Main Street Business

#583 Strategic Strategies With a Self Directed IRA

• Mark J Kohler and Mat Sorensen

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Mark J. Kohler and Mat Sorensen reveal game-changing strategies for transforming your retirement accounts from Wall Street limitations to Main Street opportunities. Discover how to legally invest your IRA or 401(k) in high-potential assets beyond traditional stocks and mutual funds.

  • Maximize Tax-Free Wealth: Learn Roth IRA investment strategies that minimize taxes
  • Explore Alternative Investments: Real estate, crypto, private businesses, and more
  • Gain Checkbook Control: Understand IRA LLC structures for flexible investing
  • Protect Your Assets: Learn how retirement accounts shield your investments
  • A comprehensive guide for entrepreneurs seeking smarter, more strategic retirement investing

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Speaker 1:

Welcome to the Main Street Business Podcast with your distinguished hosts, mark J Kohler and Matt Sorenson. Both are bestselling authors and have over 25 years of industry experience, with 10,000 client consultations, making them the leading tax and legal experts in the nation. Together, they'll unpack the most complex tax, legal and financial strategies crucial for saving more, stressing less and building generational wealth. Crucial for saving more, stressing less and building generational wealth. Today they're your personal advisors, ready to break it down for you and make the tax and legal game easier than ever. Here is Mark and Matt.

Speaker 2:

You may want to buy gold or silver, you may want to buy crypto, you might want to do real estate and we never think that, oh, I could be doing this in my IRA or 401k. We want to build wealth, pay the least amount in tax and even asset, protect it when your IRA makes money, particularly your Roth IRA.

Speaker 3:

nothing goes to the IRS, Anything you put in it.

Speaker 2:

You can pull back out tax-free, penalty-free, anytime you want it.

Speaker 3:

This is not for everyone, I'll say that, but it's for a lot more people that are currently utilizing it. Welcome everyone to the Main Street Business Podcast. This is Matt Sorensen, joined by the incredible Mark J Kohler, and we're delighted to be with you today talking about strategic strategies with a self-directed IRA. You've got two tax lawyers here. We've got the 10,000 hours in the space We've been working in this. We co-founded a trust company that does this and we got something we want to share.

Speaker 2:

Yeah, and there are ways to better invest your money and that could and we're not just talking wall street, we're talking about maybe your rental property, what your your side hustle, your brother's business, a startup down the street. For those that aren't familiar with this and we have a whole other podcast on this topic we needed to bring it to Main Street today. We needed to talk about summertime investment strategies and let you know there's more out there.

Speaker 3:

Yeah, and I think one of the things we hear from a lot of our clients on Main Street and our law firm and as we're working with clients and talking to other professionals across the country is people are thinking like where's the best place to invest right now?

Speaker 3:

And if you think about where the money is, there's $44 trillion in retirement accounts and the typical Main Street Americans most investable section of dollars is in their IRAs and 401ks, and you've just been told that you need to buy a stock bond or a mutual fund and we love the Main Street investing, not the Wall Street investing and so how do we bring those retirement accounts over to these assets? We want to hit some strategies for you today. Dive into that, and this is something Mark and I love. We do it ourselves. You know we're eating our own cooking, so to speak, and we're not here to sell you anything either. If you're not interested in this and the main street investing versus Wall Street investing, that's okay. I'm not trying to convince you. I just want you to know what's possible, because you're not hearing that from your financial advisor and you're definitely not hearing it from Wall Street.

Speaker 2:

Yeah, a couple of things. The plan today we're going to share some strategies and then some how-to steps so that, if some of you get excited about this, you know what to do next, where to get a little more educated on this, how you can take action. But one of the first concepts I want to share is you don't have to take your entire IRA or your entire 401k and go do something else. You can say, ooh, I'm going to peel off 10 grand, 20 grand, 200 grand, whatever you got, add a zero to it. So I'm just going to lay it out like this. First point is you may want to buy gold or silver, you may want to buy crypto, you might want to do real estate, and we never think that, oh, I could be doing this in my IRA or 401k, oh, I could be doing this in my IRA or 401k. And I mean, matt, the other day someone asked you how do I save taxes? And it was so funny what you said I don't want to steal your thunder.

