The #1 Strategy to Make Money with Solo 401k and Self Directed IRAs

Here's the good part about the Solo 401k and why I love Solo 401ks. I'm very passionate about it is because you can contribute as long as you meet the requirements. You can contribute substantially larger dollar amounts to a solo 401k compared to an IRA. So we're in 2024 right now. So IRAs, you can contribute $7,000 when you're under 50 and then when you're 15 over you can contribute $8,000. That's just how much money you take out of pocket and contribute your growth earnings rollovers in that's really unlimited. But how much money you take out of pocket, you're only limited by 7 or 8,000. The Solo 401K, however, you can contribute a lot more money. In fact, in 2024, when you're under the age of 50, if all of your cards are being played right, you can actually get upwards of $69,000 into the solo 401k. And when you're 50 and over, that amount is 76.5-76,500 DOL.

There's a couple things I want to touch on. Number one, I want to touch on before we go too far off this topic, solo 401ks. A lot of our investors are business owners and high net worth individuals. They've started to learn about solo 401ks. And I @ the most recent conference asked you, John, do you do solo 401ks? And you said yes. Can you speak to them and explain simply what they are?

Absolutely. You are correct. As a self directed custodian. We've been doing this for 50 years. We service all sorts of retirement plans. Solo 401ks are one of the account types. If you are a business owner, you're self employed. And when I say you're self employed, let's define it a little bit further. Let's assume that you're self employed with earned income. Earned income would mean income that you're paying Medicare and Social Security tax on. So I could say that I'm self employed outside of equity Trust with a portfolio of rental properties. Now the problem with that is all of those rental properties are just generating passive income. I'm not taking any management fees, I'm not paying any Medicare, Social Security tax. So if I wanted to try and go form a solo 401k for my business over here that it just holds rental properties, it's not going to work. In fact, the IRS guidelines say that I can't even do that. So there's two things that call it prerequisites. The first prerequisite to have a solo 401k would be you have to be self employed. And it doesn't mean you have to have an LLC or an S corp or a limited partnership or a corporation. It could just be you doing business as yourself. You know, a great example of this is an Uber driver. You know, most Uber drivers are not, you know, incorporated or have an llc. As long as they don't have a bunch of deductions and mileage that they're writing off that wipes out their income, they're likely going to pay pay some self employment tax and they could open in theory a solo 401k. Now what about people in real estate? All right, because I'm assuming most people here are not interested in Uber driving. They're probably interested in how do I create wealth through entrepreneurship and real estate investment. So let's look at like a real estate agent. That's a great example. If you're a real estate agent, you got commissions, inevitably you're paying some payroll tax, Medicare and Social Security. Okay, you're in the game. You open up a Solo 401k and you can start deferring money in there. There are some other things we need to work through, but by and large that's a great sort of use case for that. The second item to think about with the Solo 401K and that you gotta be aware of is that you can't have any employees. Can't have any W2 employees. There are a couple exceptions to that. The first exception would be your spouse, which is interesting. You could employ your spouse, pay them, and then they can make contributions to the solo 401k as well. So now you got more tax free dollars and that can continue to grow tax free in the family unit, so to speak. The other exception would be business owners. So if you have other partners in the business and you don't have any W2 employees, it's just you being W2 employees and business owners, you're going to probably open up a solo 401k. So a couple of things I want to make sure I reference there and I'll mention that if you don't qualify for a solo 401k but you have existing retirement funds, that's okay. Maybe your plan to self direct into private market deals is to roll over your existing retirement funds into a self directed ira. And I say that because I've seen a lot of people doing this for nearly two decades, educating 70,000 plus people. I can't tell you how many people call me and say, well, I want to self direct but I can't do a solo 401k. My CPA told me I don't qualify, so how am I going to move my money into this real estate deal? Well, you don't need a solo 401k, you probably just need a self directed IRA. So that's important to mention. Now let me fast forward to the good stuff because that was the, you know, where some people might not qualify. But by the way, if you don't qualify now, now that you know the rules, you might be able to qualify in the future. You know, devise a plan with your CPA. Here's the good part about the Solo 401K and why I, I love Solo 401Ks. I'm very passionate about it is because you can contribute as long as you meet the requirements. You can contribute substantially larger dollar amounts to a solo 401k compared to an IRA. So we're in 2024 right now. So IRAs, you can contribute $7,000 when you're under 50 and then when you're 15 over, you can contribute $8,000. That's just how much money you take out of pocket and contribute your growth earnings rollovers, and that's really unlimited. But how much money you take out of pocket, you're only limited by 7 or 8,000. So if you have $1 million in mattress money or gold buried in your backyard, you can't just put that into your ira, right? It's, you got these contribution limits. I know it's annoying, but those are the rules. The Solo 401k, however, you can contribute a lot more money. In fact, in 2024, when you're under the age of 50, if all of your cards are being played right, you can actually get upwards of $69,000 into the Solo 401K. And when you're 50 and over, that amount is 76, 5, $76,500. Now there's an employee and an employer match. I have a YouTube video that goes through all of this for somebody that really wants to dive deep into it. But ultimately you can get a lot more money in. Now the very last part of this that's, that's super powerful is that all of that money can be in a Roth component. Think of it just like a Roth ira. You don't get any deductions, it's all going to be after tax money. But if you're playing all your cards right, there's Actually a way to get that all into a Roth bucket. So imagine somebody that's 50 or over and they have a lot of income, they're a consultant or a real estate agent and they get 76, 5 over the course of, let's just say even five years into that Roth bucket. And then they go out and through their acumen and their expertise, they invest that money wisely. And now you got all that tax free growth and there are no income restrictions on getting that money into the Roth like there is a Roth ira. So you don't have to worry about those modified adjusted gross income limits, those magi limits that I mentioned before. So solo 401k, super powerful. There are some rules and guidelines that people need to think through, but if they're in the position to be able to take advantage of that, there's some interesting elements there for them to consider. Love that.

