AIPIS 110 - Edwin Kelly, Self-Directed IRA, Solo 401(k) and HSA Maximization

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Welcome to the AIPIS show for accredited income property investment specialists and those who desire to be. This is your host, Jason Hartman. We talk about increasing your income, your productivity and just generally having a better life while serving your clients better with America's most historically proven asset class income property. We have a great interview for you today and we will be back with that in less than 60 seconds.

It's my pleasure to introduce Edwin Kelly. He is CEO of Specialized IRA Services and we are going to dive in and talk about some advanced IRA health savings accounts and solo 401k strategies today. I think you'll find this interview to be very interesting. The mission here is to talk about some more advanced techniques, not the basic generic stuff you've heard with other past guests that I've had on the show. So Edwin has committed to that and I think he's got some good information for us. Edwin, welcome. How are you, Jason?

I am great. Thanks for having me on today. And I have been a huge fan of your show for years, followed it for a long time. So I've really been looking forward to this good stuff.

And I didn't know you until just now. This is the first time we've ever spoken, at least as far as I know. But we were introduced by someone else in the real estate business and so I didn't know you were out there listening, Edwin.

Yeah, yeah. Lots of mutual friends. Funny how that works.

It is. It's a small world. Definitely. So how many years have you been listening to the show? I'm just curious. Do you know?

Oh man, it's probably been about five years.

Yeah. Fantastic. Fantastic. Well, we, we love loyal listeners, so thank you for listening and I hope I have, you know, offended you appropriately.

Oh, you have. And laugh all at the same time.

And it's funny. I was talking with one of our, one of our team members and I was saying, you know, I could never run for office because I've offended everybody.

So there we go.

I don't know, you know, you're in good company. I Mean, look at Donald Trump.

I don't know. You know, as much as I don't like Donald Trump, like, I think he's, you know, pompous, obviously, but I actually think he'd be kind of a good president, to tell you the truth, because the way I look at a country is it's just basically a big giant corporation, a very mismanaged one. I don't know, I kind of like some of the stuff he says, you know, what do you, what do you think? You think he's terrible?

No, I, you know, I think it would be helpful. You know, he offends everybody's sensibilities, but he is a business guy, he's a very successful guy. And I think if you want to fix Washington, which I spent a lot of time in Washington actually lobbying on behalf of our industry, our clients and our company, so we meet with all the regulators, various members of Congress. I do that every year. And what you really need is a shift in the mindset in D.C. in my opinion. So you need somebody from outside of that world to come in and effect that world.

I couldn't agree more. You know, the founding fathers never ever intended us to have career politicians. You know, in fact, they intended that we have a part time legislature. You know, it's, this is absurd the way we have these career politicians. It's terrible for the country. It really is. You know, I think we could all agree on that.

Well, you know, as a side note to that, don't know if you know this or not, but Warren Buffett's dad was in the Senate and he had that same philosophy. And when the Senate would pass raises for themselves, Warren Buffett's dad actually put the additional pay back in the treasury. He would not accept it.

Well, at least that's not hypocritical. I find a lot of other things about the son, Warren Buffett to be very hypocritical, as you, as I'm sure you've heard me say on the show. See, I've offended him. I'll never get him as a guest probably.

But you never know, maybe he'd want to have a chance to set the record straight for himself.

Warren Buffett, we'd love to have you on the show. I admire everything you've done in so many ways and your earlier life, you know, your, your value investing philosophy is very much like mine. I just think a lot of your political stuff is very hypocritical. So anyway, we're going to talk about IRA services, right?

That's what we're that's what we're here to do. That's right.

Okay, well, so tell us the difference, Edwin, if you would. What types of companies are out here in the self directed IRA world? There are administrators and custodians, and maybe there's something else. What's the difference?

Yeah, so that's a good question, and it's one that people should be aware of. So a custodian is a licensed, regulated financial institution, and many custodians have administrators as part of that. The administrator is the portion of the company that actually does all the processing of the paperwork, processes investments, does the tax reporting. So the custodian, the way it works is it holds the assets. If you think about it that way, the administrator is the one that actually does all the work in terms of processing those assets, processing the investments, cutting the checks, tax reporting, all those things that have to be done to provide the service and keep that IRA in compliance from a tax perspective.