Speaker 3:

Yeah Well, I mean, the first thing we always say about like, how do I save taxes, is we'll stop making money, and no one likes that answer. But what we're saying is I still want you to build wealth, but when you make money, it goes on your 1040 and it goes to the IRS and there's something that goes to the state when your IRA makes money, particularly your Roth IRA, the number one account we work with. Nothing goes to the IRS. This is growing and coming out tax-free. It's long-term wealth building. I'm waiting until I'm 59 and a half.

Speaker 3:

But what we've seen with clients over the years and I stole that line from Mark, by the way, I will give some attribution is, and I remember Mark talking to a client like a real estate client that was like all bent about how much taxes he was paying. He had a really great year flipping houses and it was like well, stop making money. And the guy's like what kind of a guy is this? That's something to stop making money? He's like, no, you need your Roth IRA to make money.

Speaker 3:

So if you're someone like a real estate investor or you like Main Street assets, like it could be the gold, the crypto, it could be small business. It could be private funds. I mean, these are kind of more the Main Street assets, not the big publicly traded company or the ETF or whatever. But if you like those Main Street assets and you feel like you have a competitive advantage in that they are more valuable, have more value over time, they're priced right, you feel like you can buy them at a good price. We just want you to know you can do it in your IRA and that same tool that a lot of people are familiar with buying a stock and selling it for a gain and not paying taxes, and every penny you make on it gets to be reinvested and you can compound and grow that. If you think about with your stock portfolio and Wall Street taught us that Well, that same strategy and the tax benefits apply in real estate and these other Main Street assets.

Speaker 2:

Yeah, when you saw the title of the show. This is it. This is a strategy. We want to build wealth, pay the least amount in tax and even asset protect it. Now a couple of you out there that might be a little younger are like well, I don't want to wait till I'm 59 and a half or whatever. Hey, with these Roth accounts, anything you put in it, you can pull back out tax-free, penalty-free, anytime you want it. But let's let the gains roll and ride and snowball and get going Then.

Speaker 2:

Another thing I think it's just so important to mention is that you can invest in things that you know best. And there are some guardrails, like you can't work in the business your IRA may invest in. Generally there are. There are some. You'll learn more as you go down this path. But we've got to be careful that your Roth IRA is not going to create a job for you or pay you for what you're going to be doing. But when you've got an idea or a strategy or you know of something in the local area or a strategic advantage, that's not insider trading. I don't mean insider trading. You know something no one else knows. Yeah, so does Nancy Pelosi, but you've got the same runway she does. It is not insider trading for you to invest your IRA in something you know that no one else knows.

Speaker 3:

Yeah, and let's just give a couple of examples here, just so you guys can conceptualize this, particularly for anyone new here. I'll share one. I've done Mark can share one. Okay, yeah, let's read Is where you see kind of like a main street investment opportunity. Right, it's not like some index fund or ETF or stock, but you're like I just see this main street opportunity, for example, like what my account is invested in right now.

Speaker 3:

The most recent investment I did out of my own self-directed retirement account mine's a Roth, but you could do traditional funds is I'm lending another real estate investor money out of my account. I'm charging them 12% interest in two points. Now when they came to me they're like hey, I'm buying this deal, the bank won't finance it, there's a ton of equity in it, I'll give you a lien in first position and I know you like to lend on real estate deals because I kind of told people that. So I get deals, people will talk to me about it, and so I'm like cool, 12% interest and you're going to pay me two points, so I'm getting a 14% rate of return. I usually lend that money twice in six-month loans. So overall I get the two points twice a year, so I'm getting a 16% return on my investment. Now I could have said, let me just fund that with my non-retirement account dollars, you know. I could have just said, let me just lend you a hundred grand, you know, out of my regular dollars. But if I'm being strategic about it, which I am I'm thinking about long-term wealth building, which I am, I'm thinking about asset protection, which I get in my retirement account. I'm going to be more strategic in using my Roth account to do that.

