Best Option to Invest from Retirement Account : SDIRA/solo401k/QRP

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So welcome everyone. Welcome to Think Outside the Stocks. My name is Madhavi Narejain. I'm your host today and we have this series of free educational events specially focused for passive investors. And a focus of our investments typically is real estate, commercial real estate, mostly in syndicated investments. And today we have Scott Mouret joining us. Hey Scott.

Hey Madhavi, how are you doing?

Great. Thank you so much for joining. So actually this is Scott's second webinar with us. We had done one during the COVID environment where we talked about how you can take 100k out of your retirement account during COVID with CARES Act. So that was a fantastic webinar. So welcome back Scott to you.

Yeah, it's great to be, great to be back. Sorry. Unfortunately we don't have the code that Covid distribution rules are gone unfortunately now.

But a lot of people were able to take that distribution. So that was a great news. But, but anyway, again today's topic is retirement account using retirement account for your real estate investments. Not many folks know about that and even if they do, it's so much of confusion. Confusing topic there. There are so many options available. There is SDIRA, there is solo 401k backdoor IRA and there are many more options available. So Scott here is the expert on the retirement accounts and how you can utilize them. Kind of get your own control on your retirement accounts so you can start utilizing it for different investments beyond real estate.

Really.

So let's jump in. I'm going to start sharing my screen here.

Let me.

Let me know if you guys can see my screens. Scott, you can see my screen.

Yeah, we can see it. Yep, it's up and looking good.

Perfect. So yes, we are going to talk about best option to invest From Retirement Account SDIRA, Solo 401k, QRP etc, etc for your real estate investments. Before we go ahead, disclaimer from our side we this is information purpose only. These webinars. This is an educational series. Please keep that in mind. We are not doing any offers. We are not offering any investments or investment opportunities. You know, if you are an investor, please please refer back to if you have any financial advisors, CPAs, lawyers, that's your team. If you want to refer back for any of the advice, please please do that. We are here purely for the educational purpose and sometimes we do also use a lot of numbers on our on our screen for a case study kind of sharing that scenario so you understand it well. So please understand that these are information only purposes and this is, this is not real numbers. If you, you know, for any other situation, if you need numbers in your own case, please reach out to us. A little bit about me Most of you know me by now. I am Madhvi Nane Chen. I'm the president and wealth strategist. Think Outside the stocks. I help with Think Outside the stocks Investors passive investors in twofold approach. Step number one is to make your savings account efficient using Infinity Banking system. And second approach is making your investments really high growth and tax efficient using syndicated commercial real estate investments. I live in Austin with my husband and two kids. My daughter is actually a senior, so pretty soon she'll be heading to college. I spend a lot of time in IT industry, mostly with top five consulting companies. And when I left my job in 2015, I kind of started my journey in reverse engineering way where I looked for this alternate income source creating the passive cash flow. And when I came across these two strategy Infinity banking system as well as syndicated commercial real estate, it kind of made me restless. And that is really true passion for me to bring this education to passive investors life and to support that, I invite guests like Scott here from time to time so we can expand on this passive education completely free of cost. Because I think that's really essential to get this information and to have you that strength and that confidence so you can invest in your next investment really confidently. So that's really truly my passion. My passion is education. And thank you so much for joining today. Hope you get some value out of today's today's educational series. So with us we have our guest, Scott Mourer. As you say that he's a director of business development with Advanta Ira. Advanta Ira, I had fantastic experience with Scott here is very, very knowledgeable. He is very, very helpful and also it's most cost effective that I have seen so far in this space when you're trying to do something like using your retirement accounts for your multiple types of investments, which Scott will talk in a minute. So he has been working with Advanta since 2016. He is, you know, frequently I have seen him. My God, how many events do you do? Really? Scott, Right. He speaks a lot of events. Do you, I mean, do you have any numbers, Scott, last year how many events you spoke at?

I didn't. I mean I should count it up. But yeah, I've done on a number of different podcasts and kind of our internal events. Yeah, that's something. That's my job though, so, so that's why I'm on a lot yes, yes.

And he is you know very his not only his events are very interesting, they're very simplified, very easy to understand. It's a complex topic. So I love that about Scott. So he oversees sales and marketing education, you know staff education in advance IRA and he has worked with numerous individuals, entities, companies to set up self directed IRAs also using like capital raising strategies. So so welcome Scott. Again fun fact about Scott. Scott is also an attorney and member of the Florida Bar. I always think that's very interesting about you Scott. So before we jump ahead a little bit about think outside the stocks my purpose is to help passive investors use for a wealth maximization approach. So what I often say to my investors that we are pretty much invested in putting our money to work, right. We focus on saving really well. We follow some investing strategies really well. So it's kind of saving, saving, saving, investing, investing, investing kind of in a lateral plane. What I like, I like to take a step back, change the perspective a little bit. Kind of take that bird's eye view and not only look into just saving and investing perspective but taking that step back that bird's eye view to grow, preserve, protect and pass your generational wealth. So that's what we think outside the stocks. That twofold approach that I bring in and the two fold approach of course is the first one is the better savings system with guaranteed growth and protection, the saving system creating that more robust so that your lazy money in bank does not just stay stagnant but it can actually be more efficient for you. So that's with the infinity banking system. And the second one, the second layer is the risk managed syndicated real estate investments again which provide tax efficient high growth for multiple years. So that's really the twofold approach that we bring in and we also focus on the passive investor education. Join us every other Thursday 6pm Central. We always bring in new topics for you. So that's my information there. If you want to get in touch info at think outside the stocks or you can send that SMS to 844-506-0705. So having said that I'm going to pass this to you Scott. Best options to invest in real estate from retirement accounts and I stop sharing. Feel free to take on the charge Scott.

Yep. Yeah, let me just find this, find my presentation here and pull it up.

Absolutely.

Let me know you can see it. Everything okay and make sure you get the.

Yeah, you're all set.