Now, you know, you've been around the industry for many years. You worked for the largest provider of these services for many years. Some companies do both, right?

Yes. Yeah. And in fact, many companies in our industry do both. Absolutely.

And I've always wondered, how do they really make their money? Is it on all those, all that money under management?

Yeah. So that's a great question, because I hear two things when we talk about fees with clients. One, one thing I'll hear is that seems kind of expensive, and that's usually because they don't know what they're paying for their current retirement account because, you know, they hide all the fees and mutual funds and everything like that. Self directing is actually far cheaper than that. Which is the other thing that I hear, which is, how do you guys make any money? It doesn't seem like you charge that much.

The thing that I can tell you, Jason, is that it's a volume business. It requires a high level of expertise to do this well, to make clients happy, to process investments quickly and accurately.

You've got to be able to manage the company, operate it efficiently, and you've got to have a good number of accounts on the books to, to make it a very viable, profitable company. And so that's really what it amounts to.

Well, I remember when I owned an escrow company.

These banks would just totally compete to get our escrow trust account business. And they would pay. They couldn't pay us interest, but they would pay, I don't know, like analysis credits. And they could buy your software that you ran your escrow company with. And all kinds of stuff like that. Is that kind of what's going on a lot? Is there a lot of back end money in this?

No, there's no back end from a fee share standpoint. Like one of the examples you used there, there's no fee share going on, but the main money is what you see on the fee schedule. And so it's one reason why, truthfully, there aren't that many competitors in our industry. Now, from some people who've been around the industry like you have been for a long, long time, one of the things.

People.

Say, well, the industry has grown a lot. There's a lot of competitors out there. Well, if you knew how it started out, you're right, because when I started in the business, there was three of us. Basically the three of us were competing for the business. Now we probably have about 20 to 30 people in our space. But relatively speaking, for an industry, it's a small number of competitors. And the reason why is what we're talking about. It requires a high level of expertise. It requires an ability to operate a business efficiently, and you've got to be able to generate a decent amount of volume and happy clients to make it a viable enterprise.

Okay, so we talked about the two different types of entities in the business and many of them are merged together. Talk to us about some strategies, if you will, that can really make the IRA far more profitable for investors.

Okay, that's a great question. And one of the things that we do is we do a fair amount of consulting with our clients. Because one thing I'll say about self directing and one of the reasons why I see people will limit their success, they might have a self direct IRA or they may not because they're not sure how to use it. The reason why that is is because it requires a very customized approach. You know, everybody's in a different situation. And so to answer that question, I'll give you kind of two examples on both ends of the spectrum because it really comes down to the specifics of the person's situation. So let's say we're talking about somebody who's just starting out. And this, this happens all the time. We have people who say, you know what? I believe in self directing. I need to get control of my retirement account. I want these incredible tax benefits that the government has blessed us with. But what do I do if I'm just starting out with an ira?

In fact, I'll give you a case study and I could give you several. But let's start with this one. I had A gentleman, his name's Gary, and he lives in Ohio. He opened up his very first Roth IRA with us with $4,000 in it. Because the year that he opened his Roth ira, that's all you could contribute at that point in time. So he put $4,000 in the Roth IRA and he said, you know, what do you do with $4,000 in a Roth IRA and how do you get started with that? So one of the things we talked to him about was the fact that you're actually able to borrow money in your IRA to buy an investment. And so it's kind of like, I call it a legal backdoor, Jason, to the contribution limit. The IRS will allow us to actually borrow money inside that account. And so he says, well, he says, you know, that sounds pretty appealing. He says, like, I know people who have retirement accounts, can they lend their retirement money from their retirement account to my retirement account? And I said, you can absolutely do that. So what he ended up doing in his particular market in small town Ohio, he was able to buy properties between 15 and $25,000. And so what he would do is he would go out and talk to someone and give them a fixed rate of interest and secure their money by the property. They would lend it to his Roth IRA to acquire that property, and then he would fully amortize that mortgage over three to five years. And keep in mind, he started late in life. He started at 53. Gary is now 61 years old, and he's paying off one property a month. Currently he is spending.