Okay, we're going to jump into so many things. I already feel like we're going to be like segmenting parts of this podcast to go, okay, this one's for you and this one's for you. So let's dive into financial advisors. I can't tell you how many times where we have, like you just been educating people and say, hey, go research. There's some opportunity here for you to learn and take control of your destiny and where you're going with your financial future. And they say, oh my CPA says don't do it. Or my financial advisor says don't do it to keep my money where it's at. I know that there's certain situations where financial advisors are incentivized to keep money in a certain place because that, that's how they're compensated. Can you just talk to this point and what questions people should be asking in order to make decisions that are good for them and not blindly follow the advice of somebody whose best interests maybe are not pointed in the right direction.

That's a great question. It comes up very frequently. And what I do in working with folks is I always let them know to start that we never want to say alienate the advisor, the CPA or not include them in the conversation. I actually encourage them to include, include them in the conversation from the very beginning and also include other people that they're working with. So for example, Equity Trust, I talk to financial Advisors with clients, CPAs with clients. My team, we have over 450 folks on our staff here. We talk to clients and their advisors all the time. And there are some advisors, I think you said it the Right way, there are advisors that their best interest, that is the financial advisor, is to keep all of that money because they can charge a fee. And generally that's the way it works. They charge a fee on the AUM assets under management. And so if that person moves, let's say, $200,000 from their books, that's going to cost that advisor money. Some advisors, they're a little bit more fenced off on this than other advisors. Some advisors, they'll actually, if a client says, hey, I want to do this, they'll say, hey, here's a company equity trust that can help you with it. And they'll maybe not advise them to do it, but they'll at least say, hey, if you want to go, do you need to do the due diligence on your own? I can't be a part of it because that would be selling away from our firm. But here's the general process and you go research it on your own. So there are plenty of advisors that are actually open to this. But I think it is important for investors to understand that they might meet opposition with that advisor, and they need to be bold and explain to that advisor and walk them through their thorough plan of what they're trying to accomplish. And just keep in mind that that financial advisor has a lot of other clients. And they could have a lot of other clients that are calling them and saying, hey, I want to take all my money and put it in crypto, or I want to take all my money and put it in, you know, this AI stock. And so they're getting a lot of those calls. And so they're probably used to having to handle those types of situations. When you come to them, the investment that you might be looking to make with your retirement plan might be much different. It might be an investment property that has historical records of, here's what the rent roll is and here's what the expected returns are. And so that investor just needs to make sure that they spend time with that advisor, explaining to them thoroughly what their objective is. And in my experience, as long as they're bringing all those people to the table and they're all talking, usually the advisor is willing to help that client move forward and transfer their money from point A to point B. And lastly, I'll say, if you have a very unruly financial advisor, at the end of the day, it's your money. You make the decisions. If you think about it, you take on all the risk. You know, I just saw a video where somebody, a very prominent financial Influencer, an individual, very older financial influencer, you know, talks about that. Hey, you take on all the risk, right? Did they take on any of the risk? I don't know. And what did I get in the reward? Right. So whether you're making money or losing money, they're making money. And you just got to understand that as an individual, it doesn't mean that they're bad people. It doesn't mean that they're trying to do the wrong thing. I think a lot of them are doing a good job in their respects and their discipline. But you just got to understand they're limited. They can't sell you investment property, they can't sell you real estate funds, they can't sell you those types of opportunities. You have to go out and take control of your financial future and do that on your own.