I'm trying to find the. Sorry, I'm. There we go. Try to get the power the Presentation view started. So you still see now you see just the slide itself. Yes, perfect. Okay, great. So yeah, thanks again Madhavi for having me on. Hopefully everybody is going to get, like I said, whether you're a new investor, seasoned investor, somebody who doesn't know what a self directed IRA or 401k is or been using one. Hopefully you're going to get something out of the presentation here tonight. So we're going to talk about really kind of real estate investing, but how do you really have the different tools that you can use when it comes to retirement accounts and how to invest in those particular assets? So Mavi already introduced me here just to get some of my bios. Been with the company since 2006. So I started out not knowing much about self directed IRAs at all myself personally, or even real estate investing for that matter and have learned it simply over the years and obviously as Bobby mentioned, been a guest on a number of different podcasts, other webinars, we host a lot of internal events ourselves. We're also big proponents of education also in providing clients prospects, just any individual with as much information as possible about what we do so that they can people can again make their own choices from a retirement standpoint, their accounts and at least be educated, know the different options that are out there. We also have a quick disclaimer I need to share just that we don't give any legal, tax or investment advice. So even though I am an attorney by degree, I can't give any legal advice, I can't draft any legal documents on behalf of investors or clients. And we also most importantly don't provide any investment advice. So when it comes to as we talk about the different types of accounts tonight, you might hear me just say self directed IRA. That's going to encompass the IRA, the Roth IRA, the 401k, the QRP. But self directed simply means that you are the one that's in charge of the investment itself. So you're the one deciding what investment, doing your due diligence and being satisfied that you're making a good investment. That's not something that we do. Our role is simply as an administrator and record keeper to make sure that the assets get titled properly, make sure you approve of them, and then do all the record keeping going forward. A little bit about us. We've been around for over 20 years. We have over 1.3, it's actually up to $1.5 billion in assets under management. In addition to our educational programs, we also are committed to a personalized customer Service experience. Every account we serve and have, every client has a dedicated account manager. It's one person in our office dedicated to anything you need regarding your account. So you're not going to call an 800 number each time and get somebody different on the phone. You're going to have a one to one contact for the account that you have with us. And again, the commitment to education, I'm going to share at the very end, kind of a unique event that we have too, that everybody's welcome to join at any time. But we do a lot of webinars, not doing any seminars at the moment. We're obviously hoping to get those going later this year when it is safe to get people back together in bigger numbers. But again, our role is not to convince everybody that they should have a self direct ira. Obviously if that happens, that's great. What our role, our goal is with our education really is to just make people aware that they have other options. So a self directed IRA certainly is not for everybody. For some people who want to just be able to put their money into an account and forget about it and never touch it, then self directed requires a little bit more effort, a little bit more knowledge about what's going on. You can't. People are much more involved. But we feel like through our education, through what we do, obviously coming on Madvi's event here tonight, just trying to share and make people aware that they have other options outside of the stock markets. That's why Madhavi and I have a really good connection here with her. Think outside the stocks. That's what we're preaching. The same thing as well is again, just to know you have other options. It doesn't mean you have to replace your entire stock portfolio with self directed assets. It's just knowing, hey, you can get really, really true diversity within your account. So I'm going to jump in again. I'm going to talk about self directed IRAs and we're going to then get into some of the different types of accounts that can be self directed. So again, if I use the term self directed ira, I really am using it as a catch all term. That includes the other accounts we're going to talk about today. But again, for people who haven't heard of what a self directed IRA is, it's really an account that gives the owners complete control over their retirement funds and investing decisions where it allows you to choose the type of investment that you wish to make as opposed to with a mutual fund account or a stock account selecting from maybe a list of different publicly traded investments or securities that most brokerage firms, most companies, limit you to. With a self directed ira, you are choosing what kind of asset you purchase, not deciding what investment within a class of assets. You're not picking different stocks or different mutual funds. You're kind of stepping away from that completely and investing into alternatives that we're going to talk about here in just a minute. These assets typically that are invested outside of that stock market and you're getting off the roller coaster, at least with whatever portion of funds you choose to self direct. Most people have simply not heard about this as an option because again, a lot of people, if you work in corporate America, you work for a company with a 401k account. Self directed assets are not always really an option within a 401k. When you're working with your current employer, they may be. Your options are probably limited to what you can invest in. So most people then, if that's where their retirement account is initially, they haven't heard of self directed because it's never been really proposed to them. It's never been put in front of their face as an option. And something different you can do with your retirement accounts and certainly the banks and brokerage firms that typically hold your 401k or maybe your IRA account not going to let you know that you have other options. That if you want to invest in real estate or want to invest in a syndication or buy gold or silver, that you can do it because that means you're going to take your money out of their account and move it to a firm like Advanta to hold those particular assets. So IRS regulations allow for a very broad range of investments. So it's not the IRS that is limiting you as to what you can invest in, it's your particular custodian. So if you were the brokerage firm, you're limited to only typically those things that they sell and that they're willing to hold on their platform. But the IRS rules are much broader than that. We're going to go into that in a little bit. As far as what the IRS actually limits you to, there's very few limitations as far as the investments that you can make inside of an IRA account. So we'll talk about that here in just a minute. Again, Mario, I don't know if you're monitoring the chat as well. I would encourage you. And if people are listening as we go along, if you have questions, just throw them in the chat box and I'll make sure we get those answered.

Yeah, Please use Q and A box, folks, if you have questions and I will monitor that and pass it on to Scott.

So when we talk about one of the if you end up my email was on that earlier slide. I'm happy, by the way, to send these, the copy of these slides out to anyone if you contact me. I'll have my information again at the end of my presentation. But if you end up getting on like our, for instance, our list for upcoming events, you'll see that a lot of the assets, a lot of the webinars, the education we talked about is usually centered around real estate. And that's because real estate probably makes up 70 to 75% of the assets that we hold on behalf of our clients in their retirement accounts. And when I talk about real estate assets, that's anything from single family rental properties to commercial real estate, people doing flips, condos, duplexes, obviously multifamily properties and syndications, raw land. Again, 70 to 75% of the assets we hold are real estate based. A lot of them also are based. The actual investment may not be the physical real estate, but it may be kind of in an asset related to real estate, like a mortgage loan. Using my IRA to lend money to a third party and that third party as giving me a piece of real estate as collateral. So instead of the borrower going to a bank, they come to me and I lend them money from my IRA account. That's certainly something we see a lot of. So these assets on this slide are really what we kind of term paper assets, mortgage loans, tax liens, tax deeds, assignments, joint venturing within real estate as well, and then kind of outside of the real estate space. That other, like I said, 25 or 30% of assets that we hold fall into a number of different categories, whether it's LLCs, which can be like a private hedge fund interest startup companies, like I said, precious metals, the physical gold and silver, foreign currency trading. It's not on this slide. We've seen an uptick, obviously, with the interest in cryptocurrency. Lately we have people calling us wanting to invest in crypto inside their IRA account. That's certainly something that you can do as well. The thing that all of these investments have in common, from the real estate to the paper assets to these other alternatives, is that a brokerage firm typically will not hold these assets because it's not something that's on their platform. It's not something that's not how they make their money. So typically, if you were to go to your Schwab or Fidelity or Morgan Stanley broker and say, hey, I'd like to invest in a real estate syndication in my ira. They're gonna probably try to talk you instead into a publicly traded reit because they're not gonna hold that private syndication deal on their platform. It's just not something they're set up to do or they really want to do. And that's again why we kind of how advantage it comes into the picture.