$7,000 a month, 100% tax free, from that particular account. As time goes on, he said, in the next three years, that check is going to grow from $7,000 a month to about $40,000 a month. And so I think that's a great example of just one strategy that we've helped people put together and engineer to grow an account from very little money to very large.

Assets and cash flow. So that's on one end.

Am I missing a big aha there? I mean, what's the difference between, you know, many, many hard money lenders out there are, you know, or private lenders, hard money lenders, whatever you want to call them, they're loaning via their IRA. Okay, so IRAs loan people money all the time. That's not super uncommon by any means. What's the aha here? Is there something I didn't quite catch?

Yeah, so I think the big aha is that, and this is what I really view as the power of self directing is that the number one thing that people need, and I've heard you talk about this.

In some of your previous shows, is that people need passive income. Right? They need to generate consistent, predictable income. And this is a way, and this is the big takeaway in that. I look at somebody like Gary and keep in mind he was 53 years old, he didn't have a dime safe for retirement. He woke up one day and said, I need to do something about this. He opened up a self directed IRA and with a little bit of information and knowledge was able to go out, use other people's money to acquire a real estate portfolio inside that IRA in about seven years that will fully fund his retirement and put him in the top 1% of all income earners in the country. To me, that's the aha. The fact that it can all come together and it can happen in a relatively short period of time.

Okay, okay, good, good. So other strategies with IRAs before, because I definitely want to talk to you, Edwin, about health savings accounts and so forth too.

Yeah. So another strategy that. So that's on one end of the spectrum, right? What are good strategies for people? Well, that worked for Gary because he was starting with very little money. Now there's other, what we call small dollar strategies with self directed IRAs, but that's an example or a case study of one. Now if you go to the other end, this is something that. And I'll use John as an example.

And again, I think I'm sharing these case studies, Jason, because I think it illustrates the power of what people can really accomplish. And I also want to address the real challenges that people are faced with today. So John is a very typical American, regular, everyday person that probably at times might have listened to your show. He had a career his whole life, not a super high paying career, and he contributed to his company sponsored 401 plan. When it came time to retire, he was about 60 years old and he wanted to stop working. He had accumulated about $94,000 in his company sponsored 401K. And so he said, well, you know, I don't want to work. And he knew what he was going to get from Social Security. Right. Because everybody gets that statement every year around their birthday and they know what they're going to make. And so what John, John lives in Michigan, by the way John's statement showed him is that he was eligible for about $1,246 a month. That's what his income was going to be from Social Security. He had Social Security and he had $94,000 in his company sponsored 401. And so what do you do with that? Because he can't live on $1,200 a month. So what he did was, of course he did what most people do and they call you a traditional bank or brokerage. And he said, hey, you know, I've got this $94,000. I need to generate some income because I want to retire and what can I do with this? Now you probably know this, Jason, but if you ask the average financial advisor what you can spend.

Based on stock market and mutual funds and things of that nature, what they typically will tell you, and this is what they told John, is that you could spend probably 3 to 4% of your account every year. That amounts to a little over $300 a month. John said, there's no way I can live on my Social Security and $300 a month, that's just not going to cut it, particularly if the market drops that, that 3% goes down, right? So it's not even $300 anymore. He said, that's just, I can't live on that. So he started researching and looking for some different options and what were the alternatives to what the advisors were telling him. And what he came across was real estate investing, specifically buy and hold real estate. Now this is a gentleman who's never been to one of your terrific events, Jason, and learned how to do real estate investing themselves. So what he did was he found someone investor who purchased properties, fixed up the properties, put the tenants in the properties and manage those properties. So it was passive from his standpoint. What he ended up doing was transferring the $94,000 in his company sponsored 401k into a self directed IRA with us. He then purchased two properties. One was 43,000, the other was 42,000. Both of those properties pay about, after expenses, around $700 a month per unit. Right. In terms of rental income back to his IRA, which he now distributes out. So total, that's about $1,400 a month. Now, $1,400 a month may not sound like a lot to people, but you ask about the big aha. This is the big aha to me. Think about what he accomplished. The only guaranteed income he had was $1,246 from Social Security. That's it. And within 90 days of retiring, he was able to move from his 401k into a self directed IRA, purchase two real estate assets, and he didn't know anything really about real estate. And he doubled his monthly Retirement income for the rest of his life. To me, that is pretty remarkable when you take somebody who, you know, just a regular, everyday person, they've never even heard about this, you know, 90 days before he did it, just never even heard of it.

