Ep 36 - Self Directed IRA: How to Use Retirement Accounts to Invest in Real Estate

Foreign.

Hey, everybody. Flip and Danny here, founders of the Freedom Real Estate Group family of companies. And welcome to another episode of our.

Podcast, Freedom through Passive Income.

Boom. That's right. And today's episode is how to use your retirement accounts to invest in real estate.

Now, specifically this episode, we're talking about 401ks because there's a lot of episodes that we will likely be creating Talking about solo 401k checkbook IRAs, Roth IRAs. There's just so many different QRPs. Like we're just going to be talking about all of them, but it's probably going to be a per episode basis. QRP is qualified retirement.

What is that? I've never heard of that. And a quick disclaimer. We are not tax advisors. We are not attorneys. We are not CPAs. We are not vegetarians. So make make sure that you take this with a grain of salt. We've done this enough where you went, what?

I like meat.

Oh, yeah, yeah. Yes, we are. We are not. We're definitely not. So again, so we wanted to make sure that again, the disclaimer is at the end of our. All of our episodes as well. But we wanted to make sure. But we wanted to give you this good information because it is something we talk about pretty much almost on a daily basis.

Yeah. And it's very powerful. And there's trillions of dollars of assets and 401ks and people don't know how to use it. Yeah, I know. So we did a lot of research. And so Flip is going start off with all of the research that we did. This is very relevant and current data that we wanted you to be able to hear.

Yeah. And this is actually mind blowing. Google says that as of June 30th of 2021 for the 401k plans held an estimated 7.3 trillion. Trillion with a T in assets. That's a lot. And that's just one fifth of the 37.2 trillion in all retirement accounts. Yeah, that's a lot of money. Yeah, that's a lot.

When we say Google, like we googled so many articles to find accurate data. This was actually a report sent on October of 2021 about a stat from June of 2021. So super relevant. And as soon as we saw those numbers. Yeah, yeah, we saw those numbers and we're like, whoa. So we wanted to share.

That's a lot of cheddar.

Yeah.

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Yeah. So again, the average balances for the people that are in their 30s is around $50,000. For people in their 40s is around $150,000. And the average balance for people in their 50s and 60s is around $300,000. Now the average returns. Now this is moderately aggressive portfolio, which is 60% stocks, 40% fixed income. The average annual return is around 5 to 8%. The more aggressive, the more stocks. Yes, is better. And the less aggressive, which is less.

And not even better. It's just if you're going to be riskier and put more money in stocks, you're going to have an. So that 5 to 8% might turn into 7 to 10%. Possibly.

But it's also volatile.

Yes. Yeah.

So it could, you know, the floor could drop up.

Yeah, yeah. You are taking more risk.

And then the fidelity average 401k balance in quarter three of 2020, the average balance, and this is over 30 million accounts, the average balance was 109,600.

Yeah, yeah. And I think because I cut you off, if you're going to have a less aggressive account, meaning more fixed income assets. Yeah. Then the stat that we saw in article after article was like 2 to 3%. So people who are trying to be a little bit safe and have stability and certainty are only getting 2 to 3%, meaning they're not keeping up with inflation. So they're actually losing money. So if inflation is 3% and you're getting 2, you just lost 1%, your dollar is eroding away. If you're in that 5 to 8% category and inflation is 3% and you're Getting 5% because you're moderately aggressive, and that's just hilarious. You're moderately aggressively only getting 5 to 8%. So you say you're getting 5%, inflation's 3, you're actually only earning 2%. And so like, we're here to talk about this because we want to empower people to be able to get to a point in their lives where they have enough passive income that they can quit their jobs. In this particular example and episode, we're more, even more so passionate and focused upon the fact that, hey, pay attention to what your money's doing right now because you're planning to live on this when you're retired. And we gave you that stat that 92% of the people, once they retire, they don't have enough income to live off of. They're relying on their family. They have to have another job. Not because they want it, they have to in order to keep up. Because we're living longer and the dollar is eroding away and inflation is happening. So the money that you have right now is not going to buy the same thing in the future that is buying today.