Speaker 3:

Because if you think about it, if I lent that person money and I get let's say, I'm getting 16% rate of return, so I'm getting, I lend my retirement account, is my retirement account keeps that entire 16%. Like that retirement account keeps that entire 16%, like that I get $116,000. If I did that personally, okay, I'm in the highest tax bracket, I'm paying state tax. Let's say, 40% of what I make on interest income as I'm lending money is going to the government, like that 16% return ends up being like 9%, you know. And so if you're thinking about building wealth, we want our money working for us as best as possible, and that's where you can be strategic about it is I'm compounding this over time my money, that 100,000, if I keep reinvesting it just on the math here will be $1.6 million without putting any new contributions in, if I can keep getting that return because I pay no tax, if I do that outside my retirement account.

Speaker 3:

Sorry I'm going long here, but I'm just trying to illustrate that outside my retirement account, where I got to pay Uncle Sam every year and I'm making money but I don't get to reinvest at all, it's going to take me 30 plus years to get to $1.6 million versus 18. And I want to have that money when I'm 45, you know, in my 60s, not when I'm in my 80s.

Speaker 2:

Yeah, no perfect example. I'm going to go long now too.

Speaker 3:

Now let's use it without objection.

Speaker 2:

I yield the balance of the time. Thank you, thank you, senator from Arizona. There is another strategic idea here. When we go out and invest, it's very hard to use leverage. Leverage is difficult. You may have heard of margin accounts and they're very dangerous. I'm going to buy stock on margin. That's how people end up jumping out of buildings, so we don't want to do that. But what's cool with your retirement account is it can borrow money non-recourse, meaning your credit doesn't matter, your FICO score doesn't matter. And so here's an example of one of mine.

Speaker 2:

I actually used my health savings account. I still own this property to this day. I think I bought it like 10 to 12 years ago. But there was this low-income housing, section eight rental. It was over in Elgin outside Chicago and I was able to put down six, seven grand because it's a low-income housing about 50 grand and it was seller-financed and they wanted a first trust deed. They didn't care what my credit was, they just wanted 10% down. So I think I put down like five to six grand, bought it for 55 grand, whatever, 10% down. So I think it put down like five to six grand, bought it for 55 grand, whatever.

Speaker 2:

And after section eight, federal rent control area, I'm still netting a couple hundred bucks a month. Now that may not seem a lot, but when you take 12 years at $200 a month, growing inside my health savings account, this paid for braces for one of my kids tax-free. So an HSA strategic strategy here that I'm going to do a twofer is first, I use leverage to get more property with a lower down payment and your IRA can do that very safely and rental property. And number two you can use your health savings account, you can use your Roth IRA. You can use your IRA. You can use your 401k, your Roth 401k, your SEP, your Coverdell college savings account, people, any tax-preferred vehicle you can use to invest in what you know best.

Speaker 3:

Yeah, and I think you know, I know you've done like cows and we've both. I know I've done rental property too. You did the rental. I've invested in private companies and stuff like that. Xrp, don't forget XRP, xrp. Yeah, that works. You did Bitcoin. Yeah, I did Bitcoin in 2017. I should have held all of it, but I still got a good ride on it. Definitely a good return.

Speaker 2:

How much did you buy Bitcoin for when you bought it?

Speaker 3:

2,500 per BTC. Oh my gosh, you know, and it's funny because back then that was a Main Street asset. It's now a Wall Street asset. Wall Street buys it now, you know, yeah, but back in 2017, wall Street was crapping on it. Right, it was more of a Main Street asset, you know so.