Yeah, it's amazing how just by structuring things better you can make such a difference, you know, same amount of money.

Yeah, yeah.

Wow. Amazing. Okay, good. So if you want to say anything more about IRA tips or, you know, just general IRA stuff, I want to move into some of the other topics here. We've got solo 401ks and health savings accounts too. But anything else on the IRA topic?

No. I know you wanted to cover some of the more advanced stuff, more specialized stuff, so we can jump into that.

Okay, good. Take it away. I'll let you lead it wherever you like.

Okay. So one of the things that we have a lot of clients asking about now, what are other things that they can do to some of the challenges that they have? There's two accounts that we are starting to really see people adopt on a larger and larger scale. One of those is the solo or it's also referred to as an individual 401k or a solo K. It goes by different names, but it's basically all the same thing. And that particular account has a lot, a lot of benefits. And I'll just go over some of the high level benefits and if you think it's worth drilling down on, you feel free to ask questions. But on the solo K, one of the first benefits is that you can contribute a lot, lot more money to that account. So there's a number of people, particularly once they become successful investors or they've got a business going and they say, you know what the challenge or the downside of the IRA is? I can only put 5,500 in a year or 6,000 in a year. The contribution limits are lower. Well, the great thing about a 401 plan is that clients can put between 50 and 60 thousand dollars per year into that account. And if they're married, they can include their spouse on the account. There's ways to do that and you can basically double that number. So we literally see some of our high income earners, our higher net worth clients, using this as a way of protecting more money, taking more money off the table from the government and putting it in that type of an environment. Now another benefit, and a lot of people are not aware of this, so I'll share this with you, is that there's a thing called a Roth solo K or a Roth 401K, and that $50,000 to $60,000 can be contributed. You have a choice. You can put it in as tax deferred or traditional money. You can put it in as tax free or Roth money, and you can do that on all 50 to 60 thousand dollars. And so regardless of the tax benefit you're looking for, you can achieve that with that particular plan. That's long time been a challenge for people who said, I make too much money to put money in a Roth ira. Well, you never make too much money to put money in a Roth 401 because there's no income limitations on that account. So that's another huge benefit that we see clients using.

Okay, and can the Solo K or the 401K? Well, it's really a Solo 401K or a Solo K or they call it different names. But is that something that can be a Roth or a non Roth? What do you call a non Roth?

We call it tax deferred or traditional.

Yeah, traditional. So can that be either way? Can all of these accounts be either way? I mean, Health Savings Account, hsa. I mean, can that be that way too?

You're going to be really excited about the hsa because guess what? You don't have to choose. You get both benefits with the hsa. Yeah. So in fact, since you brought up the hsa, let's kind of jump into that. But let me just say two quick things about the 401 that are really compelling for people. One is that in addition to the two benefits I just mentioned, one of the reasons why people don't use solo Ks is because they don't know how to get money in there. And so one of the things that we allow clients to do is take money from a traditional IRA and move it into a 401k. Most companies don't allow you to do that. A lot of people are under the false assumption that's an IRS rule. That's not true. It's a rule that the administrator, the custodian sets. But there's no rule that says you're not allowed to take traditional IRA money and move it into a traditional 401k. You're absolutely allowed to do that. Now, why do many people allow to. Why do many people choose to fund a solo 401k that way? Well, it's because the 401k is the only account that allows someone to take out a personal loan. Right. Which I know you know that, Jason, but a lot of people are not aware of that that you're not allowed to borrow money personally from your own ira. So for somebody who says, I want to get into real estate investing and I, but I want to lend money to myself, well, you can't do that from an ira, but you can take a personal loan tax free, penalty free from your 401k. So the 401k gives people access to their retirement savings today as well as tomorrow. So again, just another couple quick benefits on that one.

Okay. All right, that's good to know. I want to make sure, Edwin, by the way, as we're talking about these things that you tell people how to set them up, you know, how much does it cost? How difficult or easy is it? Hopefully it's easy because when I, when I did my solo 1k, I thought it was, it was kind of difficult. And I haven't done a health savings account yet.