Right?

And we're just freaking, can you tell? We're pretty freaking passionate about it. So, you know, think, you know, look at where your money is and listen to these episodes. Learn, learn, learn, learn and change some habits so that your future is taken care of. And those of you who have children are teaching your children exactly what you should be doing as far as paying attention to where your money is. So Flip gave some really, really good, powerful stats that blew us away. So we wanted to share them with you. So what can you do now that you have this knowledge? And so what I really wanted to educate people on was that the fact that if you have a 401k with a past employer, move it, freaking move it and take control of your money. So a 401k that is with a past employer, you can move it into what is called a sdira, which stands for Self Directed ira, right? Individual Retirement Account. And self directed means you get to direct it. You yourself get to say where you want it to go. And real estate is one of your options. So a lot of our investors that invest with us will use their self directed IRA account and pour it into private money lending or pour it into a syndication. And now they're getting 6, 8, 10, 12% not tax benefits. Let's just qualify that. If you are using a qualified Tax Advantage account into a syndication, for example, that has tax benefits already, you can't double dip, right? You're already in a Tax Advantage account. You're not going to get the tax benefits from the syndication. So what a lot of of our investors are doing is they're evaluating their buckets and they're saying, here's my, you know, here's my 401k, I'm transferring it to the SDRA. Danny, I'm going to be ready in about 30 days. Right now I also have this bucket over here of money and I have this bucket. And so we actually talk to them about what, what's, how do you strategically invest? And so we tell people, transfer that money from the 401k into self directed account. And now you're going to take that and you're going to invest in something like private money lending, maybe a debt fund. And those two things don't have those tax benefits like syndication. And so they're going to, whenever you get your returns, you're going to be taxed as ordinary income. That's fine. It's in a tax advantage account already, so it doesn't matter. So it's not going to be taxed as ordinary income because it's going straight back into your, you know, self directed IRA account. The then we say this other bucket of money that is active income, that you would be taxed otherwise maybe as ordinary income or just have some, some type of different tax, then invest those in the syndication. Now you're getting tax advantages in both because you were strategic about which money you were putting where. So we like to talk about that. So the other thing I wanted to mention. So evaluate all your past jobs that you had a 401k. I know we, you and I have been there, we have had jobs and we have evaluated and we've been like, we just, we left that job and didn't even think about the 401k. It's just sitting there. It's in the same account. We filled out that stupid questionnaire that evaluated our risk that we didn't even know what we were answering or how we were answering. And we didn't know what it meant to be invested here or here. It was just, we're just not educated, we're not properly educated about this stuff. But we let it sit there because we didn't know what our options are. So take all of the past employers and all the past 401k accounts, transfer them into a self directed IRA. Surround yourself with people who know how to choose where to invest them. Explore your options, explore those returns, explore those risks and decide where you want to put that money. Money so that you're like seriously beating inflation and getting some good returns. And then for your current employer, if we had, if we were at a workplace where we had a current 401k plan, we had to go to our HR department or whoever's in charge of this and we would say, hey, our current 401k plan, can I move that money into a self directed account. Many times you cannot if you're active employer but just ask them, find out what the rules are and just know that it's a possibility whenever you do leave that you can. So those are the things I really wanted to, you know, reach out and touch and make sure that we educated people so they can start moving their money and take control and be empowered to make a better right.

So that's a lot of information.

It is, it is.

And and we try to get it as quick and as as much information into a short podcast as possible. So I'm sure there's a million questions. So make sure you go to our Facebook group, which is facebook.com group freedom through passive Income. Or if you're not on Facebook, we totally dig it. Get down here. This is our website, freedomcapitalinvestments.com make sure you love, like and comment on these videos.

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Yeah.

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Bye everybody.

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