It's a very good point, Scott, because you know, most of the time people don't even know they can invest into something like a real estate from their retirement account. And it's, you know, it's most likely coming from when they get to know that hey, you just can't invest from, you know, from this particular account into real estate. It does not mean that they cannot invest into real estate from retirement.

Right. And unfortunately what happens too is some of the brokers, and it's really no fault of their own, they're not aware, a lot of brokers are not even aware what a self directed IRA is. Now granted, more and more people are finding out, more and more brokers are probably being asked about it, but sometimes they grow up in the world of selling their, their financial products that when you come to and says, hey, I want, I want to invest in this private real estate deal, they go, hey, this is not something I'm aware of, so you can't do it, or if you're going to do it, there's going to be some tax consequences if you pull money out of your IRA to do it. And they just don't know what a self directed account is. So again, I've had numerous people over the years that have come to me and said, hey, you know what, When I first asked my broker about this or first asked my financial advisor, they told me it wasn't possible or that I was looking at a huge tax hit to do so. And it's simply because they themselves, the advisor, didn't understand what a self directed account is. And that's what we're obviously going to talk more about today in greater detail.

Absolutely.

So why I think retirement funds are a good capital source over the years for a lot of our clients who come to us to use their retirement account to invest. They're kind of like they're doing repeat investing. So they already buy single family rental properties, they already buy into syndications, they already do private lending on a personal basis. They're now just choosing for their next deal to use their retirement funds as the next bag of money to buy their next asset. So it's not someone being talked into, hey, you really should try investing in real estate. They're like, hey, I already invest in real estate. I just didn't know that I could use my retirement funds as well. I thought my retirement funds had to be invested in stocks and mutual funds. So for a lot of clients, that's the reason that's a good capital source. It's just for that investor a different way to fund a deal. Also, when you consider people looking to make an investment, they can either use their retirement account like an IRA or they could potentially invest personally. If I have a personal savings account, that money may be there for a loss of job, a medical emergency, something else that pops up that I would need relatively quick access to those funds, potentially for an emergency. But for your retirement account, most people don't look at that. They look at that as, I'm not touching that money until I'm 60, 65, 70 years old. And if I have another 15, 20 years until I reach that age, I don't mind investing my retirement account into something that might be a little more illiquid. It's a three to ten year investment because if I have an emergency, that's what I have my savings account for. But I don't want to tie my savings account up in an illiquid investment because if I do have an emergency, I'm not going to have that cash. I think that's another reason why people like to use retirement funds for these investments. And certainly the people who are either sitting in cash right now or they're afraid of the stock market fluctuations. Does the real estate, does the syndications, these other assets we're talking about, give them a little more security or better returns? And also there's no outside approval needed other than yours. If it's your account, your money, you simply say, hey, I want to make this investment. I just need to move my funds from this account in a brokerage firm to an advance IRA and in turn make the investment. So it's not a matter of going to a bank to get approval for a loan or anything like that. It's your account, you make the decisions. So we'll talk now a little bit about the different types of plans. You know what, basically what accounts can I even use to invest in the deals that the monvi talks about, or you hear your networking and hear from other individuals. So as far as what accounts and what monies can be self directed, any type of ira and I'm going To touch on the traditional and Roth individually here in just a moment. But any type of IRA account, a traditional ira, a rollover ira, a Roth ira, a SEP or a simple IRA can definitely be self directed. Doesn't matter where that money is sitting now. It doesn't matter if that's you have a SEP or a simple through your employer, you can self direct that money and transfer those funds over. We're also going to touch on the solo 401k also. Some people call that the QRP or qualified Retirement Plan. I'll go over that in more detail. Those are for people who are self employed or have a side business. And they have some great advantages with the solo 401ks and the QRPs than do the IRAs. I'm going to touch on those as well. We also offer education, health savings accounts. I just don't get into too much detail on those. We don't do a lot of those accounts. But the other big plan, the other big bucket that gets missed sometimes are those former employer plans. When somebody leaves their employer, they leave a 401k, they leave a 403 plan behind. That money, once you leave your employer, can be rolled over into a self directed account and then in turn invested into what you choose. The only account, that's the accounts that are not on this list of what can be self directed. Unfortunately, our current employer plans, if I'm working for a business now, they can restrict my ability to move money out of that account as long as I'm still employed there. So there's one restriction. You can always call your employer and see what flexibility you have. It does happen that even if for current employers, sometimes plans are drafted certain ways that allow you to move some of that money out even while you're still employed there. But that is something you'd have to check on a case by case basis. But with a former employer plan, there's no restriction at all. So just quickly glancing kind of the traditional and Roth IRAs, really, who can have one is anybody. If you have earned income, you have W2 Commission wages. As long as you have earned income, you can have a traditional Roth IRA and make an eligible contribution either on an annual basis, making a contribution of the plan or rolling money over from a former employer's plan. So when you leave your employer and you leave that 401k, that actually gets rolled over into say a traditional IRA or potentially a Roth IRA. Now the benefits of the traditional versus the Roth traditional IRAs, you get tax deductions for making your contributions if you do it on an annual basis, so it gives you a write off. As we're approaching tax time here, everybody talk about write offs and deductions. Contribution to traditional IRAs, a lot of times will give you that tax deduction. Both the traditionals and the Roth grow tax deferred, so you don't pay any taxes as you're