Yes. Yes.

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So John, there was another thing that I was thinking about and I was researching it actually this morning. Equity Trust actually has over 40 billion of assets and then there's, I think it was trillions and I can't remember it was like 30 or something of retirement funds in the market space. Can you speak to if I'm wrong on the numbers or right on the numbers And I have a follow up question to this that is really, really important to me.

Yeah, absolutely. So right now our firm Equity Trust as a custodian we have under custody administration over 45 billion and that ranges from real estate. That's always been our primary focus here at Equity Trust. But also other asset classes. Private equity, hedge funds, private placement transactions, cryptocurrency gold and silver. We had someone that invested in an alpaca farm. So it's sort of interesting and creative how people get with their self Direct. I raise a lot of notes. So individuals making private money loans or buying existing note, whether that's commercial or residential, fix and flip type loans, private credit funds, turnkey real estate properties. So we have a lot of folks Doing that as well. But as far as the marketplace is concerned, there's over 13 trillion in IRAs alone. And when I started in the business over 15 years ago, that number was in the 3 trillions. And now it's over 13 trillion. So you think about the boomers and the amount of wealth that they have in old pensions and IRAs and 401ks and retiring every day. And what do they do? They roll that money over into an IRA. That's the natural progression. And then if we include 401ks, pensions, all the other retirement plan, if you will, in the universe, you're looking at over 30 trillion.

Wow. Okay. So there's a reason why I asked that, because I feel like B40 billion with a B was a ton of money. I was like, wow, equity trust has got to be like the largest custodian out there, because I've never ever seen that big of a number when it comes to assets under custody, I believe is the way that you phrase it. And then I saw what's in the marketplace. Trillions. So my question to you is, this is such a powerful tool for wealth building. Why don't we know about this on a more broad basis? Why are we not educated about it? And how can we do a better job of sharing this with more people?

Yeah, that's a great question. It's a, it's a common question. It's something that when I came into the business a lot of years ago, I thought the same thing. And what I've learned over many years is that a education and information. There's no super bowl commercial about self directed IRAs, doesn't exist. The self directed IRA custodians, including equity trusts that are out in the industry, most of us are, if not all of us, are privately held companies. And as one of the largest self directed IRA custodians in the industry, and doing this a very long time, I can tell you that in comparison to the larger financial institutions that are in the stocks, bonds, mutual funds world, they're massive in comparison to this. And so you're right, if you look at 45 billion in comparison to the trillions, that's a very small percentage. It's less than 1% of people that are doing this. So there is a huge, huge opportunity out there. What I'll say is, beyond education, if there's not enough information and education out there, and it's great what you guys are doing, doing these podcasts, I'll do probably 100 of these year, this year. And it's a Great way. And, and we really appreciate, you know, you guys doing this because it gets the information out there to people and it opens up their eyes to the opportunities. Now the second reason why it, I'll say we don't see as large amount of people doing this is access to private market investments. So the everyday person isn't going to go out and buy a single family rental property or do a fix and flip deal or invest in a real estate partnership type opportunity. They may not even know where to find those opportunities. Now some of the folks on, I think in your audience may, they may already be in real estate. And so self directed IRAs might be new to them and so they need to learn about that. But they already got the sort of acumen around real estate down right? Well, we never really have it down right. We're always learning as real estate investors. But ultimately, you know, the, the overcoming the fear of buying the first house. Like I know you guys bought your first house how many years ago? I bought my first rental property. How many years. Like I remember the fear and anxiety and analysis paralysis. And now, right, it's just like another day I just bought another house. Right, you just made a private money loan. Right. And that's how it is. And so I would say for people out there that are thinking, well, I've never even done a real estate deal, I'm understanding the self directed Iraq. There is more access to private market investments than there ever has been. And so we're firm believers here at Equity Trust and we're on a growth trajectory here. We're firm believers that there's just going to continue to be more access with the Internet, with social media, with you guys being able to go out and talk about different investment strategies and things that you do and be able to gain exposure to those types of opportunities with self directed IRAs. That's really, really incredible. And I think that's what's going to really allow this entire industry to continue to take off. Before this, it's been very, I'll call it sort of country club style, who knows who. You kind of had to be invite only. And now it's sort of becoming a little bit more universal. I use that term universal because we like to call our IRA here, not the self directed ira, we call it the universal ira. That is, it allows you to invest in both the public markets, which we have the capabilities to allow an investor to do that, but then also the private markets. So it allows an investor to expose their retirement portfolio to private market investments, which can potentially Help that people. There's no guarantees here. Right. But it can potentially help people with that exposure to private markets to be able to have assets that aren't correlated or have less correlation to the traditional financial markets, which can ultimately potentially help them weather the storm during troubling economic times.

