1273: The Ultimate Self-Directed IRA, Using Self-Directed IRAs & Solo 401ks To Invest In Real Estate, Bitcoin, Ethereum, Cryptocurrencies, Gold & More with Jeff Astor

Well, I've always wanted to do real estate. I just didn't want to deal with tenants and all the phone calls. So I just never got into it. And then when the market really went down in 2008, that's when I started listening to radio and I heard you on the radio and that's when I decided to do it. Because your method works with where I don't have to deal with tenants and, you know, issues that come up, even though I do deal with it, it's not the same.

Welcome to the Creating wealth show with Jason Hartman. You're about to lear a new slant on investing some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine, self made multimillionaire who's actually been there and done it. He's a successful investor, lender, developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants, and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your Financial Independence Day. You really can do it. And now here's your host, Jason Hartman with the complete solution for real estate investors.

Welcome and thanks for joining us. This is episode 1273 coming to you from charming St. Petersburg, Florida. Dodging the hurricane and woke up to some good news today. It looks like I can go back home. So I am talking to you from our German engineered and radically overpriced studio, the car. But you know, the car has pretty good acoustics actually.

So when you're in the podcasting business, you're always looking for acoustics and noticing them. And you know, some places are just better than others.

It's good that the hurricane is missing Florida. Let's hope it misses the other areas in Georgia, South Carolina, etc. Up the coast as it makes its way northward. But tragic what happened in the Bahamas for sure. Of course, out of these tragedies good always comes and they will rebuild better and stronger than ever before. As you always see new structures and techniques and building codes emerge out of all these tragic disasters. So let's wish them luck and keep.

Them in our prayers.

In the Bahamas, the hurricane just sat over them. It just didn't move. It just sat there, just dropping sheets of rain for quite a while. Anyway, today we have got another show on some, well, really more creative than before, I'd say. Ways to deal with your self directed IRA or solo 401k. Our guest is Jeff Astor and we're going to talk about some things and some common myths or I think risky behaviors that people get into with self directed accounts where they could open themselves up to some serious tax liability. So you know, account holder beware, as the saying goes. Not buyer beware, but account holder beware.

So we'll dive into that.

Of course. We've got two great events coming up. Really excited. We got all the bookings done for our upcoming Venture Alliance Mastermind cruise and we've still got a few spots left. Go to jason hartman.com to check that out. That's going to be just a fantastic time. I'm really, really looking forward to it and cannot wait to enjoy the fall colors and that crisp, fresh fall air. You know, when you live in Florida, you really, you really kind of enjoy going to places like New England and Canada in the fall. It's, it's great. And then of course Profits in Paradise is coming up in Orlando the week after we get back from the cruise. So two great events. You can certainly plan some family vacations around these trips. They will be great. Really looking forward to Profits in Paradise. And we are exploring some potential themes for this year's Prophets in Paradise and I think you'll like those quite a bit. Also, we are planning a side property tour. Yes, since we are in Orlando for this event, it is possible to see some properties, which is rare at Meet the Masters. Well, at Meet the Masters it's unheard of and at Profits in Paradise, at least so far it's unheard of, but this will be the exception. We'll be announcing some details on that. We'll probably have an extra day, an optional day before the event. I think it will be before the Friday before the event of course is conference on Saturday and Sunday. We are planning, although it's not firm yet, to do a kind of a mini property tour on Friday before the conference. So look for that. Save the dates we sent out an invitation or save the date reminder that's in late October 26th and 7th and make sure you get that on your calendar because it'll be a fantastic conference. Two day conference. Okay, without further ado, let's go to our guest and, and talk about some creative things and some myths or at least dangerous practices with self directed IRAs and solo 401ks.

It's my pleasure to welcome Jeff Aster. He is VP of Business Development at Broad Financial. He's author of and get ready for this one. It's a long title. The ultimate self directed IRA using self directed IRAs and solo 401ks to invest in real estate, Bitcoin, ethereum, crypto currencies, gold, private businesses, startups, exotics. We're going to talk about that and much more in plain English. Jeff, welcome. How are you?

Wow, thank you. That's. That is a mouthful now that I think about it, but it is in plain English in the end. So yeah, appreciate the being patient with the title there.