Speaker 3:

But if we think of these investment opportunities, we see and you know many of our listeners you know Main Street business owners are entrepreneurial. They like that stuff. You know, we like kind of being captain of the ship, we like taking a little bit of risk, betting on ourselves and finding these opportunities, cutting deals, and you just can't do that with a Wall Street investment. You just, you know it's like, well, what's the what's it trading for today, you know. But in the street assets, you can use a lot of that expertise you have, either as a real estate investor or you, where you know this or as a business owner, to go find and make deals happen and get your retirement account in a strategic way where you're building long-term wealth.

Speaker 3:

And the other thing that Mark mentioned earlier was asset protection. One thing we found with a lot of our clients over the years is they're always worried, as a business owner, about that lawsuit one day and losing it. All you know despite you know all the blood, sweat and tears you put into that business something goes wrong and getting that lawsuit that can wipe you out. Now we want to use entities for that. We talk about that, of course, and using LLCs and corporations for asset protection, but one thing to keep in mind for your retirement account is you can file bankruptcy and keep your retirement account, so your retirement accounts are asset protected. Some states will limit that up to a million dollars. Most states it's unlimited, though, and it cuts down to a state by state basis for IRAs. So just keep in mind that your retirement account has incredible asset protection if something does go wrong somewhere else in your life where you have to file bankruptcy or you've got a lawsuit or creditor chasing you down.

Speaker 2:

Yeah, there's only two people that can get your IRA folks the IRS and your ex-wife or ex-husband. So just keep that in mind. It's pretty sweet. Now here's what I want to do. I want to give you guys some basic steps here, if that was enticing to you at all. We've got other podcasts where we go step by step. Each podcast is a step, so don't stress about it. We'll give you down in the show notes you can see a reference to our other podcasts that we've got hundreds of shows on the Directed IRA podcast. So if you're interested in this at all, start dipping your toe into it by going and checking out that podcast. But here's some quick steps.

Speaker 2:

First thing is just think about it. It's funny how the universe works, like, if you're like I'm going to look for a deal and I want my IRA to invest in a deal, you know what's weird. If you go think about buying a white car, you're going to see white cars everywhere. So all of a sudden, deals are going to start to fall in your lap and you're like, oh my gosh, I could do that in my IRA or my 401k. Number two, I'll just throw out the first two or three, matt, and they're in people. There's a gray area between all these, meaning sometimes they happen simultaneously or all at the same time. Whatever that means the same thing Anyway.

Speaker 2:

So first thing is start looking for deals. Number two open a self-directed account. We've got it. Every summer we do an open an account special and you could open an IRA. It could be an old 401k that you just have languishing somewhere that can roll over. There's no tax, no penalty. When you self-direct, it's just like you're getting rid of your broker dealer and you're coming over to direct an IRA. We don't sell you any investments, we're just like what do you want to do? It's self-directed, you get that self-directed, you get to direct what you want. So think about investments, open an account and I'll say number three choose a dollar amount, say I'm going to take 10 grand, 100 grand, a million, whatever it is you want, and say I'm going to pursue that idea I've got in a self-directed format and quit investing in something I don't understand or don't want on Wall Street and invest in something I understand. So those are my first three, matt. Where would you go from there? Would you add to that?

Speaker 3:

yeah, I know, I think that's the great like. You got to be thinking through those things. Right, that is your, so you're starting to get ready on what you're gonna do now. Then here's how I'm gonna do it. Let me hit a couple of things. I'm like all right, yeah, yeah, yeah, do it. You know. So you figured that out. You've thought about the things you want to invest in. We're not here selling you an investment. By the way, there's no secret here of like, when you come to us, we're like you need to invest in this and we're making some money on this. We don't care.

Speaker 2:

I don't, we don't make money on it, I want you to the same thing.

Speaker 3:

So this is up to you. This is the part of self-directing which can sometimes be intimidating, but it's exciting too about that. You're taking control and you're kind of captain of your ship on this. So all right. So here's the first thing I want to make sure everyone understands. You know we have our company Directed IRA where we do this. You can get directediracom. Our team will definitely take care of you, walk you through the steps and help you along in this process, but we still want to make sure you understand what you need to do. The first thing is you're like all right, I found that deal, I found that investment, or I know what I want to do. I've kind of gone through that thought process that Mark talked about. I know how much money I want to do on this. Well, the problem is, if your IRA is over at Fidelity, fidelity is not going to let you do it. Fidelity is going to be like what ETF do you want? What mutual fund are you thinking about? You know that's what you're going to get over there.

