The episode opens with host Steve Woodruff introducing the Billionaire Brain Trust series, which offers behind‑the‑scenes conversations with ultra‑wealthy individuals and their advisors. The guest, John Bowens of Equity Trust, explains how self‑directed IRAs (including traditional and Roth accounts) let investors move beyond public stocks into alternative assets such as real estate, private equity, hedge funds, cryptocurrency, and physical gold or silver. Bowens emphasizes the tax‑free compounding advantage of Roth IRAs and the flexibility of self‑directed accounts, while stressing that Equity Trust, as a custodian, does not give investment advice but ensures compliance with prohibited‑transaction rules. He outlines two typical client pathways: investors bring a pre‑identified opportunity to Equity Trust, or they are referred by investment sponsors or financial advisors. The discussion covers the mechanics of opening and funding an account, the limited set of disallowed transactions, and the importance of understanding unrelated business income tax (UBIT) and its debt‑financed variant (UDFI), including the 990‑G filing and how depreciation can offset UBIT. Bowens shares trends—real estate remains a core focus since the 1980s, but the platform now also supports gold, crypto, venture capital, and hedge funds. A concrete case study is presented where a client rolled a 401(k) into a traditional self‑directed IRA and invested $200,000 in an apartment‑building partnership with an 8% preferred return, a 70/30 GP‑LP split, and a 15% hurdle, illustrating how UBIT is managed. The episode concludes with resources for viewers: Equity Trust’s website (trustetc.com), its YouTube channel, and conference appearances.
Chapters
Welcome to Billionaire Brain Trust, our newest YouTube series that will take you behind the scenes into candid conversations with billionaires and those who work with them, hosted by Steve Woodruff, who brings a unique perspective as a family office advisor. Billionaire Brain Trust will feature exclusive interviews with billionaires and the key players in their organizations, offering viewers a rare glimpse into their stories, decision-making frameworks, and what they are excited about right now. Whether you're an aspiring entrepreneur, a seasoned investor, or simply curious about the world of the ultra-wealthy, Billionaire Brain Trust will to help you think bigger and achieve more.
So second day of the Beverly Hills Super Summit. I'm joined by John. John, your last name Bowens?
Bowens, yep.
Yeah, great. With Equity Trust, self-directed IRA company and custodian. And John was one of the speakers yesterday. I had pretty interesting content and being prepared. With just some trends that we're seeing in self-directed IRAs, where money's flowing, which I thought was really helpful. So John, I appreciate the time. Love, love having you and glad we can talk.
Yeah, I appreciate it as well. It's, it's exciting being able to use a retirement plan to invest in real estate and what we refer to as private market investments. Yeah, most Americans are only accustomed to with their IRAs, 401s and other retirement plans. Investing in the public markets, traditional stocks, mutual funds, ETFs.
Absolutely.
Most Americans are not exposed to this capability of being able to invest in, in a different asset class. That could be real estate, that could be private equity, hedge funds. We have customers that are even investing in assets like cryptocurrency or physical gold and silver. The idea is, is with a self-directed account, having a little bit more control over what they're investing in.
And in general, we've seen certainly better returns, more, more stability in, especially like real estate, for example, compared to traditional equity markets. So that's really nice. And we— and really one general downside that we've seen with real estate or some of the alternatives is that they are generally less liquid. But that also pairs well with the retirement account where you may not touch it for decades. So those assets, I think they pair well. If investors have their money in an IRA, you can't get control, you can't move it to something else.
Right, right. And when you say pair well, I also think in my mind about what I call compounding interest in the absence of taxation.
Yeah.
So the self-directed traditional account, tax-deferred Roth account is tax-free, as we talked a little bit about yesterday. Sure. And the ability to pair that account using compounding interest in the absence of taxation with private market investments can be really, really powerful.
Yeah.
As a custodian and myself, we don't give investment advice or recommendations, and that's why customers enjoy coming to an institution like ours where they have the freedom and flexibility to make their own decisions. Now, they might be relying on you know, maybe an issuer relying on a company that they're investing with in order to understand the objectives of the investment, the duration of the investment, the liquidity of the investment. But they have the peace of mind knowing that with Equity Trust, they won't be put into a position where they're going to be offered an investment or sold an investment that they might not feel comfortable with.
Do investors who work with Equity Trust, are they usually finding the investment that they want to place their capital with? First and then open an account with Equity Trust, or do they just know that they don't want to be in the traditional public equity market and they then go to Equity Trust and then they find the deal? What's, what's the process?
