are no the same no matter where you go. The only reason we call it self-directed is because you have to tell us what the investment's going to be. You have to quote self-direct it. Self-directed is just a marketing term. It's not a legal meaning, it's not a type of IRA at all. It just means that you have to tell us what the investment's going to be. Now, when you talk when you mentioned checkbook IRA LLC, which is the last piece of that, this is just a structure that you can set up, which is optional, that may help you self-direct your IRA. So it's not an IRA, it's really just an LLC, right? A limited liability corporation that your IRA owns that you can manage. Now, why would you set up an IRA LLC instead of just use an IRA? Oftentimes we see clients, let's say that you've got an investment that's got a lot of moving parts. Let's say that you want to, with your self-directed Roth IRA, you want to buy an investment property. But the investment property owned in your IRA, it's got a heavy rehab, right? We got to pay for contractor labor, we got to pay for materials, uh, we got to send wires here and there. We got to we gotta pay contractors or subcontractors. If the investment has a lot of moving parts and we're doing that investment solely in our IRA, the custodian has to cut those feet, cut those checks, send those wires on your behalf. If you want to make it easier, what we've done, and this is through our sister company law firm, KKOS Lawyers, what they'll do is they will set up an LLC that's owned by your IRA, okay, that you act as manager of. The investments on our books inside your IRA, it shows it owns an LLC. Now, this can be a single member LLC or a multi-member LLC. Single member, if my Roth is the only owner of the of the LLC, that's a single member LLC. I actually have an LLC that I'm setting up right now that's going to be owned by my Roth and my HSA. That's a multi-member LLC. So the reason why you might want to have this is because that LLC comes with a business checking account. You have access to the business checking account. And when we do that structure first, now it's the LLC that's cutting the checks. Now it's the LLC that's that's depositing the income or where the income is being deposited from that investment. And you can deploy money quicker, oftentimes, and easier without having to contact us. So is it required? No. But does is it helpful for certain investments? Yes. Um, I would say talk to one of our IRA account executives, tell them what you're going to invest in, and have them kind of walk you through whether or not you might need that or not. Oftentimes you don't, but in certain circumstances, it does make the process of deploying money and collecting income a little bit easier.

SPEAKER_00 13:51

I I usually do uh three scenarios. So one is like what Nate mentioned, which is a lot of moving parts for your investments. That's really good. Uh ease of access, how fast do you need your money, which goes back to what Nate was talking about. But the third, which ties them all together, is also how many investments are you doing? Are you doing lots of different investments? Are you doing gold? Are you doing cryptocurrency? Are you doing real estate? Are you doing undeveloped land? If you're doing many different avenues of investing, an IRA LLC is definitely gonna be right for you as well.

SPEAKER_01 14:22

And there's certain investments you might even need it. And this, again, I'm gonna share some circumstances just so you can understand why you might need it and why you might not. I deal with a lot of real estate investors. I've been in real estate for a long time. So most of the clients that I talk to, they're buying real estate. Okay. If somebody's just gonna buy a three-bedroom, two-bath house as a rental, no real rehab. Do I need an LLC if all we're doing is deploying money out of the IRA to buy the property, and then our renter is just gonna pay rent back into the IRA? I might not need an LLC if it's just that simple. We talked about the the rehab example, right? Soon as you add more components to the investment, more moving parts, more people involved, the LLC might be beneficial. But there's some investments that might require you to have an IRA LLC. Two circumstances I can think right off the top of my head commercial property. I had a client that uh was buying an ice rink of all things in his self-directed IRA. And because that was considered commercial property, there were some other uh tenants and things like that, but essentially it was a commercial property. His attorney advised because of the nature of the investment, we need to have it in an LLC that's owned by the IRA. We don't want to have your IRA own this directly and have that account information on public record. And it's just it's just safer to have it in the LLC. Another reason I've seen people have to use an IRA LLC, buying property at auction. That's not one we talk about very often. That's a good point. But if you're buying property at auction, which oftentimes a lot of real estate investors do, they go down to the auction, they bid on properties. A lot of times, depending on where you're buying, there's a trustee that's managing those sales and they want cash on the spot. How do you have IRA money on the spot without taking a distribution? Right? You set up an IRA LLC, have your IRAs own the LLC, you're the manager, you walk down with the business checking account and the checkbook for the LLC, you write a check, you endorse a check over to the trustee. Wham, now your IRA LLC now owns a property you bought at auction. So other reasons why you might not, I just do lending. I just loan to real estate flippers. So if I'm just gonna send money to a title company out of my Roth IRA to help a flipper buy a property, and they're just gonna pay interest payments to my Roth IRA. Do I need an LLC to do that? Or can I just have directed IRA deploy those funds and collect them? So again, it's not not a requirement, but it it is a good question to ask of the IRA account executive.