Yeah. So we were talking off air about exotics and I'd like to start with that. We're going to talk about real estate investing and all that stuff because that's most of our audience. But we have had guests talk about self directed plans before or whether they be solo ks or IRAs. But on the exotics I want to ask you first, we'll start off with exotics and precious metals because there's some controversy around really both of these things. You know, the self directed plan rules say that things have to be arm's length. So maybe you can just speak to how you define arm's length and the gray area here that some people feel they can do and some people may not want to avail themselves of it. But speak to that if you would.

Sure, Jason, excellent question. So firstly, the IRS says that you can invest in anything but collectibles and life insurance, which does leave pretty much a pretty wide open field. True, real estate is the most common type of investment. But I've been doing this seven years. We've been as a company doing this 10 years and had maybe almost 20,000 people I've either spoken to or had emails with. And some people have come up with some very interesting. That's why I call them exotic type of investments. So one of them, the classic one that I've always mentioned to people is Arabian racehorses. A guy, you know, I remember spending a couple of days him explaining to me how the business worked. But basically he's buying an Arabian racehorse. Well, it's actually a foal. It's very young. It's an arm's length transaction because he's not the one who's raising it or feeding it. It's not on his farm and his property. No, he's investing in an animal that if things go right in two or three years, he'll make a huge return on his investment. Very often it doesn't. But the arm's length here is that he's not actively or in any really way engaged with it other than paying others to raise it. Which also actually leads to an interesting point. You know, I Think one of the things that distinguishes our company, Broad Financial is outstanding customer support and knowledge. We can talk more about that later. But the short of it is, is that we've been doing this 10 years. We have an A, we retain two of the leading ERISA firms that those firms that specialize in retirement plans. Rare does it happen that we can't answer a question on the spot, but if we do, we can refer to our attorneys on behalf of the customer at no cost to them. So that's a great option. So when, when I get this call about the Arabian racehorses. So I did confer with our compliance department and people and you know, we hammered it out with the customer, you know, exactly what he could and could not do. That's an example of his attic. There are lots, lots of them. You know, we have people investing in a Treasure island in a zoo.

I mentioned what is a treasure Island? What do you mean?

Truth is, one of my colleagues, I.

Mean, if I'm going to buy an island, I want to buy the one with the treasure on it.

I guess so. Maybe it was a part, but I guess people came there. I don't know if it's an island. It could be. Maybe it was. Maybe it's a small island and an amusement park. It wasn't really my client, but basically they were. People would come there to pay to look for treasures or things that were buried in the ground on the premises. Whoever thinks there's such a thing when you write the IRS code. You know, I had another fellow that was investing in an LLC that tracks the social media media value of 360 leading supermodels. You know, not something that would think of that fits into the exotic character.

What is the name of that company? I'm curious.

Even if I remembered it, I wouldn't be able to get or share it with you. But he was an interesting fellow. They were also inviting him to be on some beauty pageant contest. So you know, he had some perks along with the investment.

Yeah, see, maybe that's not arm's length.

I don't know.

That guy might get an audit.

Yeah, yeah, that's right. Yeah, that could be.

Talk to us about. You know, there's basically two different types of self directed IRA companies out there in the marketplace, right?

Yeah. Because there are two fundamentally different types of self directed IRA models. A custodial model where your money is put into the hands of a custodian and everything works through them. And a checkbook model where through the vehicle of an IRA llc, the client Gets the ability to take the money out of a custodian's hands and into their own hands at a bank of their choice. Thousands of potential banks. So those are the two classic types of plans. It's rare, I don't know if it even exists out there that you're going to find a company that does both. We at Broad Financial, we do the checkbook plan, but we have a sister company under the same ownership. It's actually in the same building right on the other side of the wall that does the custodial plan. Their name is Madison Trust. And essentially what that means is that if a person calls us up and after talking to them, it sounds like they'll be better served with the custodial plan, will direct them to Madison Trust or I'll tell them about Madison Trust and vice versa if it sounds like the checkbook plan is better. But there are two plans. It's an advantage to find a company that can offer you both because otherwise someone might try to pigeonhole you into a plan that might not be ideal for your circumstances.

You know, I think most of our listeners are going to want to get the plan or if they have one, set up an LLC inside of the plan and then have checkbook control, meaning they can pay the bills and the expenses themselves. They do need to be careful, though, that they're not running afoul of the rules. You know, if they take that responsibility on themselves because, you know, they always are susceptible to an audit. But tell us who would and wouldn't want one plan or the other.