Yeah. So customers find Equity Trust in one of two ways. A, they have an investment— real estate, could even be a single-family rental property, or it could be a real estate fund, a real estate partnership. Call it an apartment building.
Sure.
And they find an opportunity and they come to Equity Trust and they say, hey, I had heard that I could use my IRA retirement funds to invest in this opportunity. And that's what I would prefer to do instead of using my taxable dollars.
Yeah.
And so then as a custodian, we can look at that investment and say, yes, we can hold that investment. Now, as an alternative asset custodian, you'll find that we'll hold a variety of hard-to-value alternative investments. So there's very few transactions you can't do with a self-directed IRA. There are some transactions you can't do. There are prohibited transactions and assets that are disallowed, but that's the one mechanism is they'll come to us because they have an opportunity. The second would be we work with a lot of investment sponsors, financial advisors.
Sure.
We work with a variety of professionals that are offering these investment opportunities to their clients. And they'll educate their clients like yourself here doing this program, educating clients on how to use an IRA. And then they're able to send that client to Equity Trust so that we can make sure we help them properly open and establish and fund their self-directed account and then be able to deploy that cash or their investment that they want to make.
I've heard this story that there was someone who invested in buying a racehorse in their IRA. Have you heard of any really kind of unusual investments that—
We do. We're the custodian for some rather creative investments. I have heard of the racehorse investment. You have to be careful. There's certain aspects of— I'm sure.
I think it actually turned out really poorly when they bought the racehorse.
But exactly.
Yeah. What else have you heard of that?
Yeah. You know, we were at dinner last night and somebody was talking about their alpaca farm here. And coincidentally, we've had clients that have invested their IRA funds in alpaca cattle contracts.
Wow.
So there are some interesting investments.
Yes, sir.
A lot of what we do is real estate, whether it's through a fund structure, a partnership, or individuals actually owning, let's say, single-family rental properties with their self-directed IRA. And it's not in the physical real estate side, more of the debt side. So as a private money lender or maybe investing in like a bridge financing fund or a private credit fund.
Yeah.
And the one misconception for a lot of people is that when they move their account into a self-directed IRA, they're moving it into some sort of different structure. Where there's some sort of taxes and penalties.
Yeah.
And there's not as long as they're rolling it over or transferring it the appropriate way.
It stays in the same tax status that was in at their, at their brokerage company.
Exactly. Yep. It's no different. It's really very similar to investing in stocks, which is what most people are familiar with, or a mutual fund or ETF-like product. So you have cash leaving the account and return is going to be a stock certificate. When you buy real estate, or invest in a real estate fund, it's really the same concept. Cash is leaving the account.
Yeah.
And now you have an investment and then all of your flows in. So all of your payments in are going to go directly into the IRA.
Yeah. Yeah, I love it. Where are you guys seeing trends of money flowing currently? Do you have— do you have information on that?
So in terms of trends as a custodian, we generally, although we do look to a degree, we generally remain agnostic to that because we can't be, of course, giving advice. And even the mention of trends could potentially be viewed as a, I'll call it, perceived endorsement. What I can say is in terms of what clients are using their IRAs to invest in, yeah, it really runs the gamut. Investments in real estate. That has always been a really core focus of ours going back to the early '80s. And even prior to that, our company founder started the predecessor of Equity Trust back in 1974. And so real estate has always been a core focus of ours. But in addition to that, we are custodian for physical gold and silver, cryptocurrency investments in privately held companies. Hedge funds, startups, venture capital funds. Again, it really runs the gamut in terms of the different ways in which one can self-direct their retirement funds.
Yeah, that's awesome. Any, any other things that people should be aware of when investing in an IRA that might be different than just owning it personally?
Yeah, a couple of things. One would be some of the more tax-related elements of this.
Yeah.
IRAs, particularly a Roth IRA, these are highly tax-privileged accounts. And so if the transactions are structured properly and you have, let's say, a Roth IRA that was seeded with after-tax money, it grows tax-free and you take the money out and you pay 0% tax.
Sure.
So the compounding interest in the absence of taxation can have a profound impact on an individual. But one does have to be aware of, well, are referred to as the prohibited transaction rules. So there are transactions that are disallowed. For example, if you own real estate now, you, you can't sell it to your IRA. You can't take money from your IRA and lend it to yourself. For those that might be like a real estate syndicator, seldom can you use your IRA to invest in your own transaction. Those would be self-dealing prohibited transactions. So you have to stay away from those types of transactions. Sure. The other, which is something you brought up earlier, is a little-known tax called unrelated business income tax.