SPEAKER_00 16:51

And we we have someone in here, uh Plasham, uh, you asked, do I need this for tax liens and deeds? So first another good one.

SPEAKER_01 16:58

Yeah, another good one. Yep. Tax liens and deeds, another good one, especially if you're buying them in bulk. Um, and if you don't if you're not familiar with them, you buy a bunch of tax deeds, tax liens. Um, in some cases, I've seen people buy them where some of them are redeemed and some aren't. So uh if you're buying something like that, easier to have the IRA LLC and the checkbook handy.

Real Estate Use Cases For IRA LLCs

SPEAKER_00 17:19

And and again, I think we're gonna lean into this as well. How do I invest in gold, oil market, and minerals? IRA LLC will help you with that. But we also do offer self-directed IRAs that can do that for you as well.

SPEAKER_01 17:30

Yeah, yeah. Again, these are and these are great topics because these are topics on our list of things that we're gonna discuss at the self-directed IRA summit. So as a reminder, that's a that's a good lead in the self-directed IRA summit. We're gonna have special um sessions on oil and gas and mineral rights. We're gonna have a special session on cryptocurrency. We're gonna have a special session on oil and gas and and precious metals.

SPEAKER_00 17:55

Are we gonna are we gonna maybe talk about livestock as well, possibly? Maybe.

SPEAKER_01 17:59

Maybe we'll talk about that. Um, now one of the interesting things, I I want to stick to that question just for a brief second. One of those investments is a little unique compared to the other ones. That's precious metals. Okay. So precious metals is a unique one. When we buy precious metals in an IRA, there's one thing that has to be added on to the investment, which is a storage uh facility. When you're buying gold or buying silver from your IR with your IRA, we have to have somewhere that the metals are stored. Now, based on IRA tax law, you're not allowed to possess the assets that are owned by your retirement plan. Soon as you possess them, it's called a distribution. So when you're buying something that that's physical gold or physical silver, they could be great investments, but you can't store it at your house. We can't store it at the office. So you use a third-party storage facility. Well, we use uh first uh Delaware depository. Delaware depository. Sorry, just slipped my mind. Delaware depository, they've been in business for decades and decades.

SPEAKER_00 19:10

They're not just located in Delaware.

SPEAKER_01 19:11

They're not just located in Delaware, right? So oftentimes when a client tells us they want to buy gold or silver, um, that company is going to store it for you. Uh, and oftentimes, sometimes you're even buying it from the depository too, because they have the the precious metals that you're actually buying and they just change the account number. So that's just one unique thing with precious metals. It has you have to have a third-party storage facility that's regulated.

SPEAKER_00 19:35

And for those of you that are maybe getting uncomfortable sleeping on your gold and wanting to move it into your IRA, you cannot do that. Okay. It has to, it has to remain outside of your IRA, but you can purchase new gold and silver and platinum and palladium, I think.

SPEAKER_01 19:51

Yes.

SPEAKER_00 19:51

Uh, inside of your IRA for the future. Uh, ones that you don't have to sleep on.

SPEAKER_01 19:55

Yes. All the other ones you don't need this the storage facility. Cryptocurrency, there's usually platforms that actually will hold it, or or you've got like storage or a wallet. Um, those are done oftentimes. Crypto IRAs are one of our leading products that people like to have. Um, and oil and gas and mineral rights, another great investment. We have a lot of clients buying into mineral rights right now. Um, and that's that's really a real estate investment when you look at it. Oftentimes, depending on how that investment's structured, if my Roth IRA or my self-directed HSA is gonna invest in a mineral right package, I actually might have a piece of a deed on that investment. So we don't need any extra special storage for that. Typically, what we're doing as the custodian is when we deploy the money from your IRA to purchase that investment, we're gonna retain the rights of ownership, which is usually just held on a deed or a purchase contract. So those types of investments are very easy to process as well, very popular in the space right now.

SPEAKER_00 20:58

I uh also just got some news. I haven't told you yet, that a certain competitor is not holding uh middle rights in their IRAs. So we yeah, I have a client that we had to work extensively with. I brought in our asset team to help us out. It took about a month to get this um other person to work with us and help us get their asset over to us. So we really put in a lot of legwork to get it. We have we have some.

SPEAKER_01 21:23

If you guys are interested to learn more about that, you can go to our directed IRA uh YouTube page. Yep. We have a lot of recorded webinars that dive deeper into those specific asset classes um with some knowledgeable experts in the space. So I'm sure if you want to learn more about it, just type in directed IRA mineral rights and those videos will pop up.