In our case, the custodial plan is ideal for people that want to make a one time lump sum investment. They're not going to be managing the property, paying the bills. They have a friend or the company that's a development in real estate development, for instance, and they need to give them $100,000, $200,000, a one time lump sum, and then they'll get returns periodically. The reason that's really good for a custodial plan, our sister company, Madison Trust just charges $100 to set up. They do charge transaction fees. They do charge check fees. But if you're only doing one one time, it's the $100 setup and then there's a flat yearly fee for IRS reporting.

Right. So that's going to be if you're, you know, if you're investing in some pooled money asset or a fund and everybody knows what I'm going to say, be a direct investor and buy the properties yourself. So that's Going to lend itself much better to a checkbook control type of situation.

Right, right, absolutely. The more check intensive your investing is, like managing the real estate, the more the checkbook plan will be the.

And we say checkbook, but that means, you know, you can have a credit card attached to it, a debit card.

Whoa, whoa, let's stop right there. So the truth is you can't have a credit card attached to it. You can have a debit card attached to it, but a credit card has interest. And one of the rules of the IRS is you can't guarantee a loan. And you can only get. Therefore, if you want to leverage a property, you can only leverage it with a non recourse loan.

Yeah, and I want to ask you about that and talk about that. And there's very few non recourse lenders out there and the rates and terms aren't as good. We'll go into it in a second. But finish the credit card thing. So the credit card thing essentially puts the plan owner, I guess is the right name maybe or beneficiary, I don't know, in the position of guaranteeing a loan personally, Is that what you're saying? Yes. That's interesting. Yeah. Most people wouldn't even pay attention to that.

Right.

But technically, yeah, you're probably right. You got a personal guarantee on that credit card?

Yeah, it's one of the five. On our website we have like the five classic mistakes that people make and that's one of them. Now debit card is fine. So we have lots of clients that will open up an account at like a Home Depot, for instance, and they'll put their debit card there so they can buy materials.

Okay, great. Talk about the recourse or the non recourse lenders because you know, you can't guarantee the loan. The plan is the only guarantee for the loan. What does that landscape look like nowadays? I mean, there used to be a lot more of them and then it really dried up for a while. Is it coming back? Is the selection a little better where you've got some competition in the marketplace for financing?

Well, certainly it's not a common type of thing we actually have. Some of our clients are the ones that are making the loans, the bridge loans and non recourse or recourse if they have, if they can. But we've over the years we've collected a few people that have helped, worked with our clients and we found, you know, one or two, I'm not necessarily going to mention on the air here, but you know, We've got a couple that are really very good and if there's a non recourse opportunity out there, you know, these are guys to do it. I always tell people that you don't necessarily need a national non recourse lender if you can't find one yourself very often you can do work out something with the seller or sometimes this one of these people like just making hard money loans, they're easier to get the non recourse conditions in there. But if you need a non national lender, there are a few, there's a handful. We don't know all of them but we have a few good names that we could, you know, share with people that are interested. Is it coming back? I think so. I think in general real estate has been coming back the past couple of years. So these are becoming more, less uncommon, let's put it that way.

Oh, that's a total understatement. Come on, real estate is booming. Yeah, last couple years for sure. So a little more choice out there feels a little better in that marketplace.

Right?

Yeah. Of course there's a disadvantage to obviously if you get a non recourse loan that's great and I think that's not so much the issue. Generally the non recourse lenders want about 50% down. They're not going to be happy with 10 or 20%. Again I'm only making general rules, they're exceptions rule. But the interest rate may only be a point we found only to be a point or two higher if that. But when you engage in a non recourse type of situation, you're triggering something in the IRS called udfi Unrelated debt finance income.

Tell us about udfi.

Basically IRS taxes you. Well you see because when you're investing in a property the IRA is tax shelf but the loan is not. So the IRS is going to tax you and it's a tier tax. But basically there's a pretty hefty tax on the loan portion of your investment. So if you have a hundred thousand dollar investment, $50,000 is IRA. 50,000 is with a non recourse loan that 50,000, the profit from the 50,000 will be subject to this tiered tax called UDFI. Something worth looking into, important to be aware of. It's also interesting to note that the UDFI is only in a leveraged property purchase with an IRA, but not with a Solo 401k which is another product we offer. But Solo 401k is for self employed people. If you have a solo 401k and you leverage a property, you don't have to worry about udfi.

Okay.

