Investing in Alternative Assets through Self-Directed Retirement Accounts with Adam Bergman - Ep-524

So the number one advantage of a retirement account is the tax-free nature of it. The second, I think, like you mentioned, Alan, is diversification, right? You don't want to have all your eggs in one basket. You don't want to have all your money in the stock market. You want to diversify. There's a lot of exciting opportunities in private placements, in real estate, in gold, crypto, hedge funds, private equity, venture capital.

Welcome to Streams to Impact and be inspired to engage passionately in the work of your calling while achieving financial prosperity through multiple streams of high-yield returns on investment to Bringing your dream of making a meaningful impact to reality. I'm your host, Dr. Allen, and I am delighted that you are joining us today. If you haven't yet, get a complimentary copy of our exclusive guide, High Yield Investment Blueprint: Secure 18%+ Returns in 60 Days. Go to our website, highyieldinvestmentblueprint.com. High yield investment blueprint. That is www.highyieldblueprint.com. Just provide your email address and we'll send you a copy today. Hello, enlightened investors. Welcome back to Streams to Impact. I'm your host, Dr. Allen, and as always, I'm so delighted that you have taken this time to be with us today, and we're going to Bring to you today some really good content that I know is going to be very valid information for you in your investment decisions here. Adam Bergman is a 9-time author, and he is a former tax and Employee Retirement Income Securities Act attorney. He's the founder of IRA Financial. And a leading voice in the self-directed retirement industry. So Mark, your journey, much like Equus, has been one of transcending boundaries and inspiring others through your own work. So can you share with us the moment or the experience that first sparked your passion and set you on the path to creating streams of impact in your life and the lives of others?

Absolutely. Well, thanks so much, Allen, for having me on this podcast. Really, it's an honor. Really excited. So I was a tax lawyer in New York City. I worked at some of the largest law firms in the world. I have a master's in tax law. And 8th year, so around 2008, I had a client that was a major hedge fund partner at a large hedge fund, and he wanted to use his IRA to invest in a hedge fund. And I remember I got tasked with the assignment. This partner I did a lot of work with said, hey, Adam, can you check this out? And at that point, there was actually a law— there's a law library. Hard to believe. So I went to the library, and I couldn't find a lot on this stuff at all. There was like one book, a TMP, a tax management portfolio on retirement accounts. So I went through it. And I was blown away. I could not believe that you could use your IRA to invest in alternative assets. I had no idea. I remember going to the partner's office, knocking on his door, and saying, like, I can't believe you can actually do this. And he's like, yeah, I thought I heard about something like this. I wasn't sure. That's why I wanted you to research it.

Research it.

But basically, it opened up my eyes to say, oh my God, I think I'm a pretty smart guy, a pretty sophisticated guy. I have a law degree. I have a master's in tax law. I worked at some of the largest law firms in the world in New York City as a tax lawyer, and I had no idea that you can use your IRA to invest in alternatives. I thought you actually had to invest in stocks and mutual funds and bonds.

Mm-hmm.

So, what happened? I literally quit my job, like, within months, and it took me about a year to kind of, like, put my life together and start this business, and I started IRA Financial, you know, around 2009, end of 2009, and that was it. We now have 25,000 accounts with over $4 billion in assets, And I've been blessed to be able to talk to so many smart people and help unlock people's retirement accounts by just educating them and letting them know that, yes, it's easy, it's simple, and it's legal. You can do this. The IRS allows you to do this.

Well, that blows my mind, Adam, that you had a master's in tax accounting and you had not heard of self-directed IRAs. I mean, I I expect that from the general public because everyone is directed into the stock market, but I'm surprised that a master's program could omit such an enormous advantage for people. That blows my mind.

I mean, if I can just expand on that, I mean, I did 3 years of law school, obviously. I took a bunch of tax courses. business, finance, tax, legal-related courses. And then I did a master's at NYU, one whole year of just law, tax law. And there was not one course— not that I didn't take it— there was not one course offered on retirement accounts in law school or in this LLM, master's in taxation, which is the number one program in the country.