Alternative Assets And What’s Allowed

SPEAKER_00 21:44

Yeah, pretty much if you ask any question into Google, it's gonna be uh us or the IRS that's gonna pop up for your answers. Great question. Yeah. So let's look at. I'm not a huge fan of this question. Uh, I would like to hear your answer of it because I get it every now and then. And maybe it's just because I don't know how to answer it very well. But can a self-directed IRA invest in foreign currency? And I think that goes back to IRA LLC stuff as well.

SPEAKER_01 22:08

Yeah, I mean, it can, it can. I mean, the the IRS only deems two investments restricted in your IRA: life insurance contracts and collectibles. So with foreign currency, it's one of those ones is how are we how are we trading on a platform? How are we setting it up? How are we building the structure to get your IRA to trade? Right. Sometimes we have to add an entity or have some sort of platform in between. So on those specific investments, yes, you can invest in foreign currency. You could buy property on the moon if you wanted to. But just talk to an IRA specialist. These are the questions that when you when you call, when you call or book a call with our IRA account executives, tell them what you're looking to do specifically. And they've got, they have these phone calls all the time. They'll give you, without recommending or advising, they'll give you at least what clients are doing to invest in that type of investment, or give you a couple options so that you can decide which structure is going to be best for you. Let me preface this though. On most investments, we are not having to set up special structures to do these sorts of investments. If your IRA just wants to invest into a multifamily syndication, there's absolutely no special structure that we need for that. The IRA just invests into whatever investment sponsor you decide, we sign an operating agreement and we're done. Okay. Your IRA wants to buy just a rental property, right? With not a lot of moving parts. Okay. Don't need a special structure for that. You want to be a private lender like I do. You want to just make private money loans secured by real estate out of your IRA. No special structure necessarily needed for that. So I would say 90% of our investments do not need a special structure. But if you do have an investment that again, it's a little bit, you know, off the beaten path. Yeah, you can do it, but talk to us and let us figure out how we can best structure it for you.

Transfers And How Much To Move

SPEAKER_00 24:00

All right. What is a minimum amount in an IRA? Suggest to make an investment. And do I have to move my whole IRA over or can I just do some of it? Okay.

SPEAKER_01 24:12

Very good, very good question. So, one, you do not need to move your IRA at Fidelity, IRA, IRA at Charles Schwab. You do not have to close down that entire account in order to self-direct here at directed IRA. In fact, I would say it probably suits at most people best to have at least two IRAs. Have an IRA at Fidelity or Charles Schwab that you can buy your stocks, bonds, and mutual funds in. And then have an IRA here at directed IRA that you can buy your alternative investments in. There's no limit on how many IRAs you're allowed to have. I have a client that has 35 IRAs. Okay. I don't, I'm not suggesting you need 35, but you might need at least two. Having two IRAs at custodians that let you invest in different things, public assets over at Fidelity, private assets with directed IRA, that really gives you true diversification, right? So I you don't have to break down your entire IRA. All we have to do is you open an account here at directed IRA. You decide how much you want moved from your Fidelity or Charles Schwab account over to your directed IRA account. One key point is you want to make sure that whatever investments you have in the Fidelity account or in the brokerage account, you sell so that there's cash that we can transfer. They can be five grand, 10 grand, 50 grand, 500 grand. That's for you to decide. What I usually tell people is just move enough over to directed IRA to purchase the alternative investment that you want to buy. You don't need a bunch of money over here sitting with us that's uninvested because it's it's just making 0%. So just move enough money over to purchase the alternative investment you need us to buy. Now, how much do you need? What's the minimum? I I I've seen some really creative investments with very, very small dollar amounts. It really just goes to how what is your investment? What are you trying to do? Right. If you're just trying to buy a rental property, you might need a couple hundred thousand dollars unless you use one of these non-recourse lenders that has a low I low, sorry, loans for IRAs. In that case, I can buy a property owned by my IRA where my IRA only has to come in with the down payment. Okay, so the down payment could be could be negotiable. It's probably up to the bank on how much you need to put down from the IRA. So typically those banks want to see 30, 30% down from the IRA if you're doing something more creative. I had a client do a real estate option with a$10,000 uh option fee paid to a struggling homeowner just to lock up the, just to have the first right to buy the property. So if for you real estate professionals, you know what I'm talking about. You sometimes we can make money in real estate without owning the real estate. We can make money by just controlling real estate. So one way that we can control real estate is through real estate options. I know it's a little probably over the head for most people, but long story short, this investor knew how to create this option agreement, sent$10,000 to a struggling homeowner, and that that investment ended up in two years turning into a$297,000 tax-free investment. So I usually say if you're gonna buy real estate, you at least need enough to cover the earnest money deposit, because that's really where all real estate investments start. If you're gonna go out and be active and find the real estate that you're looking to buy, you need enough to at least cover the earnest money deposit. I've seen uh clients just wholesale the contract right after they get it under contract. I've seen clients take 50 bucks and deploy an earnest money deposit with 50 bucks. But if you're not an experienced real estate investor, what are some other avenues? Um, there's multifamily syndications, there's commercial syndications, there's a lot of these investment sponsors that are buyer buying bigger projects. Uh, they might have an investment minimum. And sometimes those investment minimums could be 50,000, 25,000, or 100,000. So it's really kind of all over the board. It it really just goes back to what are you trying to invest in? We don't have an investment minimum. You can invest 10 bucks if you if you have an investment that costs 10 bucks.