Well, so the answer is, and that's a good question because it took us a while to really figure out the 401k. And the reason why is what you said. The paperwork is cumbersome. It can be confusing to clients. They don't know how to fill it out. Typical paperwork that we've seen with some others in the industry, if they even offer it. Most, most of our competitors truthfully don't even do a Solo 401 because it's a very different type of plan, very complex to administer. Not so much for you, but for us. A lot of people just don't want to get into that. But the applications were like 30 pages long. We said there's no way we can ask somebody to go through a 30 page application. That's just not going to work. We've cut our application down to about seven pages and we walk people through it every step of the way. So they never fill it out on their own. They always fill it out with us. And, and anything that they can't fill in, we help fill in those blanks. So the plan is.

It'S a little bit more involved than setting up an ira, but we've made it pretty easy.

I mean, I hope everybody listening has a self directed ira. How do you set that up? How much does it cost and so forth.

Yeah. So.

The way the fees work is based on the asset value of the account. But as an example, if somebody would start a brand new account and contribute money to it, the starting fee is $219 a year. So not a lot of money.

Okay. Say they have $100,000.

$100,000. So $100,000 account would be about $400 a year. Again, not a lot of money.

Okay, so $400 per year. And now compare that with a solo K. And that's only if you have a business. Right, the solo K. But having a business is sort of a. A little bit of a subjective term anyway, because that just means setting up an entity.

Yeah. And in fact, you know what? A lot of people think you have to have an entity. Truthfully, most people do who set these up. But you can actually. The rules allow you to be a sole proprietor.

You can do it as a sole proprietor. Wow.

Yeah, you can actually be a sole proprietor. Again, don't see it very often, but it can't. You know, you're allowed. I mean, that's the point. So how do the fees compare between a 401 and an IRA? Well, the 401k fees are a few hundred dollars more a year. So again, for the right person, it offers tremendous benefits. And. But that's where, you know, I'll go back to what I said earlier. Every conversation we have with someone, we're really trying to understand where they're coming from, what they're looking for, what they want to accomplish. And then we do something that we call plan design, which is just a fancy way of saying, you know, which plan or plans are the best plans for you based on fees, the benefits you're looking for, you know, your income situation, investment strategy, all those types of things.

Okay. And cost wise. And let's always do it with $100,000 just to use a round number.

So. Yeah. So the fee on like a 401k would be probably between 700 and $800 a year for a $100,000 account versus the 400 on an IRA.

And how about the setup fees on both of these? Compare those.

Yeah, so the setup fees on an IRA are basically $50 to set the account up. And then on a solo K, I want to say it's around 250. There's more involved in setting those plans up. And there's actually one of the reasons, just so you know, and people may not be aware of this, they see the higher fee. I'd love to tell you, Jason, that I get to keep. It doesn't work that way. The reality is that 401 s are called qualified plans. Why are they called qualified? Because the IRS actually qualifies them and they have to be filed with the irs, and there's filing fees that get paid to the irs. So some of those additional fees that people see on those plans don't go to your administrator or custodian, they go someplace else. So that's one reason why the cost structure is a little different and there's more involved in terms of record keeping and those kinds of things.

Got it. Okay. And now do you want to move to HSAs?

Yeah. So I love the HSA particularly.

That's a health savings account.