Something I think that people often miss is they set up an LLC inside their plan, and then they get the checkbook control, and then they start doing things. They might have the entire plan's assets owned by that LLC within the plan. Right. So the plan has a bank account, the plan has a couple of properties, and so on. And when they do that, it's important to remember that even though the overall plan. And I'm assuming you're not a lawyer. I'm certainly not. So, you know, seek out good legal advice, because you're not going to get it here. But just conceptually, these are the things to think about. Okay. The plan might be protected from an outside creditor, but it's not going to be protected from an internal creditor. In other words, if you have a liability that's created out of one of the properties in that plan, in that llc, they can go after everything else in the llc. And I think this is something that people miss a lot. So do you see any people setting up multiple LLCs within their plan, inside of it?

Yeah, that does happen. So just to be clear, so what we create, what we would create is what we call an IRA LLC, an LLC specially structured to hold IRAs. Otherwise, LLCs try and move money into a homemade LLC or legal zoom llc, it's going to be considered a prohibited transaction. And we do get enough people calling us up that think that they can do it. Yeah.

And I want to ask you about to come back to that in a moment.

But the bottom line is, so we create this IRA llc, that's really what they're paying us for, the expertise to create it and maintain it. However, you're correct, if you have multiple properties inside this IRA llc, and one of them is subject to a liability, the others are exposed, potentially because it's under one llc. So what a number of our clients do, they will create what we call a sub llc, which is a regular llc. They don't have to pay for another IRA llc, but they'll get the local, their state LLC and put each property inside what we call again, the sub LLC to off its liability to the other properties. So you could have one IRA LLC and an unlimited amount of sub llc, one for each property. And that does give you an extra shield of liability, you know, to protect the other properties from exposure to a court case.

Talk to us about an IRA llc. Is that something that, you know, lawyers sort of say, hey, look, you got to do all this stuff so they can charge more or is there. What's the difference?

It is a difference. So the law that the IRA law began in 1974 and it's called ERISA and they're ERISA. And ERISA is a specific branch of law of the IRS law code. And I've spoken to many high powered attorneys and I am not an attorney either, but they're asking me all the questions about ERISA because they didn't really learn about it. Some of them do, but it's actually pretty rare. I remember a guy, tax attorney, major tax attorney was, and I felt sort of a little humbled he was asking me. But the truth is I knew because this is all we do. We talk about this here. We have a very good structure here of information, institutional knowledge and as I said, access to a couple of teams of ERIS attorneys. So yeah, you really need to know how to make an LLC that's compliant to the IRS code and that, you know, is maintained going forward. It's not something.

Right, but what's the real difference? I mean it's the operating agreement has a special clause in it or.

What do you mean? The operating agreement, the language of the operating agreement is part of it. And then there's a structure to include the custodian and so forth.

Uh huh. Okay, what else do you want to say? What? Maybe a question I haven't asked you. What else do you want to share with the listeners? Listeners as we wrap up?

Well, it's such a big field, I can't even begin to know where to go with that. Again, it's very important I think for listeners to not only look for a plan, the easy part is finding a legal plan, you know, a plan that conforms and is compliant. And unfortunately I've had experience with many people that sent me plans that thought they got a legal plan. When I asked them, listen, you know, send me your article, send me your llc, we'll look at over compliance and if it's compliant, you know, we'll just set you up with a custodian, part of our business. And how many times have they told you that they set up something that really wasn't so they didn't think they turns out that they couldn't do it. But that leads to a bigger point which is that it's not enough just to get a great plan. I really think it's very important to get a great company. You need a company that has a track record. A lot of people don't know how to research things. They look it up and they see a company and they think they're all the same. And they're not. Some are. I'm not saying, you know, Broad Financial is the only great company out there. I believe we are a great company. But, you know, you have to do your research. You know, look up the Better Business Bureau. Don't be happy with just a pluses or look at the actual testimonials. What are people saying? And the reason is, is because here's a person that spends his whole life building up an IRA or retirement plan and he's got a great investment, he's got great ideas. And because of lack of advice or because someone gives him wrong advice, he now risks the tax shelter status of maybe hundreds of thousands of millions of dollars.

It gets worse than that. I mean, yes, he risked the tax possibility, but also. So some people, like in every industry, these IRA companies have just ripped people off. They've just stolen the money. And that's why I think that the checkbook control where you have the llc, you control the bank account is better because if you leave it to the custodian, they could just take the money. Right, exactly. That can happen.

There's no potential of a company like Broad Financial being the target of a class action lawsuit for fraud because we're not holding your money for any type of theft. We're just giving the vehicle to take your money to a place that you feel comfortable with.

Right, right.

But your sister company is a custodian that does hold the money.