Wow.

So, yeah, it's just like you said.

It's—

people are directed into publicly traded securities, into bonds, ETFs, mutual funds. And I remember when I started this company, even my colleagues were like, you're going to let people buy real estate in their IRA? That's so risky, right? And now you fast forward 15 years, it's like, it's so mainstream, real estate.

Well, that just, you know, just reiterates what, uh, what we already know, you know, that people don't know this, but the private placement market is trillion-dollar industry. It's bigger than the public market, and yet we hear all the time that it's just so risky, you've just got to stay with stocks and bonds. So, I mean, for instance, there is something like 43 million or so accredited investors in the country, and out of that 43 million, only about 5% ever break through that barrier from the public markets into the private markets. And I'm, I'm glad to see you're, you're addressing that and doing something about it.

And there's some good news on the horizon. The Trump administration has put forth proposals, and our industry is commenting on them, to try to expand the definition of a credit investor. So right now, currently under law, to be a credit investor, you have to earn $300,000 of adjusted gross income, married filed jointly, and have $1 million in net worth excluding your primary residence. Okay? So what the Trump administration is trying to do is they're trying to allow people that don't satisfy that really, you know, subjective number, allowing you to take a test, right? Basically say, okay, if you can take a test and you can pass this test, then we're gonna deem you accredited even if you don't satisfy those financial requirements.

Okay.

Which makes sense, right? It's totally arbitrary to say— imagine you've got an MBA from Harvard, okay? And your first job out of your MBA school, you make $260,000, $280,000. You don't make $300,000, and you don't have $1 million in net worth because you have all this student debt. You're not accredited, but you have an MBA from Harvard. How crazy.

Well, I mean, the same thing happened to me in 2008. I was just totally and completely wiped out. I was no longer an accredited investor, but I had Tremendous amounts of investment knowledge and skills and expertise under my belt, but I wasn't an accredited investor anymore. It took a while to get back to that standard. So yeah, it would be nice to have a test like that. I would agree. Well, just, you know, just so— I mean, we have a variety of viewers and listeners. Some, like you, have never heard of self-directing their IRAs or their 401s, so What are the advantages of self-directing your retirement accounts?