investing and reinvesting within these accounts. That's the power of retirement accounts in general is that tax deferred money grows much more quickly than money that's being taxed every step of the way. Now, the one difference that the Roth IRA has over the traditional, the big benefit is a Roth IRA because you forego that deduction up with when you make a contribution to a Roth or if you convert money from a traditional to Roth, that money then keeps growing tax free as opposed to simply tax deferred. So a traditional ira, you will pay taxes in retirement age. When you pull that money out at 65, 70 years old with a Roth IRA, that money is coming out completely tax free. So again, with traditional Roth, pretty much everybody is eligible. The reporting on those accounts is done by your IRA custodian. The drawbacks though to these plans, one, the contributions may be limited. The amounts you can contribute on an annual basis for traditional and Roth or is only $6,000 a year or 7,000 if you're over the age of 50. And also the income we're talking about UBIT and UDFI tax a little bit, you don't have to understand what those are. Now just remember that income to an IRA on leveraged real estate deals, IRAs can be subject to something called UBIT or UDFI tax, which I'll cover in a little more detail in just a minute. So again, iras, it doesn't matter if you don't have your own job or I'm sorry, your own business. If you just work for a company and that's your sole source of income, you can still have a traditional or Roth IRA account. Now, the other type of plan that is very popular, especially with multifamily investors, and we'll get into the reason for that in just a minute, is the solo 401k, or some people call it the QRP. QRP, that just simply stands for Qualified Retirement Plan. So a solo 401k is a plan that operates very similar to if you have a 401, it operates almost the same as your regular 401K. But it's specifically for people who are sole proprietors or businesses where there aren't Any common law employees. So it's could say just be me in my own business. I can have a solo 401k plan, have the same benefits that a 401k through Coca Cola or IBM might have. But it's just for me, just for my, myself and my own little business. It could be a solo 401k because my, you know, let's say that my 9 to 5 job, so to speak, I work for myself. And so I have my business is, is my sole source of income. I can have a solo 401k for that or it can also extend to situations where I have a side business. So maybe I do have a 9-5-W2 job, but I also do some outside consulting work. That outside consulting work can still suffice as the basis for my solo 401k account. Now the solo 401k as opposed to the IRAs have larger contribution limits. Okay, instead of that 5 or 6, I'm sorry, instead of that 6 or $7,000 you can put into an Iraq solo 401ks allow for contributions up to $58,000 a year or I think 64,000 something if you're over the age of 50. So just larger annual contribution limits. If you're someone who is looking to ramp up the money that you have saved for retirement inside of an account and you work for yourself, solo 401k is usually the way to go. The solo 401k does allow for both Roth and traditional funds to be held inside the same plan. And so it offers that tax deferred or tax free growth. Unlike IRA accounts, you can also borrow personally from a solo 401k. And again people listening to this call who maybe are familiar with 401s, you may have one through your employer. You may have the ability now to borrow from your 401k. That is different with an IRA account. You cannot borrow personally from that IRA account. So again, a couple benefits that the solo k has. The biggest one when you talk about multifamily and leverage real estate deals, is this UBIT tax I'm going to talk about in a minute. 401s Solo 401ks are not subject to any tax on certain gains. So keep that in mind when we talk about that a little bit going forward. The drawbacks to the Solo 401, the IRS does expect you to have really a valid business or a side business and some active income from that business. So they don't want people just setting up solo 401ks to avoid that. UBIT tax, they do expect that you kind of have a valid business and at some point they expect you to make some annual contributions to the plan from that business as well. So just keep that in mind going forward. I've really never seen that become an issue for any clients, but that is out there just as one thing to remember. So again, the advantages and actually it's up to 58,000 now, the higher funding limits for the solo K, you can defer a large amount of your income. You can roll over money from other IRAs and 401ks, the access to tax free loans, and again it escapes UBIT tax for leveraged real estate investments. So we talk about investing in real estate using retirement funds. What we've talked about so far, what we usually focus on in our webinars is using the IRA or the Roth IRA or your solo 401k as the investment vehicle to actually make the investment. But there are situations where people choose to take money out of their accounts and use that cash as a funding source for a particular real estate deal. Now, as far as taking money out of an IRA or 401k, if you take money out personally, if you're under 59 and a half, you're subject to a 10% early withdrawal penalty and then you also are taxed at ordinary income. So the amount if I pull out $50,000 from my IRA today I'm under 59 and a half, I got a 10% penalty on that money. And that 50,000 I pull out is also taxed at my ordinary income level at age 72. With these accounts, you are required to start distributing from those accounts so you don't have to take distributions at all until you reach age 72. If you're under 59 and a half, there are some exceptions to the 10% penalty if you're using it for higher education expenses. First time homebuyer. If you inherit an IRA from another person, even if you're under 59 and a half,. You can start taking distributions out of that account without the 10% penalty, although it still may be included in income tax depending on what type of an accountant is. So those reasons a lot of times are enough where people decide not to pull money out of their ira or their 401k and instead use the IRA or the 401k as the investment vehicle. Now the one exception to that, and I mentioned with 401ks, typically you are allowed to borrow money from that account on a personal basis. Again, that is not available with IRA accounts, but it is for 401ks and solo 401ks, the IRS allows you to borrow up to $50,000 or 50% of the total account value, whichever is less. So if I have $150,000 IRA or 401k, I can borrow up to 50 grand. The loan can be for any purpose, but you must pay that loan back within five years in full. And the interest you're basically paying interest is typically market rate of interest, but you are ultimately, when you pay that loan back, paying yourself. So the loan payments on that 401k, you make that payment, it goes directly back into your 401k. So if you are looking at making a real estate investment, that is another funding source for your. If you do have a 401k, let's say for instance, I work for an employer and I don't have the ability to move that money out into a self