I love that man. John, we could, I could get you for, on for like two more hours. We could just keep going and going and going. But I do want to respect your time and time of our, of our audience. We're already, I know for sure we're going to break this up into two episodes. They're going to have a couple of weeks of some good wisdom from you, John. But let's go back to where do they find this money? There's a lot of people that this language is new to them. This opportunity of being able to control the money in their retirement funds is new to them. Solo 401ks is new to them. So how can they determine do I already have funds where I can, you know, put them into a self directed account with Equity Trust? If I don't, what are the ways in which I can identify which vehicles are right for me? What would you say to that?

Yeah. So in terms of an individual that has retirement money, IRAs, 401ks, other types of accounts, if they're IRAs, that's easy. You can just assume that you can easily open up a self directed IRA with Equity Trust, transfer your money from point A to point B. It's just like moving money from one bank account to another. Like I mentioned at the beginning, there's no taxes or penalties to move money from point A to point B. So don't worry about that. And you could do it as many times as you want throughout the year. That is moving from one account to another. And when you move the money to an equity trust, self directed ira, also known as universal IRA as we like to call it, you aren't locked into holding that money in that account forever and ever. If you want to move it back, maybe you get to a point in your investing lifecycle where you want to move it back to a wealth management consultant. That's entirely up to you. You're not sort of closing the jail cell and throwing away the key. That's not the way it works. So you have a lot of flexibility in that regard. If someone has A previous employer's 401k, 403b for a savings plan, and I say previous employer's plan because if it's a current employer's plan, there can be difficulty moving that over. Sometimes you can, but if you leave that employer, you retire, you leave, they wish you well in your future endeavors. Right. Whatever the case may be, maybe that's a good thing, right? Ultimately you can roll your money over. You get access to that money, you roll that money over into a self directed ra, no taxes or penalties. So ultimately, how to get the money, move it over, that's very easy to do. We offer the services to help individuals with that. So all they need to do is go to Equity Trust. You can go to our website, trustetc.com, you can schedule a consultation and one of our IRA counselors will actually talk you through that entire process. They can provide information around the different types of accounts and how to roll over or transfer your money. You know, what we don't do, like we always say, is provide financial advice. We don't give recommendations, but we can educate you on how it works and we can help you through that entire process. So that, that would be the best way to go about it for somebody that is looking to self direct their retirement account on their own. If it's somebody that is looking to, maybe you're in the apartment building syndication business, maybe you are out looking for private money lenders. And I mentioned over $13 trillion in IRAs. So how do you identify these individuals? Well, say it's not very easy. It's not overly complex either. All right, so I can't give you a Rolodex of names, emails and phone numbers like a lot of people ask me, oh, John, you have over 45 billion in assets under custody. Can I just, you know, present my opportunities to your clients? And obviously there'd be, you know, issues with that from a regulatory perspective. So ultimately the good the thing to think about, if you're somebody that's out there, that's, that's raising capital is in your marketing material, in your messaging. Talk about self directed IRAs, educate people on these self directed IRAs. I think it was a great question that you had before, which is, you know, why don't more people know about this? And if you think about it, it really differentiates you from all of the other folks out there that are raising capital because you're coming to the marketplace, you're coming to their living room, you're coming to the coffee shop with education on how they can take control of their retirement savings accounts. And most likely that person will reciprocate or there'll be a higher probability of that person reciprocating. So that's what I encourage people to do that are out looking for other investors and looking for private money and such.

I love it. Well, you have been such a treasure trove of information today. I'm excited. For those of you who are listening, I do also want to let you know that John is going to be on our wealth and Wisdom Wednesday webinars. We have told you before that you have to actually be on our list and it's a monthly webinar that we do that talks about current trends in the marketplace, real estate tips, and we have guests like John on so you can actually have some Q and A with them. So even though this was a one way podcast here where you got to listen to John, if you want to be invited to the wealth and Wisdom Wednesday webinar where you're going to actually hear more from him and be able to ask questions, please connect with us and let us know. John, thank you so much for being on the show. I foresee you being invited back so that we can dig into this more. I just love talking about this stuff. It's a passion of mine and I'm so grateful that you're here to be able to educate more people about how they can take more control over their retirement. But for everybody else, thank you for joining us for today's podcast and we will see you next Wednesday. Have a great week everyone. Bye.

Thank you. Foreign Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions and information on the show are not guaranteed. All investment strategies have the potential for profit or loss.