Speaker 2:

So yeah, and let me say, let me inject this, matt, when I said in step three, open an account, you got to have somewhere the money is going to go into. So I like, matt, that you're saying. Number four is like well, where am I going to? Those are two different things, people.

Speaker 3:

Yes, and when most people think of doing this, you know they already have money in an IRA somewhere right. There's $17 trillion in IRAs right now. There's more money in IRAs than 401ks in either type of plan. And so the most common scenario is well, I've got money in an IRA at Fidelity. They just don't let me do this Like I've got kind of the Wall Street menu over here at Fidelity. So you're like all right, I found that deal opportunity I want to do.

Speaker 3:

You've opened your account at directed IRA. We're just going to transfer the funds over. So we got to get that account funded. That could be the old 401k. You could even be making new contributions of 7,000 bucks a year in an IRA or maybe 70 grand in a solo. Okay, but we got to get the money in that vehicle, that account type, and so that would be. The next step is that we got to get the money in. We opened the right account. We got the money transferred over or rolled over from an existing account. Maybe it's new contributions. I'd say 90% of our new accounts. They're just moving money from Wall Street type opportunities or accounts. I should say. Now you're funded and ready to go.

Speaker 2:

And this is kind of where the fork in the road happens, people, because if you're like, okay, I want to do crypto, okay, we have an app for that with Gemini and you can invest in all the mainstream tokens and coins and all that, or you go, I want to lend it Cryptocurrencies, you could do.

Speaker 2:

Go, I want to lend it Cryptocurrencies, you could do. Yeah. And you may say well, I want to do an LLC where I can get more creative with crypto and go in some different types of tokens that are not on a mainstream exchange and I don't want to use a mainstream exchange, don't feel like you're forced to do that. And then some of you might think, well, I want to do a note. Okay, well, you send us the paperwork and a direct IRA, we'll fund that note. And then there are others say well, I want to do real estate or get a little more creative where I have control to be able to pull a trigger quickly. And I think that's, matt, where the LLC comes into play and and as one of those kind of fork in the road paths a lot of people take as well.

Speaker 3:

Yeah, and that would be a strategy within self-directing.

Speaker 3:

So maybe I'm using the Roth IRA, maybe I'm using a traditional IRA there's the different account types you might have moved funds over to and then you're like well, I want to do the property. That's a rehab. I want to go buy the property on 123 Green Street and either flip it or hold it as a buy and hold. Short-term, long-term rental doesn't matter, but there needs to be a rehab on it. Okay, well, rather than your IRA owning that asset directly, where your IRA is untitled to the asset, your IRA gets the income. Your IRA is paying the expense and that's an account with us, by the way. Okay, so you're working through your custodian, whoever that may be. We're just the best. So you could use the inferior ones. But just use directed IRA would be our suggestion here. But let's say that you're like well, matt, dude, I'm going to have contractors on this. I may want to buy the property at auction. I'm buying a bunch of properties. We like the IRA LLC for that. So your IRA doesn't own the asset.

Speaker 3:

Your IRA invests in a newly created LLC. Our law firm, kkos Lawyers, sets these up. You can be the manager of the LLC. You're going to have a bank account at the LLC level. The IRA is going to invest its cash into the LLC, which goes in the LLC bank account. Now you don't own the LLC.

Speaker 3:

Your IRA owns the LLC in the example here, but you're manager of the LLC. Manager of an LLC is like president of the corporation, right. So you have authority to act for the LLC. Now that LLC goes out and can do the real estate deal, it can pay the contractor. You can have a debit card, checks, wires all out of that LLC business checking account and the LLC is getting the income right. The LLC is paying the expenses. It's growing. You sell the property. The gain goes back into the LLC bank account. Now you don't touch the LLC. You don't own the LLC. Your IRA does. You can keep investing out of the LLC. Go do the next deal, keep buying more assets, building your wealth.