directed account, I could still potentially take a loan for my 401k up to 50,000, use it for my real estate investment and then just pay that loan back. And hopefully that, you know, obviously the interest and gains I'm making my real estate investment are going to outpace and supersede the amount of any interest I might be paying as well. So again, another way you could access the funds, we don't see that usually used too often, but it is another way that you can use money from retirement account to invest in real estate. Now again, talking just a minute ago with a 10% penalty that only in the taxes, that only applies when you purchase personally. Take money out of an account from an IRA 401k and it goes into your personal bank account. When you're moving money from say a Schwab IRA to an Advanta account or you're rolling over from your old 401k into an advance account, that is either done by either transfer or a direct rollover. Just depends on which account it's coming from, determines whether it's a transfer or rollover. The important thing about that is when you do a transfer, when you do a direct rollover, that money never touches your hands. It is not taxed at all to you. When the money goes directly from your other custodian or your other 401k into a separate IRA account, you can do transfers and rollovers as often as you'd like. The money never touches your hands. There is no restriction on doing it. So again, that's sometimes again where brokerage firms and financial advisors get confused. When you say I want to invest in real estate using My Iraq. They don't realize you could actually transfer this money to an account with Advanta, use that cash to invest in real estate. What they think is you're going to take that distribution out like I showed on the last slide, and be subject to taxes and potential penalties. But when you set up a self directed IRA or a self directed 401k, the money is moving by a transfer or rollover and therefore is not taxable to you at all. Again, because the money never touches your hands. Went over the kind of back towards several slides ago. At the beginning I talked about the different investments, the real estate, paper assets, the kind of the other alternatives bucket as well. The irs, when they created retirement accounts and they set the rules for investing, only said there's a few things you can't do within a retirement account. You cannot invest in life insurance and you cannot invest in collectibles. And your collectibles would include your antiques, alcohol, artwork, etc. Those are the only two prohibited investments inside of a retirement account. So there is nowhere you can look in the code that says your IRA, your 401k can invest in real estate or invest in a syndication, or invest in stocks or mutual funds or anything like that. It simply says you cannot buy life insurance and you cannot buy collectibles. Is the only two prohibited investments inside of a retirement account. The IRS also limits certain transactions you do inside the account as well. So your ira, even if it's buying real estate or it's buying a syndication or making a loan, your IRA, your 401k cannot transact with any disqualified person or the IRA owner, the plan owner cannot receive any benefit from the assets held in the plan. So the disqualified persons for your retirement account include yourself, your spouse, your parents, grandparents, children and grandchildren, any entities that are owned by those persons as well. So what that means is if I wanted to buy a piece of real estate to hold inside my retirement account, my retirement account cannot buy that asset from any disqualified person. If my IRA buys it from a third party, I cannot lease that property to any disqualified person and no disqualified person should get any benefits. If I say bought a property piece of real estate on the beach in my retirement account, I cannot personally go use that. It's got to be strictly for investment purposes. Otherwise I would be violating section 4975 of the IRS code. So when it comes into doing transactions and deals where you're involving your IRA, your 401k and a disqualified person, a lot of times what you're looking at doing is probably going to be considered to be prohibited. But when you get outside that kind of nucleus of the close family members, there's so many different things you can do. Again, at that point your only restrictions are you can't buy life insurance and you can't buy collectibles. So again, had some people over the years kind of really focus on trying to do deals or trying to do something with a disqualified person. You got to look outside that bubble and get outside and see what else is out there is possible. The other rules we're going to talk about here on the next slide, UBIT tax. It's called Unrelated Business Income Tax. It can apply to investments held inside a retirement account that is either kind of like business income. If I'm getting gross profits from a restaurant, my IRA or 401k can be subject to that tax. And it also can apply to privately held like leveraged real estate investments. So if I'm investing into a syndication, there is underlying leverage. This UBIT tax can apply as well. So it's kind of a little known tax and a lot of CPAs aren't even that familiar with it as well. But it's important to note that IRA accounts are subject to UBIT when it comes to that leverage real estate, but the solo 401k is not. That's why so many people looking to invest in multifamily, for instance, look to the Solo K or also the QRP to do so. So what UBIT is when it comes to say the leverage real estate deal, it's only the amount of income related to the portion of leverage that is taxed. So very simple. If I invest in a piece of syndication that is 70% leveraged and I get say $100,000 of income from that investment, 70% of that income is subject to the UBIT tax. The other 30% escapes. The tax goes right back into my IRA account. The tax is a tax that applies to the IRA account, not to you as an individual. So your IRA actually files a tax with the Form 990T with the IRS and the IRA itself pays the tax. As that debt gets paid down inside the investment, the proportion of tax that would be due is less and less. If the real estate deal starts out at 70% leverage debts paid down, the investment grows. The next thing you know it's only 50% leverage, then only 50% of the income is going to be subject to that ubit. So there are deductions, there's accelerated depreciators, other ways as well to limit how much UBIT would even apply. But again, the great thing about the solo 401k about the QRP is you don't have to worry about that. You don't have to worry about how much, what the percent leverage is, what the deductions appreciation are, etc. The 401k, the QRP is exempted from paying UDFI and UBIT tax on leveraged income. So the only thing I would say again on the solo case is make sure if you're setting up a solo 401k or setting up a QRP that you have that kind of valid business that's going to support, or at least that side business is going to support the 401k. It doesn't have to have to be your full time job that you work for yourself. It could be a side business where you do some consulting throughout the year. You make a few bucks that can justify the 401 plan.