Well, the good news, it's changed over the last 15 years. Companies like IRA Financial and some other great companies in our space have done a really nice job promoting and explaining and educating that, hey, this is legal. So let's go all the way back because I'm, I'm a history buff. IRAs were created in 1974 by ERISA, okay? IRAs and 401s were created in 1974. Before 1974, there was no such thing as IRAs, 401s. Basically, only people were saving where people are working at large companies like Ford, GE, IBM that had defined benefit plans. Okay. So ERISA was created. Great, great thing. 50 years ago, actually, September 2024. So when IRAs were created, Congress did not distinguish and the tax code does not distinguish between IRAs that invest in real estate and IRAs that invest in stocks. Only 3 things you cannot do with an IRA. That's it. And there's only 2 sections in the Internal Revenue Code that discuss what you cannot do in an IRA. It's found in Section 408 and 4975. 408 says you can't buy life insurance in an IRA. You could in a 401, not in an IRA. You can't buy collectibles, which is like art, baseball cards. And then thirdly, the broadest category is you're not allowed to engage in any transaction that in any way, directly or indirectly, personally benefits you individually, your lineal descendants, your parents, your children, your spouse, daughter-in-law, son-in-law, or any entities controlled 50% or more by such persons. That's it. So you can't buy real estate and live in the house. You can't take your family to Disney with your IRA. You can't buy yourself a Rolex watch with your IRA. You can't buy yourself a Porsche with your IRA. But you can do everything else, right? You can buy real estate and rent it to a friend. You can even rent it to a brother, sister, aunt, uncle, cousin, just not a lineal descendant. So it's actually very broad and flexible in what you can do with an IRA or 401. The advantages is simple: tax-free growth, compounding returns, right? The 8th wonder of the world, Albert Einstein said, not me. Compounding returns is the 8th wonder of the world. Rule 72: If you generate 9% rate of return, your money doubles every 8 years. Okay? If you generate 10% rate of return, your money doubles every 7.2 years. That is the core and the holy grail of investing. And the beautiful part is the retirement system takes advantage of compounded returns. It's the maximum area where you're going to see the fruits of compounded return. So let's Fast forward to today, there's 65 million IRAs, over $13 trillion in IRAs. Okay, for most people, the largest source of savings is the IRA world. And now you know it's super flexible, you can do almost anything you want. And in most cases, if you're generating capital gains, interest, dividends, royalties, rental income, all your income, passive income, is tax-free. So you buy Bitcoin at $3,000, you sell it at $100,000, tax-free. Peter Thiel, One of my idols, he has over $4 billion in a Roth IRA. What's a Roth IRA? It's an after-tax account, so you don't get a tax deduction, but once you're 59 and a half and the Roth's been open 5 years, it's all tax-free. He invested under $2,000 when he founded PayPal with Elon Musk. He turned that into around $27 million in less than a year. He invested $500,000 in Facebook. He was the first investor in a Roth IRA. generate over $300 million tax-free. Okay, so there's no limits on what you could earn, and if you do it in an IRA, a Roth IRA, you're going to generate deferral, compounded returns, tax-free investing. So the number one advantage of a retirement account is the tax-free nature of it. The second, I think, like you mentioned, Alan, is diversification, right? You don't want to have all your eggs in one basket. You don't want to have all your money in the stock market You want to diversify. There's a lot of exciting opportunities in private placements and real estate and gold, crypto, hedge funds, private equity, venture capital. Right. Private placements lets you invest in, in private businesses that hopefully one day will become the cornerstone of the American economy. Right. Google at some point was private. Same with Apple. Same with Tesla. SpaceX is still private. You can still invest in SpaceX in private placements or other amazing American companies. So not only are you going to generate great returns, but you have the ability to invest in America and the future of America. So there's just so much great you can do. You can create your own luck. You invest in yourself. You don't have to rely on the government. You don't have to rely on Wall Street. Who knows why stocks go up or down? I have no idea. But you can take advantage, take control, and invest in almost anything you want tax-free.

Yeah, I like what you said. Stocks go up and down and I have no idea. I don't either. And so I just, I stay out of those public markets for that reason, 'cause they've never made any sense to me. But so, so who should invest using their self-directed retirement accounts? I would say everybody, but maybe you have something more specific to that.

I'd say everyone. No, I agree with you. I mean, I'm with you 100%. I mean, I'm not saying you should put all your IRA money into Venezuelan bonds or Zimbabwe real estate, but you want to diversify. I think every American should have exposure to real estate. I think every exposure should have exposure to private businesses. So actually, I'm not alone. Larry Fink, who's the CEO of Blackstone, one of the largest asset managers in the world, he just came out with his letter end of March and he said he believes 20% of allocation should be in private assets. Whether it's private business stock, PPMs, real estate. So I believe in that. I also believe in gold. I believe in cryptos. I'm not saying you should buy 20% cryptos, but have 1%, 2%. You want to be— you want to have allocation to non-publicly traded assets as a source of diversification and also just gaining exposure to emerging growing asset classes.

Well, Tiger 21, which is a peer network organization of high net worth individuals, they share the cumulative investments of these high net worth individuals, and the average is that they are putting about 65% in the private markets and only about 18% in public markets. So—

True.