Yeah, health savings account. And this is something that I'm a big, big advocate of. We've implemented this strategy here at Specialized IRA Services. So we use it as a business. It's great for business owners, entrepreneurs. It's great for individuals. If you're paying your own health insurance, here's kind of the concept behind it, and I'll kind of walk through with the benefits of it right now, today. People have seen their insurance premiums go up this year, and they've seen their coverage go down. In many instances, that doesn't work for a lot of people. I mean, people are already spending a lot of money on health insurance, and because of the recent legislation, premiums went up. This is a strategy that helps bring those costs back in line. So the way this works is that there's one thing that you need to qualify to open and contribute to an hsa, and that is what's called an hdhp, a high deductible health insurance plan. And the way that works is that. Think about it like your car insurance, Jason, that, you know, if we have an accident, right, we have a deductible on our car insurance, we pay up to that deductible. Anything over that deductible, the insurance company pays for. Same concept that they've now applied to health insurance. So the way it works is that you have a high deductible on your health insurance plan, and you pay up to that deductible out of pocket. And then anything over that, the health insurance company pays. That's how that works in a nutshell. Now, the question is, though, okay, if you're going to have a deductible and you have to pay first dollar up to that deductible, where does the money come from? Well, that's where the government created something called the HSA or the Health Savings Account. And the idea with the Health Savings Account is that you put money in it, you can contribute money to it. And the great thing about the HSA is that it's the only account that marries both the tax benefits of the traditional IRA as well as the Roth IRA. So every dollar you contribute to that HSA is 100% tax deductible. To you regardless of of your income. You can make a million dollars this year and you can contribute to that account and take a full tax deduction. When the money is inside that account, you get to invest it, if you choose, grow it. All that money that you generate in profits are 100% tax protected. And then when you spend the money on qualified medical expenses, and if we want to get into some details on that, we can. But I'll make it simple and say that most things are covered. Anything that's medically necessary, orthodontics, doctor visits, you know, medication, prescription medications.

One area that's interesting on my Longevity and Biohacking show I talk about to some extent is these executive health screenings or executive health physicals and insurance will usually not cover them, from what I understand. But they can be really good. You know, can you pay for that with your HSA? You know, those are like $5,000 maybe for a full day at a clinic and then an ongoing program. You know, the more proactive health things that people want to do, sometimes even massage and chiropractic, you know, those things. Or is it pretty strict like your insurance company is going to be?

No, no, actually you have a lot of flexibility on it. That's one of the great things about it. And the question comes back to, I.

Mean, can you pay for supplements and vitamins and food too?

No, they draw the line there. And in fact, they've augmented or updated the rules a little bit in that they used to let you buy Tylenol. Well, they said now it's got to be prescription medication. They don't want you going to the drugstore and using your HSA or your debit card on the account because you might buy candy and pop. So they've limited that to prescription meds and things of that nature. But the other things that you're bringing up, you can absolutely do. Again, it kind of comes back to, is it really for.

Is it medically important? Is it medically necessary? Let me give you a practical example. So we actually had this question come up. And so actually, Jason, I'm going to throw this question out to you. Okay? So I want you to answer this. I just want you to take a stab at this. You tell me what you think.

I hope I can answer it.

Well, you got to kind of come up with the answer. We'll see what your thought process is on it. So we had a female client and she asked the question, she says, breast augmentation.

Can I pay for that using these pre tax dollars from an hsa.

She'S going to say it's part of my psychological health.

It'S my self esteem.

Now, if you asked her husband, he would tell you it's medically necessary. Right. But the question's coming from her. What do you think about that scenario? Just on the surface, I haven't given you a ton of information, so just on the surface, what do you think?

Well, I'm going to say no, but I bet you're going to say yes. You can use the HSA account for it. I mean, I don't think it should.

Be allowed, but that's a good answer because it's kind of a trick question. The answer is if it was for cosmetic purposes only, then it's not an allowable expense. Okay. But in her particular case, she was a breast cancer survivor.

Oh, yeah. But that's reconstructive. That's really, truly medical.

Yeah, that's reconstructive. And so that's where that's where I say the rules are. I call them pretty liberal. Right.

They're very flexible in terms of what we can do and what we can spend money on and what they do consider qualified medical expenses.

So, yeah, so there's a lot of options there. Now, I'll share a couple quick things on that as well.

I would just add one more thing to that. I would think she could probably go visit a psychiatrist or psychologist and get a note that says it's medically necessary even if there wasn't the cancer history there. I think a lot of things like that you could probably push the issue if you wanted to.

Yeah, you could argue it for sure.