Can I ask some questions here?

Oh sure, absolutely.

And it's a very complex topic. I mean a lot of people have questions on that. So my first question, if you go back to the slide. Thank you. You know, when we are talking about that UBIT tax, right, that 70% leverage that you just explained example, is that based on your current income bracket in tax or does it have like capital gain, what kind of tax implication?

Yeah, the one downside is again because the tax applies to your ira, it does not matter at all what your personal tax situation is. The income is assessed at trust tax rates which unfortunately ramp up to 39% or so pretty quickly. So it's not capital gains, it is not ordinary income, it is a trust tax scale. So it is something just to be aware of. Again, that's where again the clients we've had that have had UBIT issues, they're looking for deductions, they're looking for depreciation, obviously to limit how much tax is going to be subject to because it is a steeper tax scale at the trust rate.

And so if we have that accelerated depreciation in terms of bonus depreciation of some cost segregation study, suppose we have that 100k investment and we get about say 50,000 in depreciation, could you apply all that 50,000 on it and then calculate the tax? You know, maybe that's in the example that we consider is 30, 70, minus that 50 could be about 20,000 that we have the applied.

Absolutely. And that's, and that's again, and I didn't include the slide tonight because it can get a little more to go through, to go through the calculations. But yeah, I know for a lot of, for instance, a lot of syndication deals, there's actually no UBIT the first few years because there's enough deductions and depreciation that offset all of the income coming back into the ira. So there's no even need to file the return in that case. But yes, if you have a lot of deductions, cost eggs, accelerated depreciation that limits all those can be used to offset that income. And then, yeah, then therefore you're only, you end up only paying the tax on the, on the amount that's left over. So that is why it's important when you're especially you're getting involved in a deal to understand what deductions are going to be available to you, how they'll be applied. And again, I wish, I almost wish I had my calculation. The example I show even shows you if you're expecting certain amount of return over a few years, the amount of UBIT that's actually going to apply, that the difference in return is not that much. And the key thing I always is to look at is if I have to use my IRA to make this investment, but I'm concerned about UBIT or I'm thinking of using my IRA to do it. The alternative to using your IRA to invest in a real estate syndication and pay a little bit of UBIT tax, maybe your other alternative is, oh, I guess I just have to leave it in the market. And if that's not something you're comfortable with or you don't think you're getting a good return there, paying even a little bit of Yuba tax, you still may be coming out ahead of the game. If you're getting annual returns of, you know, a projected 16, 18% maybe at the end of the deal, even with a little bit Yuba tax, you still may be returning 13 or 14%. That still may put you ahead of the game and be a reason again, even though no one wants to pay the tax, it's still not the end of the world to do it. Ideally you'd be able to set yourself up with a solo 401k though, not worry about it at all.

Yeah, absolutely. And I think the solo 401k most common misunderstanding people think that I need to be, you know, like most of my income should be coming from that business. But that's not true. Right. It could be any active income generating business. Right. So it could be your side business. It could be. Could you give us some examples of what those Businesses could be, yeah.

I mean I could do, let's say in my role. Actually, I'll give you a real life example. So my W2, my day job, my W2 is through Advanta. I work for Advanta full time. I have a 401k through Advanta. But I also as an attorney mentioned that is something to my degree. I do do a little bit of legal work on the side. Not very much, but I might do five to ten grand worth of work for a few people here and there that I could have set up my own solo 401k based on that income. My outside job, if I did some consulting work, it doesn't matter if you can say you do a real estate, you set yourself up a real estate business for your investing where you take a small salary each year that's sufficient to set up. It does not have to be your primary day job to validate that 401k.

And another misconception, I also see from my investors that they think that if I have this business which is not generating enough income to be able to generate the retirement amount in there, to be able to invest, it'll take a lot of time. Right. But it's really important to know that you can roll over your previous employer's money in here in this solo 401k so that you can invest it. Can you talk a little bit to that effect?

Yep. So any old 401k, any old employers plan, any regular IRA as well for that matter. So you have a. Maybe you've already rolled over that 401k to an IRA. Those monies can all be transferred and rolled over into a solo K just like they can a self directed ira. So it doesn't, it's not something you have to then start putting in that 50,000 or $58,000 a year into. You can roll over a large chunk from your old 401k into this plan to get it started and start investing right away again. The IRS probably expects at some point you make a little bit of a contribution personally, but you only you don't have to make it every year, you don't have to maximize it. That could be a very small amount. But yes, the Solo 401K, you can roll over other retirement accounts into the plan to get it started. The only account you cannot roll into a solo K is the Roth ira. And that's just a weird rule that Congress has when they created the 401k. But other than that, any old 401k, any old IRA account that's not Roth, can be moved into that account and then use it for investing right away.

So for example, if you have say 400k in your 401k from your previous employer, you roll it over, you start with a new business and that business could be even contributing to that first year, maybe about a thousand bucks. You still have technically 401k to invest into real estate or anything else that you would like to invest.

Absolutely.

Yeah, absolutely. Do they have to roll over completely? Can they, you know, if there is a 400k, can they roll over just a partial of it into the solo 401k instead of like bringing entire money?

Yeah, that's a great point. I didn't mention that on my sides. But when you, when it comes to self directing. Right. And getting any, whether it's an IRA or a solo K, it is not an all or nothing proposition to either self direct or not. So we have a lot of clients who say have an account with an Edward Jones, with the Charles Schwab and they want to make a real estate investment. Like you said, they have $400,000 in that account. They may just either transfer a rollover, say 200,000 to do their real estate investment and leave the rest of that money where it's at until they find their next deal. So you do not have to move over the full amount. You can choose exactly what portion of that account you wish to move over and you can transfer money between accounts, however and whenever you'd like. Again, as long as the money doesn't touch your hands, there's no limitations on you moving that money back and forth between ira, between retirement accounts.

Yeah, very, very important. Thank you so much for sharing that, Scott. I often say that we think outside the stocks whenever we have that syndicated investments and you know, how much you're investing. And then maybe that's the right time for you to, you know, create this plan, move over if it is 50k, 100k, whatever you want to invest just that chunk of money and start with that and see where you want to go from there. So that's really important. A last question on this topic because I just want to address all different aspect of our viewers today. If there is a, you know, people work on contract often. Right. So it's a 1099 employees, right. Can they create this solo 401k for their company if they have that?

Yeah. If they're, if their employees are all just 1099, generally speaking, yes. Now there are some things that gets very detailed as far as if you're 1099 employees, you know, only work for you, they're dependent upon you for a schedule kind of where they really are almost employees by default. There's way, there's sometimes you can get in a little bit of. You can got to be careful when setting up the plan. But if you do have a business and all you do, you have outside 1099 workers, you can have a solo K without having to offer it to them. Like I said, there's can be a little dicey if you, if you're these people all technically really do work for you and they don't do anything else but work for your company and rely on you for their schedule, you know, rely on you only, I should say, for their schedule. They could, but usually that's, that's how people can set up a solo K is a. They use outside contractors. They don't have anybody who's on W2 or on salary other than themselves. You can do a solo case for yourself and a spouse, for example, even you know, have more than one of you. It could even be for say two business partners. If for instance, Madhvi, if you and I started a business together and we were both say 50% partners, we can do a solo K for the two of us if we don't have any employees other than the owners. So it doesn't always have to be just for you. It could be for you and other business partners or other spouses and certain family members. But when you get those actual employees who are W2, they have to be included.

And what if it's the situation where we do have the employees? Is there a parallel option to that?