SPEAKER_00 28:29

So and I know people who went into notes and they bought a distressed note and now they have a$75,000 piece of land in their IRA.

SPEAKER_01 28:38

Yeah. I did a note investment once for$500. I I've talked about that. I I had$500 in my Roth IRA just sitting there doing nothing. Uh I had a uh real estate flipper approach me and and they he only needed$55,000 for this hoarder house that he was buying in Houston. Now, I already had my money deployed in other notes, but I I liked the deal. And I and to me, I'm I was just nerding out going, I think I can structure this as a fractionalized note and make this fun. So, long story short, what did I do with my$500 and his$50,000 loan that he needed? I went and knocked on the door of four of my friends and I said, Hey, anybody got any loose change in their IRAs that want to partner on this deal? I've got a great deal. This this investor in Houston found this property. It's got a ton of equity in it. He only needs 55 grand. That was to buy and rehab it, by the way. 55 grand and um it's a great deal. So, does anybody want to partner their IRAs with my Roth IRA? And we can all make 12% on this note. So we brought in a total of eight IRAs. One was mine, seven were from three other people, and we listed every IRA on the promissory note as the lender. It's just called a fractionalized note. It was still one loan to the investor, it was just coming from seven different IRAs. This is powerful stuff because you could you can see it you can partner different accounts together. So it doesn't really mat matter how much your IRA has. Do you have some other people that you know that have more money in their IRAs and bring them all together? So uh again, you can get as creative as you want. Um, I like those kind of deals, but that was my$500 deal.

SPEAKER_00 30:25

So am I able to combine a 401k with my IRA to make one IRA?

SPEAKER_01 30:33

Not technically. So um now if you've got a 401k, now did he say solo 401k or I think it was just 401k, yeah. Okay, okay. So that's a little bit different of an answer. Um, so most people who have a 401k, they have it at their employer or former employer. Um, these plans work a little different than IRAs. First, if you are still working at a company that has a 401k and you're an active participant in the 401k, and you want to move that money out to self-direct, chances are the company won't let you move the money out while you're still an employee of the company. So oftentimes you've got to call the company and ask if you can do what's called an in-service rollover option. Um, rollover just means we're gonna take it out of the 401k and dump it into an IRA. Now, if you've ever left a job, right, you know that you have to roll it into an IRA at some point because you have separation of service from that company that set up your 401k. So when you're leaving that company, that 401k typically rolls into an IRA. So what sorry, what was the question again? Can you combine them?

SPEAKER_00 31:42

Is it can you combine them basically?

SPEAKER_01 31:44

Yeah, I mean, you can't combine them because they're two different things. IRA and 401k are two different accounts. Uh, can you roll one into another? Yes. Can you roll an IRA into a 401k? Sometimes. Uh you can roll traditional IRAs into 401ks. It's weird. You can't roll Roth IRAs into 401ks, though. So just keep that in mind. Uh, but can you move money back and forth from those accounts oftentimes, but you can't combine them as just one account as being the same thing.

Capital Gains Myths And Depreciation

SPEAKER_00 32:13

Perfect. Um, what types of investments within a self-directed IRA eliminate capital gains taxes?