You know, if you want to develop your wealth, do what the wealthy do. And they're not—

People are suckers. People are getting fooled by investment advisors. They're getting lied to. They're getting forced paying 1% fees for nothing, for literally these investment advisors to play golf all day while they are allocating your money into these mutual funds. It's not hard. It's fun. I love self-directing. I think smart people self-direct because You take control. You're building your own future. You're creating your own luck, right? You get to choose what you invest in. I mean, that's the beauty of the system. And Congress gave us this right. It's not that I made it up. It's in the tax code. They want us to diversify. If Congress wanted us to just buy stocks, they would have limited retirement accounts to just publicly traded assets. But that's not the case. And, Alan, you're right. The smart people I know— I have clients that are extremely wealthy. Extremely, extremely billionaire, multi-billionaires. Guess what? They have most of their retirement savings in private assets, private equity, hedge funds, private placements, gold, cryptos. They have— I agree with you. I think it's around anywhere from, I've seen 15% to 30% in publicly traded. The rest is private. Unfortunately, most Americans have 100% of their savings in publicly traded.

Yep, that's the way it is. Well, and speaking of diversification, you can diversify in Private markets. I mean, your financial advisor who's telling you to put 100% into the stock market is going to tell you to diversify across stocks, but you can do the same thing in private placements. You don't have to come into private placements and put 100% of your assets in one investment vehicle, and that would be a very stupid thing to do. You can diversify in private markets just as easily as you can in public markets, and you should. I mean, that's— diversification is that vehicle to reduce your risk. There's no such thing as a risk-free investment, but diversification is the avenue to reduce risk there.

Yeah.

Well, talk to us, Adam, here. You've talked about who should and what kinds of things you can use your self-directed accounts to invest in. Well, how does, how does a person get started?

Yeah, so it's really easy with technology. Go to our website. You can go to irafinancial.com, irafinancialgroup.com, and basically, whether through a web version or downloading our app, you answer a bunch of simple questions. Takes I don't know, 5 minutes to open an account. And then we'll help you transfer the money tax-free from Fidelity, Schwab, Vanguard, your former 401, employer 401, wherever. It's all tax-free when you transfer or roll over money within the retirement world. You can also make contributions, right? Anyone can put in $7,000 or $8,000 if you're over 50 in an IRA. You can put away a lot more in a SEP IRA or simple IRA or a 401. Solo 401, and then roll those funds into a self-directed account. Now, there's no difference between a self-directed IRA and an IRA. People ask me, well, the rule's different. No, it's one IRA. The only difference is Schwab, they may market and, and say they're giving you a self-directed IRA, but no, it's— Allen, it's like you said, all they're letting you do is buy stocks. So yeah, you can buy Tesla or Apple. That's self-directed. I mean, that's not really self-directed. A true self-directed account lets you invest in anything legally allowable by the IRS, which is what IRA Financial does. Okay, so if you want to buy gold or real estate or invest in France or do a hard money loan to your cousin in Taiwan, you can do it. Okay, as long as it's not life insurance, collectibles, or self-dealing, you can do it. So you literally open an account, you roll over the money tax-free, you tell us where to send the money, we'll send it there, we'll do all the IRA administration from an IRS perspective. It's super easy, super inexpensive. It's less than like $500 a year. We have flat fees. So if you have $50K or $50 million, you're gonna pay us the same fee 'cause you're gonna get the great, same great service. We don't wanna charge you more 'cause you're making more. We're not like our registered investment advisors where they're like, oh, as your account grows up, we make more money. Well, that's ridiculous. So we're gonna charge you flat fees. We want you to keep most of the money. And all your growth, and you shouldn't give it back to us because you're smarter than us.

Well, take us through just a little bit more detail here in terms of the rollover process. It's pretty simple and self-explanatory. What is it that— I mean, because you can't take your self-directed IRA and and yourself go out there and invest in, in any, in any asset there. You have to use an intermediary like yourself. So explain that process and why that is the case.