So it's nothing. What happens is you go from using our service where we can only provide a solo 401k to where you would have to get a third party, a company called a third party administrator involved, who would then oversee your 401k. You could still self direct your assets. We have a service to do that. But you'd have to involve a third party administrator who's going to review your 401 plan, make sure everybody's being treated properly and do all the annual filings for it so that. So once you have employees who qualify, you have to take that next step and that's where your cost is going to go up. And having that third party administrator do that administration. Okay. So yeah, so just moving forward and I know we're getting closer out of time here, but it's easy process to start filling out the paperwork, opening the account, funding it and then investing and we start talking about investing. It's important to kind of figure out what type of an investor are you? Are you somebody who's more active, he wants to be involved in maybe rentals and rehabs and wholesaling deals where you're more hands on decision maker, but that's going to take more of your time and energy? Or are you somebody who's more passive where a private placement and a syndication makes more sense because it doesn't involve as much of your time, you're not bothered by the minutiae and all the detail, but conversely, you don't have a lot of say over the investment. So I think that's an important thing for all real estate investors to think is kind of who am I when it comes to investing? And you don't have to be one or the other. There are people who do rental properties who also like to invest in syndications. And I just wanted to kind of go through just a few quick case studies to show how the process works. Yep. So the first case study is again, someone using IRA, an old 401k to buy a rental property down the street. The steps involved the client. The investor is going to open the account, do the rollover, he's finding the property, he's deciding what to purchase it for. Our role at Advanta, what we do as a self directed administrator is to make sure that the closing documents all get properly titled. We sign the documents on behalf of the ira, we wire the funds for closing. Once the property has been purchased, we then receive and deposit all of the income from the property. So if he's running this property out, we're receiving the rents from his tenants. Any expenses that come up, the taxes, the maintenance, insurance, we pay those out of his IRA account as well. Just kind of looking at this strategy, let's say he rents the property out in the course of the year, he's netting about 1,200 bucks a month. Over three years, he's returning $42,000 back to his IRA. And when he sells the property and makes 20 grand in profit. So after closing costs, that total of the net rents, the profits on the sale, all comes back into his ira Again. In this case, he paid all cash. There is no UBIT tax to worry about. Even if he's using his IRA account, there's no leverage involved. It is simply all cash back to his IRA account. So our role in the process is making sure things get titled properly upfront with the contract and the closing documents and Also then doing the record keeping going forward. Again, the property is purchased in the name of the IRA account. Again, that's very kind of an example of that. Wording is on this slide. That's what needs to be on the contract, needs to be on the closing documents as well. You can partner up with people as well. It doesn't have to be just your ira. You could have multiple people involved buying as well. And your IRA would receive kind of its portion of any profits investing in syndications. Again, another thing we've seen over the last few years really kind of blow up and have a lot more people doing this within their retirement account. Jane has an IRA with Vanguard. She meets Rocky, he's got a private offering again. Jane is going to review the subscription documents and prospectus to be comfortable with the investment. And because Jane has a side business, she is able to open up an account with us as a solo 401k account. So she moves the money from an IRA over into this solo 401k, transfers the cash, and then we'll tell her when the funds arrive. And similar as we do with the single family rentals, those subscription documents need to show her 401k plan. As the owner, we use our tax ID number, not her social. You could also use the tax ID number for the 401k plan if you get one. But ultimately, again, this is a non taxable event and investment for her because she's using the solo 401k. So even though the syndication is leveraged, all of the income, the quarterly distributions you see there say 1500 bucks a month or a quarter. 1500 bucks a quarter come back to 401k in three years, that's 18,000 in returns over that during that time. And then when the property is refinanced and they pay out the investors, she gets an additional $40,000 of profit. So again, these numbers are kind of just examples. It's going to obviously, as Mavi, you said earlier as well, they're going to vary potentially deal to deal with again. But again, all that return is coming back into her account. It's the same principle involved. If you use your 401k, you use your IRA to buy stock. And the stock, you buy it at 20 bucks a share, it goes up to 30. You sell, you make a profit. You don't expect to pay taxes there. Same thing when it comes to investing in real estate, private loans, et cetera. It's just a different type of asset that you're using within the retirement account. But the principal is still the same as far as the returns. The kind of one other avenue people have used over the years to invest in a number of different assets is called the Checkbook LLC or Checkbook ira. And this involves setting yourself up a brand new and single member LLC that is owned 100% by either your IRA or 401K. And you as the account owner act as the manager of that entity. So you're setting up a brand new limited liability company. 100% of the cash going into that LLC is from your IRA, from your 401K. And then you act as the manager to create the LLC. You have your IRA or 401k, contribute the cash and then going forward that LLC, this checkbook structure can hold any number of alternative investments, the real estate syndications, brokerage accounts. You can do all of that inside of this checkbook structure that you as the manager, when you've had your IRA funds, you've had your 401k funds dump into that LLC bank account, you as the manager can just do all of your investing directly out of that Checkbook llc. It's something we've seen done by a number of people over the years. You certainly don't have to do it, but it can be a good tool for people who are looking at doing several different types of investments. And when you do the Checkbook llc, they call it a Checkbook LLC or Checkbook ira because you as the account owner have the ability to make investments directly out of the LLC's bank account and receive all the income and expenses as well out of that account. So if you're doing this with just your IRA account, the LLC is considered a single member disregarded entity for tax purposes. So it does not even require you to file any additional tax returns. So it really isn't kind of acts as an extension of your retirement account, but it's another just blasting a lot of information out there to help maybe answer some questions, get some people interested and wanting to learn more. Again, you can certainly reach out to me on an individual basis for any questions you have. If you're self directing already and you have a question, if you're looking to get started, if you're looking to raise capital, if you're somebody who's looking to start your own syndication, as I mentioned at the beginning, we can help you raise capital and should give you some tools as well for that. So I like to just be a resource. That's why I do so many speaking events. I want to be out there, I want to help people. I want to answer your questions. This is something that is I've been doing for over 15 years now, so I'm fairly well versed in it. And a lot of people, when they're starting out, they're going to have a lot of questions. And like I think, Mavi, I appreciate the compliment. Earlier you said I kind of hopefully explained things in an easier to understand format because it is, it's not a complicated concept, it's not a complicated topic, but it is different than what most people think of when they think of retirement accounts. And because it's different, it therefore needs to be explained in a very easy to understand fashion. And then I so not surprised. But we have a lot of people over the years who come into this and think they kind of tiptoe their way in the self direction because they think it's difficult. And then once they do their first deal, they're like, that was a lot easier than I thought it would be. That's something we hear quite a bit and that is really what we strive to do at Advanta. So again, I want to thank you for having me on time. I'm happy to hang on and answer any questions that anyone has. But thank you again for having me. I love to, like I said, as you can hear, I kind of went over time. I love talking about what it is that we do and how people utilize our service.