SPEAKER_01 32:20

All of them. So that's the beautiful part about buying real estate in an IRA, is an IRA doesn't pay tax. The definition, the the what an IRA is, it's a tax exempt trust. So is a 401k. Tax exempt is the key word there. It's a trust that doesn't pay taxes. So if my Roth IRA buys a stock, or say buys Walmart stock for$100 and it sells it for$200, okay, that$100 gain is not taxed because the IRA doesn't have to pay a tax. There's no tax return. It's not income to me, it's income to my IRA. Replace the word stock and put real estate. I can buy a$100,000 house. My IRA can buy a$100,000 house and sell it for$200,000. And the$100,000 gain is not taxed because it's the IRA's gain. It's not my gain. So there's no capital gains tax in an IRA. There's no tax on the rental income. This is the beautiful part about buying real estate in an IRA, is to eliminate that tax completely. Um, and then I always love the question. Uh, you always get this. Yeah, I'm sure you've got this because you're speaking a lot now. You ever get the guy in the yellow shirt in the room that says, Why would you ever buy real estate in an IRA when you don't get depreciation? You ever get that guy?

SPEAKER_00 33:37

Yeah, that's one of my favorites.

SPEAKER_01 33:39

I love that. I love that one. First of all, what is depreciation? Depreciation is an offset to tax. So depreciation is great outside of an IRA, right? If I'm an active real estate investor and I've got some passive income or some self-employment income, I'm looking for every opportunity to minimize the taxes I pay as an individual because I'm a taxpayer. If I'm buying real estate in an IRA, some people say, why would you ever do that? You don't get depreciation. Well, what am I depreciating against if there's no tax? It's not that I can't use it, there's no need for it. There's no tax in an IRA, so there's nothing to depreciate against. So um, but I think that it's great to buy real estate inside and outside of an IRA, but don't get stuck in the box. So I see a lot of CPAs get stuck in the box because they only think of real estate as a reason to get depreciation. No, real estate's a great wealth-building vehicle. Real estate has appreciation and cash flow. If you can acquire assets that have multiple streams of income and own them in an account that doesn't pay tax, that is a life-changing opportunity for you. So don't get caught in the box of you know that stuff. But no, there's no capital gains tax in IRA because an IRA is not a taxpayer.

SPEAKER_00 34:50

And to go off of that, which is going to lead me into my next question too. Um, depreciation's great. And whenever I get that question, I always ask him, how many deals did you turn down last year? And usually when they're being smart asses, they they usually say none. Yeah. But you know, it's usually like one or two. P real estate investors are turning down deals every now and then. And I go, okay, if you're so worried about depreciation, great. Do all the deals that you can do with your own money outside of your IRA to get that depreciation. When you run out of money, don't turn down the deal. Use an IRA. Yeah. You don't always need to use your own money. You can use your IRA's money. Stop turning down deals, pick them all up.

Using Debt Inside Retirement Accounts

SPEAKER_01 35:28

I would say this there are circumstances where an IRA can use depreciation if we turn the IRA into a taxpayer. Now, what the heck, what the heck is Nate talking about now? There's certain circumstances where an IRA can incur a tax. Now, if my IRA buys a rental property, all cash, there's no tax, right? I pay no capital gains tax on any gains. I pay no taxes on no taxes on the uh rental income, or my IRA pays no taxes on the rental income. But if I want to leverage some other bucket of money, and we kind of mentioned this real briefly, that there's banks that have loans for IRAs. I was in the mortgage business, I never even knew this existed. But there are banks that have loans. They'll actually give a loan to your IRA to help it buy property so that the IRA only has to bring in a down payment. So, in this circumstance, let's say my IRA puts$30,000 down on a$100,000 property, and my IRA has to borrow$70,000 from a bank, or I just choose to borrow$70,000 from a bank. The$70,000 my IRA borrows is subject to tax. Now, don't let this scare you because this is actually sometimes a good thing. Because this tax now that the IRA is incurring, not you, the individual, it's the IRA, can be offset with depreciation and expenses. It's only when we bring in the tax that we can start using the normal things that we use to offset the tax. So it's not necessarily a bad thing that my IRA incurs a tax. It just means that now I get to use some depreciation expenses to whittle it down. So it's, it's to me, it's a cost of doing business. If my IRA, if I've got money in my IRA, will I make more money buying one house all cash, or will I make more money buying three houses with debt? Okay. That's a that's a a calculation that you have to make on each deal. I've seen more people make money on three houses with debt than one house all cash. One way to avoid that is if you if you're self-employed and you use one of our products called a solo 401k, there's no tax on debt. So this is some of the fun stuff that we learn here at directed IRA is how how we can strategize or how we can be creative with our investing. How can we buy larger investments with smaller amounts of capital? Right. And how do we minimize or eliminate the tax if we do that? How can we maximize our profit even when we're using money from banks to help our IRAs acquire more property?