And that's only if it even got audited. I mean, do they audit the way that people spend money from these accounts? I've never personally seen one. Not saying that you should do whatever you want with it, but I'm just saying I haven't seen it. You know, people are using them for medical expenses because they have them, and so you need the money. One of the advantages to this strategy, Jason, is the fact that it will drop people's health insurance premiums by 30, 40% a month. So when I first switched from a standard health insurance plan to a high deductible health insurance plan, my insurance premium went down $300 a month. So what do I do with that $300? I put it in that HSA and I get a tax deduction on it, and now it's my money. The other thing to keep in mind is that this is not like a flexible savings account. That's one question that comes up all the time. Right. So a lot of people are familiar with flexible savings accounts. And the problem with a flexible savings account is that you have to be Nostradamus to figure out how to make that thing work, because you got to guess to the penny the first day of the year how much money you're going to need out of pocket. And if you guess too little, you're using after tax dollars. If you guess too much, the money goes away. They just take it away from you. That's not true with an hsa. That is your money. That is your account. That money rolls over and grows from year to year. So one of the things that clients are doing, and we've just seen this recently, we've been teaching this for a while, and so people are starting to adopt it. They're putting money into that account and they're beginning to invest that money. And one of the strategies that people have is that they're buying a buy and hold piece of real estate in that account and then that monthly rental income. Guess what? That's what pays all their expenses. They don't even need to make another contribution to that account because they now have a cash flow machine, in a sense, inside that HSA that funds all their health care expenses. Pretty incredible stuff.

Yeah, it really is. What's the cost of setup and ongoing administration fees?

So that's a cheap account. I say cheap. It's on the cheaper side, for sure. It's a $50 setup plus 195 a year. So it's, again, it's not a lot of money.

Okay, so why did I talk to a law firm once, and they told me it would be like $1,000 or $1,500 to set up an HSA?

That's a great question. You know, if I could get by charging that, I probably would, because they're lawyers, that's why. $1,000. I think that's the answer. Really?

Maybe it is. Yeah. Interesting. Okay. Okay. So the HSA is that. That's pretty. It sounds like it's pretty easy. You know, this stuff gets to be a hassle to administrate and, you know, just philosophically, like, backing up. This is the problem with government and government trying to influence behavior and all of this stuff. It's just flipping complicated, you know, but we, you know, we got to do it if we want to win the financial game. You know, you've got to learn this stuff and use it, and it can be powerful. Is the HSA the easiest of the three that we've talked about to administrator the four, I guess there are four things. IRA, self directed, Iraq, solo K, HSA no. 3.

Yeah. So the HSA and the IRA are basically on the same level. The 401K is the one that from our standpoint, is more complex to work with. From a client's perspective, there really aren't too many differences. The initial paperwork is a difference. And then the way they title stuff, title investments to those accounts is a little different. But we give people the titling. It's like, here's how it needs to appear. So again, that's not really an issue at all.

Yeah, good stuff. Interesting. Give out your website.

Yeah. So Our website is www.specializediraservices with an S on the end.com specializediraseservices.com Edwin, I.

Got another question for you. What do you think of having an LLC inside one's ira?

That's a great question. It's a hot topic, as you know, and here's my answer to it.

We allow it. I can't tell you if it's a good idea or a bad idea. It depends on your purposes for having an LLC. What I can tell you is about 95% of our clients elect to work directly through us on the processing their investments and everything that goes along with that. About 5% of our clients choose to use an LLC and handle more of that recordkeeping and administration and those responsibilities themselves. It can be done either way. It really comes back to client preference. Our philosophy is that we're here to support our clients, that if a client wants to use an llc, we allow them to do it. If a client doesn't want to use an llc, they don't have to.

Why did the last company you were with discourage that so heavily?

You know, that's a really good question, and there's a few different philosophies or answers to that floating around out there. Their belief, belief at least the outspoken belief, is that.

The rules are unclear and that the client can get themselves into trouble with that type of an arrangement, that they might have too much control, that they might mismanage something or not do the proper due diligence or record keeping like they're supposed to.

That's.

Their blanket statement, effectively, in terms of why they discourage that.

Having said that, again, I used to argue that point at one point when I was there, and as time has gone on, I've said, you know what? I've had enough conversations and I've seen enough people do these arrangements that Clients are aware if they're taking on and they want the llc, they know they want it in many cases.