Right.

So, you know, people should know. That's why I started out with understand the difference. There's two main types of companies. There's the company that, with checkbook control, where you have the money in that bank, LLC bank account that you're essentially controlling.

Right.

And then there's the custodian company where they've got your money. And you know, if that company goes under and someone reaching into the cookie jar there, you know, you really can lose your money. And I don't know what type of, you know, this happens with exchange accommodators, escrow companies, you know, lawyers, of course, anybody who keeps your money.

Right.

Can run off with it, so.

Right, right.

So be careful.

Yeah, yeah, absolutely. Buyer beware. Of course. You know, then there's. You could put your money at a bank that's not FDIC insured and also be into a problem and is there such a thing?

I mean, every bank is FDI insured.

Credit unions, people are involved in credit unions and stuff like that. And then you have into 2008 cris so that banks aren't always as solvent as you might think.

And sometimes people are over the FDIC limits too.

Yes, it's also true. So you have to be smart about it. Yes, there are advantages and disadvantages, but certainly the advantage of the checkbook plan is and you should look this up because there are some companies out there that have been and still are the target of class action lawsuits for these types of things. If you're going to go custodial, and I do think the custodians are generally honest and they're certainly very regulated. But if you do with a custodian, make sure you dig in and look for signs of are they legit and do they have a track record that reflects integrity and honesty?

Right.

Yeah, absolutely. Give out your website.

So Broad Financial is our name. Like broad, like in Broad shoulders and financial. Broadfinancial.com www.broadfinancial.com Jeff, thank you so much.

For joining us and filling us in a little bit more about the world of self directed IRAs. And of course we didn't really talk about it, but solo 401ks another option as well. These are some good vehicles. Thanks again.

Pleasure again. We didn't even talk about the gold and the precious metals. Maybe we can look at.

Well you know what, let's talk about that real quick. Good point, good point. So here's the thing. Let me just tee that up. So there's this rule about arm's length, right, where you've got to have everything arm's length, all the investments and some people, even though we have that arm's length rule, are investing in precious metals inside of their maybe checkbook controlled IRA and they're actually taking possession of those precious metals. And what are they doing? Putting it in there, sticking it, burying it in the yard, putting a safe deposit box, whatever. Is that arm's length or not?

Well, the question is does it conform with the code? And as you might not be surprised if you know about these things, the code is a bit gray. The code is not so clear about that. And there are attorneys, there are firms that say that there is some leeway for a person having an ira, llc, for instance, to actually take possession of that. Maybe I'll come back another time. We could talk about more than detail when people ask us about these things. You know, we'll gear it. Essentially though, the bottom line is, is that what no one disagrees with, what's completely agreed upon is that you can use your IRA LLC and buy the Metals and put it in a depository. And we do have a lots of clients, you know, using our plans for precious metals. The question is taking physical possession, and that's a longer conversation.

You know, look, listen, I don't think precious metals are a very good investment. They don't produce any income. They have no tax benefits, et cetera. But if you're going to do it and you feel that it's better than the dollar and the dollar is going to collapse, blood, blah, blah, blah. I've heard all those arguments. I've argued it a few times myself. Then take possession of the metals inside or outside of a plan. But just tell us briefly, what is that gray area about how you can take possessions of them? And even if you were audited, you might be okay?

Well, firstly, let's just say that one of the reasons that people want to take physical possession, as opposed to putting it like the Delaware depository, is the fear of an economic collapse where currency is completely worthless and what's really worthwhile is actual metals. So it doesn't pay to these people, to people who think this way or, you know, worried about this, that to have the economy collapse and the banks will be closed and the Delaware deposit will also be closed, and you can't.

And, well, the depository can steal your gold. So how do you take possession of it? That's the question.

Many people want to take possession and they take possession outside of an ira. That's their strategy. Now, inside an ira, there are some specifics in the code. Again, it is a longer conversation. We have some PDFs and stuff like this that goes into some of these details. I'm being a little vague about it because it's not a simple discussion, but there are gray areas in the code. We can look at some of this if your listeners aren't too bored. But bottom line is that there's controversy and it's unclear exactly about it. We're not necessarily going to decide either way. But we do have clients that probably, as far as we know, might be using it for taking possession because they have an attorney that's told them, listen, here's the code. I'm ready to back you up. Take possession of it. If that's their choice, then that's their choice.

All right. Well, Jeff, thank you so much for joining us.

Very good. Jason, let's do it again.

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