Roth Traditional Solo 401k HSA ESA

SPEAKER_00 38:04

And that goes into the next question, which is this person has two specific accounts, but let's talk about all the accounts we offer. Yeah. So that's gonna be Roth, traditional, so your personal accounts. We're gonna have solo 401ks and SEPS, SEPs. And we're also gonna have HSAs and ESAs. Okay. So those are for accounts that you can use on expenses for today. Okay. So we offer all of those accounts. We're, I always like to explain it to people. We're no different than a Fidelity or Schwab. We're a custodian just like they are. We just follow the IRS rules and we say you can invest in whatever they say you can invest in. So we're gonna offer all the same accounts. So I know David asked that one a while ago. I wanted to get to that one.

SPEAKER_01 38:46

Yeah. Now I will challenge anybody on watching this to prove to me you only need one account. I have not found anybody on this planet that only needs one of those accounts. Because if you think about the different accounts we have, we've got accounts for individuals, which are your traditional and your Roth. We've got accounts for self-employed individuals, which are your SEP and your solo 401k. If you're self-employed, you should have an item on both menus because you get to stash more money in through the contributions and essentially escape any tax on your investments. So you should be leveraging the personal plans, the IRAs, and you should be leveraging the employer plans, the solo 401k specifically, is one that I love. But then we've got the other two accounts that Daniel mentioned that are not retirement accounts, but they're accounts that grow tax-free that you can use the income to pay for health expenses for you and your family and education expenses with tax-free dollars. And that's the self-directed health savings account. A lot of you might have an HSA. If you have an HSA right now, a lot of times employers will set it up for you. That is not just a savings account. A lot of people just think it's an account you put money in, you get a tax deduction. Yeah, that's one of the three tax benefits you get. But you can also invest HSAs. HSAs can buy stock, HSAs can buy real estate and other alternative investments, HSAs can buy cryptocurrency, HSAs can buy precious metals. But the difference between an HSA buying that investment versus my Roth is my Roth becomes tax-free and penalty free once I hit 59 and a half. My self-directed HSA is tax-free whenever I want to take the money out to cover a medical expense. Things like prescriptions, acupuncture, holistic medicine, co-pays, dental work, vision, your eyeglasses, braces for the kids.

SPEAKER_00 40:36

I had a colleague buy a juicer.

SPEAKER_01 40:38

Yeah. I I've had clients buy pools because they're with tax-free uh income from their HSA because their doctor said for their bad back they needed a pool. So I mean, it it's wild how many things that you can actually pay, expenses you can pay for that you're paying for, I bet right now with the money in your back pocket. That's your taxable money. If you think about it, in theory, it pays, it makes less sense to pay those expenses with the money in my back pocket because I got to make money as a taxpayer first. So if I've got$20,000 of medical expenses for me, my spouse, and any of my dependents. So this is not just about who's on your insurance, this is about who's in your household. So if I've got$20,000 of, let's say, those related medical expenses and I'm paying it all, you know, these are the things insurance doesn't cover. If I'm paying it out of my back pocket as a taxpayer, that means I have to go make$32,000,$35,000 of income, pay my taxes, and then be left with$20,000 after I pay taxes to pay those expenses. If I switch my mindset as an investor and I just use my self-directed HSA to make investments, I can make$32,000, say$35,000 in my HSA and none of it's taxed. So I get to use$35,000, all of it, to pay for those expenses. I essentially consume more goods with the same amount of money because Uncle Sam is out of the equation. And the same thing goes with our self-directed Coverdale education savings account, which Daniel mentioned, which is for kids and their education expenses. So this is the one account that you can have that can buy alternative investments, that you can take the income out of the ESA to pay for that child's education expenses from pre-K through college. So if you're paying for things like tuition, books, computers, iPads, tutoring, your home internet bill is a qualified education expense in the tax law. Again, these are expenses most parents are paying with their back pocket hip national money and having to make more money just to pay more taxes, just to pay more expenses. Again, switch your mindset and start using these tax exempt accounts to invest and use the investment income, tax-free investment income, to pay for the same expenses so that you don't have to pay it with your money. I have a client in Arkansas that has a$400,000 ESA for his child just by buying and flipping small parcels of land. Um, but that's a$400,000 tax-free bucket that he can use to pay for any of his son's education expenses for the rest of his life.

Roth Conversions Timing And Strategy

SPEAKER_00 43:14

All right, perfect. So I have one. Uh, if you move funds from a traditional IRA to a self-directed Roth, will that cause a tax event? And then uh this one, I you know, I've been getting a lot of people asking for investment advice. We're not here to give investment advice, guys, just to be clear. Um, can I buy a truck to ride off on my taxes?