Speaker 3:

But that's a strategy within self-directing. Is that IRA LLC? Some people call it a checkbook IRA and, as Mark said on our Directed IRA podcast, we've got a whole episode on that. We've both got videos on this on YouTube where you can get more info on the IRLC. Our team at Directed IRA can help walk you through the steps on that. So that's a common strategy to use where you might want a little more control, particularly if you're entrepreneurial. Maybe you're a real estate investor already and you're just used to doing your deals out of an LLC. It's faster, it's easier, you get that checkbook control.

Speaker 2:

Yeah, no, it's great, and I also I think I can summarize with this Now the world is your oyster. You have a new door open to you to access a capital that you thought was locked up in Wall Street. You now start partnering with others because you go hey, you got a retirement account, let's work together. Now you've got even more possible partners or investors for lack of a better word or lenders, and you're now. You've upped your game. You're more educated, you're more strategic and you've got a lot of options. But that's really it. I mean, now there's a lot to learn.

Speaker 2:

There's prohibited transactions, there's UBIT tax and prohibited parties, and I can't buy my mom's house and I can't put my kid to work in there. Yeah, you can't self-serve. Just think of that. I can't benefit myself in this process, but, holy crap, I can benefit my retirement account. So I'm going to encourage you to just get over to our other podcast, start consuming, start learning. Open an account. This summer We've got a special the link's down below and you can open an account for like 100 bucks off or whatever, something like that. It's a great deal. Open accounts for your kids. Every one of my kids have a Roth account. I want them to have a Roth account. So when I go into a deal I can make them a partner. That's not prohibited. So be thinking outside of the box and just know that this is a really exciting, fun journey that you can go on and your retirement account can go on. It's a lot of fun.

Speaker 3:

Yeah, and I think you know this is not for everyone. I'll say that, you know but it's for a lot more people that are currently utilizing it. You business owners, you entrepreneurs, you real estate investors. We just know you're into this stuff. I mean, mark and I have just talked to those clients over the years. That's who we are and this is what we're doing with our own accounts, and we're here to help you along the way. I wrote the number one book on this, the Self-Directed IRA Handbook. If you're like Matt, I need to geek out on this. I'm the engineer, I'm the pilot, I just you know, I can't just watch a podcast. I need a book, I need all the citations. I want to feel good about this. We've done that. I mean, we're tax lawyers, all right, no-transcript.

Speaker 2:

Yeah, we're geeks, we both get excited about it. So, direct at IRAcom there's a helpline there too that can help you get started, and we didn't truly want this to sound like an infomercial and it's not. We wanted to give you a resource. You don't have to use us if you don't like our team, but we've been in this space for over 20 years as a law firm, our accounting firm, our trust company. We have so many resources in this area of tax law to help the average again Main Street business owner succeed. So thanks for letting us touch on one of these topics we're so passionate about today and I encourage you strongly to get over to that other podcast.

Speaker 2:

Get an account open this summer, have a lot of fun going into the fall investing in something new and different. And guys, 10 to 15, you're making 16% on notes. That's very common in the directed IRA space. You start playing with the rule of 72. And if you don't know about that, go chat GBT or Grok rule of 72. You started getting a 15 to 20% return. Your brain will blow up on what your money is going to be worth in five to 10 or 15 years. So thanks so much for listening. Matt, you want to take us out?

Speaker 3:

Yeah, Thanks everyone for listening. Please, you know, make sure you're subscribed, share this with your friends and family, give us a thumbs up or a great review. If you have any negative feedback, you can send that to Mark. Of course, post PO box, you know, one, two, three, whatever, but send it in on a check. And yeah, yes, but thanks everyone for listening. We appreciate it. We'll see you next time.

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