Open Forum Q&A

Good morning. Good afternoon, everybody. My name is Nate Hare. This is Daniel Terzi, and this is the Directed IRA webinar and a very special open forum. So these are fun to do for us and hopefully educational for you guys where it gives you an opportunity to just ask any question related to self-directed IRAs that's on your mind. We don't have a specific topic to cover. This is just to address any concerns you have, misconceptions, and just really dive into a little bit of this product we call a self-directed IRA, just to give you guys a better understanding of what it is and how it works and how you can use it to build generational tax-free wealth for you and your family. Before that, we're going to go over some housekeeping issues, but— or housekeeping announcements. But as we go through the open forum, we've got two ways that you can communicate with us. There's one. If you want to ask questions, we've got a Q&A box. We're going to be actively monitoring the Q&A box. Post your questions in the Q&A box. For the chat, we want you to use that as a community forum. Network with each other. If you've got deals that you're looking for, maybe some private money financing on, private money capital, network in the chat box. Save questions for the Q&A box, and we'll try to get to all your pressing questions when it comes to self-directed IRAs. It's a pretty proud moment me. I've worked here 3 years and I finally made it to the top where I get to answer questions on open forum. I've never done this. It's crazy. We do these all the time and I've never actually had the opportunity.

I finally let Nate come on to my Q&A forum that I do with you all.

Yeah.

So I'm sorry in advance, but I have to, I have to train him a little bit. I've been doing all of his training lately. Don't, don't let his gray hairs fool you. I have to train him.

Yes. Daniel paved the way for me to enter the open forum. So I know you guys have seen me on the other programs talking about private lending and all of those things. So I love the opportunity to just answer questions. These are the types of questions we get all the time when we have phone calls, when we're at events. So we'll jump right into that.

And if you guys remember, yeah, we had Lindsey on. Nate is basically going to be a Lindsey. They're both very experienced. So having them on is always actually really great for you guys. I know I think I'm pretty good, but these two are definitely much better than me.

The only difference is I'm much, much younger than Lindsey and she's much, much older than everybody here. So very experienced. I just, I like to razz her. Very experienced. We've got 13 years of experience right here. Daniel's been in the industry with multiple companies. We've both been with multiple companies. So you've got the best of both worlds here. So quick announcements first. If you guys have been following Directed IRA for at least a year, you know that we put on two phenomenal events. One of them is coming up in just a few weeks now. This is our Self-Directed IRA Summit. I believe we're on our 13th annual Self-Directed IRA Summit. So we've been doing this for quite some time. Yep. And this is a one-day crash course, everything about self-directed IRAs. We're going to take you from A to Z. This is an event that was started by our CEO and founder, Matt Sorensen, who wrote the bestselling book, The Self-Directed IRA Handbook. And this is our one opportunity to get people in a room on a platform and just learn everything that we like to teach about self-directed IRAs. We're going to cover account types. We're going to cover investment strategies. We're going to cover fun things like the difference between an HSA and a Roth IRA. How do we make certain investments like into mineral rights or cryptocurrency or real estate or debt funds? This is a great event and it only comes once a year. We normally do this event live. Uh, live is great because we love the live audience, but live requires travel for people, so it just doesn't cast a wide enough net. And we decided that we're going to go to virtual this year and cast the biggest net possible so anybody can attend and participate from the comfort of their living room. We have a special discount for you guys for being on the webinar today. So if you go to SDIRA Summit, that's SDIRA, as in self-directed IRA, SDIRASummit.com. You can find tickets. Tickets are— there is a price to tickets. However, if you use the code SD2026, you get them for free. Yes, you get free access to the virtual event, and this is going to be April 17th. Uh, I— we just had a meeting this morning. We went over the agenda. Trust me, you guys don't want to miss this event. So you can either scan that QR code or go to SDIrasummit.com. And when you punch in the, the code SD2026 at checkout, you will get the ticket for free. So make sure that you guys go jump on, register. It's going to be a great time. April 17th. The next thing I want to mention, and we'll circle back to this, is we are doing a special discount for you guys for being on the webinar today. If you are not a client, or maybe you learned something about another account type that you weren't really familiar with, we've got 6 different tax-exempt accounts that you can use to invest in alternatives. Uh, and quite frankly, most people only have 1, maybe 2 accounts. I see investors really take this concept of tax-free wealth building to the next level and open several accounts, either for themselves, for their kids, for their family members, to cover their health expenses, education expenses. We're going to dive into that. But we do have a special promo for everybody that is on here live, and we'll circle back to this, but we're going to give $200 off every single account you decide to open. And all it requires for you to do is just book a call with one of our IRA account executives. It doesn't obligate you to doing anything, but I want to see people take action. And if you've been kind of sitting on the fence, kind of thinking like, maybe is this right for me? Is this, is this not right for me? You know, how does this work? This is the opportunity to just get off the fence and actually take some action. So you save $200 off every account you set up if you put on the code, put on the application Forum200. Just want to throw that out there before we start because we're going to start talking about account types and things like that, and we'll circle back to this in a minute. So that's it for announcements. Let's get into the questions.