SPEAKER_01 43:36

Okay, so let's first address the I think it was Roth conversion question. Okay. So what he mentioned was it's it's considered a Roth conversion. So Roth conversions are always a hot topic in in our in our space and other even Fidelity Charles Schwab. But it's when you have a traditional pre tax account, okay, an IRA or an old 401k, that you haven't paid taxes on that money yet. It grows tax to Meaning you're going to pay taxes when you start taking distributions. However, some people like the Roth IRA because the Roth IRA is an after-tax account. It grows and you don't have to pay taxes on the distributions. So in theory, if you're going to take a small amount of retirement dollars and make it larger, do you want to pay taxes when it's small, or would you rather wait and pay taxes when it's big? Most of us don't get this education, but it probably makes more sense to pay taxes when it's small, regardless of what tax bracket you're in when you retire. So there's this opportunity that anybody has nowadays to pay taxes on some or all of their pre-tax IRA or old 401k and convert it to a Roth. Now, if you want to take it from after tax, sorry, pre-tax, if you want to take it from a pre-tax account and move it to an after-tax account, you just have to pay the tax. You don't have to pay a penalty. It's not a distribution to you, but you're saying to the IRS, I'm going to pay taxes now versus pay it later. And this is called a Roth conversion. So how Roth conversions work is let's say you've got$100,000 in your old rollover IRA and you want to convert the whole thing to a Roth IRA. Okay. All you have to do is fill out a Roth conversion form. Okay. Most of the time, you're just going to see that$100,000 be in your traditional IRA one day. And then the next day, once we convert it, now there's$100,000 in your Roth. Well, where do the taxes go? We don't take the taxes out of the conversion. That$100,000 is just reported on a 1099 to you. So it's treated as normal income to you. Now I know some of you might be a little squeamish right now. Well, I don't want to pay taxes on$100,000 more. If you're going to grow it to a million, trust me, you're getting a better deal paying taxes on$100,000. But here's the key you don't get the$1099 the day you do the conversion. You get a 1099 after we conclude the year. So let's say you're deciding do it, you're you want to consider doing a conversion today. If you did a conversion of 100 grand today, you don't pay taxes on a conversion done in 2026 until April 2027 when taxes are due. So one, you've got a lot of time to prepare for those taxes because typically it's best to pay the taxes out of your back pocket. It just comes to you on a 1099, you add it to your adjusted gross income, you pay normal income tax on it. So there's some strategy there. Obviously, low income years are better years to do conversions. Most advisors would tell you. Uh, if you're self-employed and you're running a loss, I was just having a couple conversations this weekend at a dental event that we were at, and a couple of the new investors were actually just starting their practice and they were showing losses on paper. So their advisor was a good advisor. So if you're showing a$50,000 loss on paper and you do a conversion of$50,000, what's negative$50,000 plus$50,000? You're still at zero. So there's some better years, obviously, to do conversions because sometimes you can convert at a discount or convert for free. But I think the biggest thing that should make you decide whether or not you're going to do a conversion is what's the investment going to be? Does it make sense to pay the taxes before you do the investment? The investment should be the key indicator as to whether or not you want it owned in a Roth or owned into traditional. Um, I had a client in Austin, Texas convert a$300,000 traditional IRA and in one year, and his CPA told him he was insane. He goes, You're in your largest income year. Why are you doing this conversion this year? It makes no sense. You're gonna have to pay taxes on an extra 300 grand this year, and this is your best year ever. He said, That's not why I'm doing it. I'm doing it because I found a property with a motivated seller that I can make way more than what the taxes I have to pay up to do the conversion. So, long story short, he had to pay about 37% in taxes on 300 grand, but he converted everything to a Roth IRA. His Roth IRA bought a property in Austin, Texas that was a rehab, fixed it up, flipped it. The property made 72% gain, cash on cash return, 72% in six months. Who was the smarter person in that decision? Exactly. The investor that knew that what he could make on the investment, or is CPA trying to talk him out of doing that conversion? He essentially has a$1.5 million Roth IRA now and he started with$300,000, but that$1.5 million is tax-free and he only had to pay tax on that$300,000 back in 2014.

Taking Property Out For Personal Use

SPEAKER_00 48:33

All right, perfect. So what if my IRA buys a property and I want to keep that property personally later down the road? Is that doable?