Great question. So under Section 408 of the tax code, 3 institutions could be what's called a custodian of an IRA. So if you go to Amazon, they can't open an IRA, or Walmart, right? A bank can, number one. Financial institution, too, like Vanguard. And thirdly, a state-chartered trust company like IRA Financial. So, we are regulated to custody IRAs. We just focus on alts, non-publicly traded. We could, if we got a broker-dealer license, could do publicly traded. Maybe we will. But right now, we focus on alts. So, if you want to open an IRA, you'd have to go to a bank, a financial institution, or a state-chartered trust company. So if you transfer money from an IRA to another IRA, that's tax-free. But you have to make sure you're moving it between institutions, custodians. If you take the money and put it in your pocket, you could once every 12 months for 60 days. After 60 days, it becomes taxable. And that's in the IRA world. In the 401 world, say you work at Tesla, if you're under the age of 59 and a half, you actually don't have access to your money. 'Cause there's no what's called triggering event. The only way you get access to your money in a 401 is if you leave your job or you're over the age of 59 and a half. Okay, so the IRA world gives you more flexibility, lower contribution limitations in the IRA and Roth world, higher a bit in SEP and SIMPLE, which are employer IRA plans. And then the 401 is a great plan, but it's an employer plan. Now there's something called a Solo 401. which is basically a more robust 401 for anyone that's self-employed. So just because you're self-employed, you, you may think you don't have the opportunity to open a retirement account. You're dead wrong. You actually have a greater opportunity to save more through a Solo K. If you work at Tesla, for example, you're under 50, you're going to be able to put away around, you know, $23,500. If you're self-employed and you make $100K, You can put away $23,500 if you're under 50, plus approximately 20% profit sharing, maybe 25% if you're a corp. So on $100K, you'd be able to put away around $43,500, where if you worked at Tesla, you'd be able to put away $23,500, and maybe the company will give you, you know, a 3% or 4% match. So you're actually more ahead being self-employed. You actually then have more investment flexibility because Tesla's not going to let you buy real estate or private placements. You will in a Solo K. So the self-directed world, the retirement world is so rich and there's so full of opportunities. Unfortunately, just like my experience, we're not educated, right? I never— I went to law school, I have a master's in tax law. I didn't take one course on retirement savings, not one on compounding returns, nothing on IRAs or 401s. So that's the problem.

Yeah, it is. I mean, it's just a lack of knowledge. that prevents people from using their retirement plans in a self-directed manner, because it's definitely legal. It's not that complicated. And in fact, I mean, you as a custodian, you're not going to let your investors invest in prohibited transactions, right? You do vet those, right? That's right.

We vet those. We have a compliance department that vets them. But in my estimation, right, there's nothing more American than taking control of your future and investing in what's legal on your own, not listening to someone telling you what to do. So as an IRA custodian, we make it easy, very simple, and we are here to help. We also have an annual consulting service where you can call us or email or chat us and ask questions. So you don't get yourself into trouble about prohibited transactions, about, for example, unrelated business income tax, or how you can maximize your contribution legacy to your family. There's a lot of great opportunities, whether you want to do pre-tax, right, and get a tax deduction. Maybe you want to do Roth and shelter all your income from taxation once you're over 59½ and the Roth's been open 5 years. So there's a lot of great opportunities What we specialize in is IRAs, right? That's what we do. It's in our name. We focus on IRAs, 401s. That's it. We don't tackle non-retirement money. We'll let other people do that. We want to focus on what we do best, because we feel with our expertise, we can help people, educate people, and make them understand the power of the U.S. retirement system.

Well, Adam, it has been wonderful having you. Excellent information. I know that it's information that many of our viewers and listeners can benefit from, so we're glad that You were here to share this with us. So, Enlightened Investors, thank you so much for being with us again today. And if you enjoyed today's show, which I'm sure you did, please take a moment to like, share, and subscribe. We'd also appreciate it if you could give us a rating and a review on your favorite podcast app. Until next time, live abundantly. We'll see you in the next episode. Thank you.

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