Absolutely. Thank you so much, Scott, for making this complex topic so simple to understand. And folks, if you have any questions, please, I mean you have your Scott's information up there, please reach out to him, schedule one on one sessions. And he is fantastic sharing information, is very knowledgeable, as you can see. A couple of questions that I have and please, meanwhile, if you have any other questions, please feel free to put it into Q and A or even in the chat box. One of the question I have is that, you know, when Scott so if you don't have a business, you have an investment coming up, you get started with an SDIRA, which has that implication, the tax implication on it. But if you have a business a couple of years down the line and this Investment is about 5 year period, can you move from that SDIRA to your solo 401k say two years down the line or three years down the line? And how does that, you know, imply will that be taxed first three years from that, you know, UBIT point of view? Ubit, I mean if it is just a simple cash on cash, say 8% or something like that, that's not a significant, you know income there. Can you take that example and describe how they can utilize this transfer from sdira to solo 401k?

Yep. So it. So a lot of times the initial transfers and rollovers we see are in cash. But just because you make an investment inside of an ira, you can certainly transfer that asset as well, whether it's two, three, five years down the road, transfer that from your IRA account into a solo kick. And I think that's a great strategy that you just mentioned, because once it goes from the IRA account, which is subject to ubit, might have UBIT the first few years, but once you get that investment into the solo 401k going forward, you're not going to have UBIT while it's being held in that particular account. So that is definitely a good strategy to utilize. Again, once you're able to form your own business and have that, that solo 401k plan or that QRP, you definitely want to use that as a basis because you're going to then be able to avoid UBIT going forward once that asset gets moved over.

Thank you, Scott. I think that that's a great strategy because most of this, you know, the returns come from the back end where after that five years, the investment closes and it returns that huge amount of equity. So if you are, you know, if you have any investment in SDRA and you plan to do that, I think before it moves over, it closes, it's a good idea to create that solo 401k. So great point, Scott. Thank you so much. I have another question. We have heard a lot about the eqrp, qrp, whatever it is, when we have the multiple people working for a business. Can you elaborate a little bit on that? And also at the same time, at the end of it, could you just explain a little bit cost to create this SDIRA or the solo 401k? I know we don't do a lot of promotion in here, but I want folks to understand that what it really costs, because in the market, if you go outside, and this is one of the reason why I love bringing you back, because it's not only in depth, but it's also cost effective. So I think it's really important for people here to know what exactly how much that costs.

Yeah. So again, the QRP is a qualified retirement plan plan, and that encompasses the 401ks as well. So QRP is kind of a more generic term that can encompass a lot of different other qualified plans like pensions, et cetera, as well. The eqrp that is out there is more of a marketing term I know that one company uses, but it's still, at its core is a Solo 401K and subject to the same rules that we talked about. So it's really not anything different than the solo K plan. So we kind of getting into, I guess what our fees and what are some of our structures are with that plan. So with our solo 401k, we kind of have two options for someone choosing to use that. We have one option we call a do your own model where we simply lease the plan document. And I think that's similar what you might get through a QRP provider where they just give you a plan document, they get you a tax ID number and then you go open up in a bank account just in the name of your 401k. We offer that model as well. We charge, I think just a $50 one time processing fee and either two or three hundred bucks a year to then lease. Basically you're leasing our 401k plan and we make sure it stays compliant. We get you the tax ID number, we help you get a bank account established, give you all the forms that you may need to manage that QRP as well, or that solo 401k. So for that do your own model, you're looking at, like I said, around 300, 200, 200, 300 bucks a year for the plan. If you decide to say do what we call our full service model, we not only provide the plan for you for that same two or 300 bucks a year, but we also then do all the record keeping. You don't have to set up a separate bank account. We open up an account with us, we will take care of getting funds transferred or rolled over and we do all the management of the assets. And for that full service model, in addition to the two or three hundred bucks a year we charge for the plan itself, we charge a flat $295 a year for each different asset we hold. Or we have another option where we bill you based on the total value of the account. There's some other minor processing fees as well. So you're doing the full service model, you're probably looking at a minimum of around 500 or so bucks a year for one asset account. If you're doing the do your own, you're only looking at 2 or 300 bucks and you're again, you kind of have complete control at that point. With our IRA accounts, we don't have the two or three hundred dollars a year fee for the plan. If you're doing just an SD ira, we charge that annual record keeping fee of again around 295 or so. There's a few startup costs as well that go along, but you're looking at roughly under 300 bucks a year to hold that investment inside that tax advantage account.

Thank you so much, Scott. I mean that's really important guys. I mean if you are looking into, you know, just summarize that. If you are looking into investing in real estate from your retirement account, we discuss many options today. We also discussed that how the even the retirement account could be subject to tax implications, especially with the UBIT a little bit on a higher bracket. So we also talked about using your solo 401k or QRP strategy, creating that type of account so you can, you know, if you have any business or anything of that sort to create that account so you don't have to pay that UBIT tax on the real estate or any kind of investments that you have which have that leverage component of it. And to end with, Scott also mentioned the fee structure with Advanta Ira and you know, trust me, I have, I have inquired a lot of places and this is one of the most cost effective model that I have seen. And not only that, it's an excellent, excellent customer service in my experience. I have my personal account with Advanta IRA as well and anytime I have questions, Scott and his team are available. There's an excellent customer service support and knowledge that they provide. So I highly encourage you guys to get in touch with Scott if you have need again. So again, thank you so much for joining this Thursday evening and thank you so much Scott. It's always a great pleasure to have you. Thanks for all the knowledge bombs.

Oh, no problem. I'm always lovely, happy to come on. I love being like, love doing these events and helping share information. Certainly appreciate your kind words as well. We really do focus on our customer service. I know that I'm part of a management meeting every week and that's always something we talk about is where our customer service is at and how we can make it better. So thank you.

Thank you so much. Everyone talk. Talk to you soon. See you in a couple of weeks. Thank.

You.