Yeah.
And it incur— it occurs in an IRA when an IRA is investing in a debt-leveraged real estate project. Now that could be where the IRA owns property directly, or it could be where the IRA is invested in a fund that has leverage. Now you'll learn that if the fund is structured in a unique way, there may not be unrelated business income tax. If someone's using a solo 401 instead of an IRA, there may not be unrelated business income tax. Ultimately, it's a tax that one should understand but not be afraid of. See, one will say UBIT is an issue. Well, it's not an issue if you understand it. You really want to make sure you look at unrelated business income tax for what it is. Embrace it. Work with your CPA or tax planner. To understand how this works and how to comply with the rules and the guidelines.
Yeah.
Equity Trust, we prepare the tax form that's used for claiming this. It's called a 990-G tax form. We're not tax advisors or CPAs, but we can do that preparation. And what you'll find with real estate, because of depreciation, you may show losses for a number of years and be able to offset the unrelated business income tax by those losses.
Yeah.
So important to have a strategy ahead of time. The long story short on this, in conclusion of unrelated business income tax, it's a tax on a percentage of the net profit, not the profit, the net profit.
Sure.
And it's only attributable to the debt finance percentage of the property. So you're not paying taxes on 100% of your profits back into your IRA.
Yeah.
You're paying taxes on a percentage of those profits that are attributable to the debt finance percentage of the property. And for some folks, it's a negligible tax. They want to look at the total return including that tax, which in some cases could be much better than what they're doing now.
I've heard that. I, I think it's sort of what you're alluding to, but what you'll generally see is like, let's say it's a, a real estate deal, a 5-year deal. You'll generally see losses in the first year, which wipe out the income over the next several years. So it just rolls forward, carries forward. In that 5th year you sell it for hopefully a profit. You may see it more in that 5th year. Is that, is that what you're experiencing as well? Potentially seeing some, but generally not in the other 4? Or do you often not see it then either?
Yes. So it's, it's not uncommon in a real estate syndication.
Yeah.
Partnership. Of course, those are taxed as partnerships. So the income's flowing through.
Sure.
With an IRA, you're going to have unrelated business income tax. By the way, I should mention for anybody listening that they may also, if they do some reading on this, they may see the term unrelated debt financed income tax, UDFI for short, and that's UBIT.
Okay.
That's just implying that it's from debt financed real estate.
Yeah.
And so you're correct, which is with the depreciation, they may show losses in X amount of years and then don't actually recognize any gains until there's an exit.
Yeah.
And then when that exit happens, let's say 5 years from the start of the deal, that's when they're going to be subject to some capital gains. But they'll be able to take all of those losses that stacked up on the K-1s. That's, of course, the tax document that the investors are issued.
Sure.
All those tax losses that are stacking up on that K-1 can then offset their future gains. So it's always just like anything else. In real estate and in its tax planning, right? It's understanding it and then understanding the rules and then understanding ultimately how to put yourself in the most optimal tax situation. And of course, from an investment perspective, where are your IRA dollars working for you? Do you want those working in the traditional markets or do you want— would you want those working in real estate? A good friend of mine, he had about $200,000 in a 401, worked a few different jobs, kept rolling them over. And he actually coincidentally works in financial services. And he said, you know, I want to own real estate with my retirement account.
Yeah.
So he rolled over his 401 into what's called a traditional IRA, self-directed. And then he invested $200,000 into an apartment building partnership. So this is a, you know, a typical real estate fund. He's getting, I believe, an 8% preferred return with a 70/30 GP-LP split with a 50 50 at a 15% hurdle rate. So pretty typical standard real estate type apartment building deal. And he's going to have UBIT and he knows that, he understands it. We talked about it ahead of time, just similar to this conversation we're having here, you know, and he moved forward with it. And again, it's important to understand, and I'm glad that we've talked about this because it's important that viewers are educated on this and they understand it so that they can get out ahead of it well in advance.
Well, I appreciate the time. What's the best way for people to get a hold of you?
Oh yeah, really easy to find us on our website, trustetc.com. Looks like trustetc.com. Company's name is Equity Trust Company. And also in terms of more education and information, that's how we get our word out to the public, if you will.
Yeah.
Coming to conferences like this and meeting folks like yourself. But we have a great YouTube channel. So folks can go to YouTube and just search Equity Trust Company. We have all kinds of video. We actually have videos on UBIT and the prohibited transaction rules and, you know, everything in between. So I'd encourage folks to go there too. Great.