Then we allow it. That's the whole point of self directing, in my opinion, is that if you want to. In fact, let me give you a more specific example about that. If you called that particular company and you ask them certain questions, then they say to you, well, Jason, you need to go talk to your attorney or your cpa because that's legal advice or tax advice, and we don't provide that. And so what do you do? Well, you go back to your attorney, you say, okay, I want to set this up. How do I do it? Can I do it? And they say, yes. And here's what we recommend and we'll go over the do's and don'ts. As long as you're good with that, we'll set up for. You say, okay, great. You call that company back and you say, okay, I talked to my attorney, I paid him $1,000, he's helping me out, he's doing this all. And they say, well, guess what, we're not going to hold it. Well, wait a minute, you just did what they told you to do. That doesn't seem like a very client friendly policy. And therefore that's why we've adopted the philosophy we have, which is we're here to support our clients. So if it's not prohibited, we're going to allow it.

I just think it's too difficult to not have an llc. Now remember folks, asset prot wise, you may want to have multiple LLCs depending on how big your, your account is, whether it be an IRA or solo 401k within that plan. But you know, I just think it's too hard not to have that checkbook control. I mean, you got to be careful. You know, Mike Dillard in the Elevation Group had a guest, I think a few years back that was talking about, you know, how to take possession of gold and other precious metals inside your self directed ira. And I just knew that had to be illegal because if you touch it. Now granted, you can touch the piece of real estate, of course. Okay. But you know, if you're, if you're holding that gold, for example, then, you know, I mean, the IRS has no way to keep track of that. You know, you have a Checkbook Control llc. That's how they do it, right? Checkbook Control llc. And then you buy the gold, you say, hey, I bought some gold in my plan. That's what you tell the irs. But then you have it in your Possession. That's crazy. There's no way, no way that's allowed.

Yeah, that's. And if somebody says you can do that, you know you're gonna get into.

Trouble with that one.

Yeah, you're gonna get into trouble. And the thing is, is that, you know, I tell people, look.

It'S just not worth. There's certain battles you fight and there's certain battles you don't fight. That's a pretty clear losing battle, in my opinion. You know, you're not gonna win that argument with the irs.

But, you know, if you're doing real estate, I mean, there are little expenses that crop up here and there. Yeah. Like you need to, you need a debit card to pay for the utilities. Right. Or be able to write a check to the utility company when you first get that property up and going and you're, you know, showing it to tenants or something, or in between tenants. I mean, it's just too hard not to have the LLC and be able to do that stuff.

Yeah, I mean, and that's why I say we, we, we have the philosophy that if a client wants to do it, we certainly allow it and they are able to do that with us. And so it really comes back to personal preference because like you're saying is that, you know, some people say, hey, you know what, I want an llc. And they take on certain roles themselves. Many of our clients have property managers who take care of a lot of those issues for them. You know, I think that's one of the great things about real estate, Jason, and what you teach is that there's a lot of different ways to structure things and there's obviously your recommendations and what you think is best. And at the same time, there's some allowance there for what works for people and what they're trying to accomplish. And so what we've decided is the best way to be a long term partner with our clients and be a strategic partner for them, an important team member, is to really develop systems and processes that support what the clients are doing. And what I've seen is, and the reality of it is there isn't a cookie cutter. Square pegs don't go in round holes. And that's why so much of what we do is highly, highly customized to support our clients. And we can do it because we've been doing it for 24 years.

And that's why we're able to create those types of things.

Is there an extra fee for having an LLC and having checkbook control with.

Inside a plan not from our standpoint, but obviously it depends where they register that LLC and fees to the state paying to get set up. But those are the fees they don't pay us. As an example, any additional fee if they opt to use an llc.

Okay, good stuff. Edwin, any closing thought?

You know, I really appreciate you having me on and I hope the information that we shared today is really beneficial. And if people want to find out more about the benefits of the HSA or the Solo K, feel free to give us a call. Check out our website. We have a lot of great content and information out there to help people get those questions answered.

Good stuff. Edwin Kelly, thanks so much for joining us.

Okay, thank you, Jason.

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This show is produced by The Hartman Media Co. All rights reserved. For distribution or publication rights and media interviews, please visit www.hartmanmedia.com or email mediaartmanmedia.com Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate or business professional for individualized advice. Opinions of guests are their own and the host is acting on behalf of Platinum Properties Investor Network, Inc. Exclusively.