SPEAKER_01 48:42

Sorta. Let me let me so any investment in your IRA, when it's owned in your IRA, it can can never be used for personal use while it's owned in the IRA. So that's one of the restrictions. The IRS doesn't want us to use the investments inside of our retirement counts for personal use. So you can't buy the property that you live in and have it owned by your IRA. You can only buy investment property. You can't buy a second home owned by your IRA and live in it. You can't buy a vacation rental and then go vacation in it. You can rent it, you can have other people stay in there and have it as an investment where they pay the IRA to stay there or be tenants there. But you, as the account owner, are not allowed to use the property for personal use. If you do, and I've had clients do this, where you decide, you know, I've got these uh uh properties owned in my IRA, and I really like this one. I like this condo. I this is a real story, by the way. Client had a uh real estate portfolio in his Roth IRA. Um, he was retired. It owned a pretty nice condo in Florida on the beach. He decided he wanted to retire in Florida on the beach, but he really liked this property owned in his IRA. So he can't stay in the property or or be a be a resident in the property while it's owned in the IRA. He's restricted from selling the property from his IRA to him. He can't buy, you can't buy assets from your retirement account. So what did he do? He just took a distribution, he just took it out of the IRA. It's no different than taking cash. The only difference is we just have to get an appraisal on what the what the distribution amount is. But essentially what he did is he just titled the property out of the name of his IRA and titled it to him. So this is just a distribution. We're not distributing cash, we're distributing an asset. So here's the cool thing about that story. Because he owned it in a Roth IRA, he paid no taxes on that distribution. So he made a ton of money on this condo in in Florida and decided, I want to use it. How do I do it legally? Just take it out as a distribution. But while it's in the IRA, you can't use it for personal use.

Conversion Deadlines And Year-End Rules

SPEAKER_00 50:56

Perfect. And then the further conversions, uh, when do these have to be done by uh before April 15th or by the end of the tax year? By the yeah, or excuse me, April 15th or December.

SPEAKER_01 51:08

Great question. This confuses a lot of people because they they they think of conversion and associate it with tax filing deadline. If you want to, it depends on when you want to pay the taxes, what year you want to pay the taxes in. So if I want to pay, if I want to do a conversion and I want the converted amount added to my 2026 income, I have to do the conversion before 2026 ends because it has to be reported as income in this year. So if I'm looking to do the conversion for 2026, my deadline is December 31st, 2026. We have a lot of clients, not a lot of clients, but every, every every year it happens the same way where you get clients that are doing their taxes. And let's say, let's fast forward in time, say it's 2026 or sorry, 2027, and they go, I'm doing my taxes now. I need to make some contributions. I also want to do a conversion for last year. You missed the deadline. Yeah, you you're you can't do a conversion in 2027 to pay taxes for 2026. So the conversion deadline is actually the end of the year, December 31st of every year.

Final Promos And How To Register

SPEAKER_00 52:10

All right. Well, I don't see any more questions in the chat. I think we knocked them all out. Okay. Um, so if you guys have any more, you can you can ask away. We've got we've got a little bit of time if you want. But again, these are you keep us here as long as you want us. So if there are no questions, you know, we get into short. But um we definitely want to make sure you guys know about the self-directed IRA summit we have coming.

SPEAKER_01 52:31

Yeah, let's pull that, let's pull that back up. Okay, so just as a reminder, guys, if you want a full day crash course on everything self-directed IRAs, you can you get free tickets. Okay, just go to SDIRA summit.com or scan that QR code and type in the code SD2026. That'll get you a free ticket. Free ticket. You're saving a butt a couple hundred bucks, but I guarantee you the education is gonna be more, it's gonna more than pay for itself. So get your free tickets, SD2026, and go to SDIRA summit.com. And if you guys are interested in setting up a call or booking a call with our IRA account executives, and you decide you want to open an account and start investing into real estate or other alternative investments, use the promo code forum200. And remember that 495 fee I said every year, you save 200 bucks right off the top. So it's only 295 for the first year. Just make sure you use forum 200 and you can scan that QR code to book a call with one of our IRA count executives or go to directed IRA.com and just right at the top, click schedule a call.

SPEAKER_00 53:35

And we got one more question, and we'll probably end with this, which is what is the conversion process? How do we do an IRA conversion?

SPEAKER_01 53:42

Very easy. Just fill out a Roth conversion form. That's really all it takes. Um, you set up an account. Let's say if you've got it at Fidelity or Charles Schwab, you got a traditional IRA there, they've probably got a Roth conversion form for you. Oftentimes we're seeing clients move a traditional IRA to us and then they do the conversion. That's fine too. So all you got to do is is just fill out a Roth conversion form and open a Roth IRA and we'll do the conversion. It usually takes about 24 hours to process that.

SPEAKER_00 54:13

All right. I think that's it. Okay. Yeah, awesome.

SPEAKER_01 54:16

Well, thanks, guys. We'll see you on the next directed IRA webinar. You can get on directed IRA.com and look for our next webinars we've got scheduled and get those registered early. So thanks, guys. Have a good rest of your week.

SPEAKER_00 54:27

Bye, everybody.