All right everybody, so, uh, just Few more things. Just remember, Michelle's also in the chat. She'll be answering questions. And then you guys will see me looking away from the camera every now and then. It's because I'm also fielding the questions as well, right here from the desk. And I think because Nate touched on the promo code, the discount, we'll just start with the very first question, which is what are the all-in annual costs, the custodian fees, transaction fees, and things like that?

So that's a great question. It's a question we get all the time. You know what, how much does it cost to self-direct? Uh, first let's talk about what people are familiar with. There, if you have an IRA with Fidelity or Charles Schwab, you typically don't see fees, but you really are fee'd. Um, you're fee'd in the broker fees, the transaction fees, the commissions that the advisor gets. Um, so on, on those types of accounts, I, I would say the average retirement account actually pays about 10% in fees. Our accounts work a little different. Because we're not selling investments or providing investment opportunities. Our clients are telling us what they want to invest in. We're just a transactional-based company. We just have a fee for having to do something on behalf of our client or on behalf of their retirement account. So 3 main fees. One, account establishment fee, $50. That's just a one-time fee. When you open an account, you pay $50, wham, you got a self-directed IRA. The next fee that you typically see is just going to be the annual account fee. Now, this is the only recurring fee that you have, and this is just the custodial fee for us to do the tax reporting, manage the account, do all the things that we need to do. Typically, that's $495 a year, and that's per account. Now, one thing I want to point out is I've worked for several other companies and not all companies charge per account. Some companies in our space charge per investment, some charge based on the value of your account. Either way you slice that apple, the more active you are, the more fees you pay. We've never been on that bandwagon. We're more grow your account and we won't fee you to death. So we just charge an annual account fee of $495. That's per account. That will include up to 3 investments before there's any fee change. So you got the $50 account establishment fee, the $495 annual administration fee, and then anytime you need us to deploy funds for an investment, there's just a $50 processing fee to deploy the funds, either buy the investment and then sell the investment. So that's really it. I mean, there's some other small fees here or there, you know, overnight packages, you know, wire fees, things like that. But the things that you're going to see on the account establishment investment is just those 3 fees there. I also want to make this point. If you guys are considering opening an account, there's 2 options on how you can pay those fees. You can either have them deducted from your account. Or you can put the fees on a credit card. So let's just assume you got $400 a year in fees. Do I want to take $400 out of my Roth IRA to pay a fee? Why? All I did was just take $400 of tax-free money that can't grow tax-free anymore. I always think it's best to pay the custodial fees for your self-directed IRA on a credit card. Get some points, get some miles. It doesn't reduce the value of your IRA, but that in a nutshell is how the fees work. We're simply transactional based. When we need to do something, we do it on behalf of you so you can buy alternative investments.

All right, let's go to— sorry, I'm moving away from the microphone. What's the difference between a checkbook IRA and a self-directed IRA?

Okay, I love that. Okay, so let's dive into that. So self-directed, let's just beat down the misconception on what self-directed really means. An IRA is an IRA is an IRA. And when we talk about IRAs, it's an individual retirement account. An individual retirement account is governed by the same set of rules. Doesn't matter if you have an IRA at Fidelity or an IRA at Directed IRA. The IRA itself is the same. Okay. It's a tax-exempt trust that you manage, that you invest so that you can retire. Okay. So IRAs are the same no matter where you go. The only reason we call it self-directed is because you have to tell us what the investment's going to be. You have to, quote, self- direct it. Self-directed is just a marketing term. It's not a legal meaning. It's not a type of IRA at all. It just means that you have to tell us what the investment's going to be. Now, when you talk— when you mentioned Checkbook IRA LLC, which is the last piece of that, this is just a structure that you can set up, which is optional, that may help you self-direct your IRA. So it's not an IRA. It's really just an LLC, right? A limited liability corporation that your IRA owns that you can manage. Now, why would you set up an IRA LLC instead of just use an IRA? Oftentimes we see clients— let's say that you've got an investment that's got a lot of moving parts. Let's say that you want to, with your self-directed Roth IRA, you want to buy an investment property, but the investment property owned in your IRA it's, it's got a heavy rehab, right? We got to pay for contractor labor, we got to pay for materials, uh, we got to send wires here and there, we gotta, we gotta pay contractors or subcontractors. If the investment has a lot of moving parts and we're doing that investment solely in our IRA, the custodian has to cut those feet, cut those checks, send those wires on your behalf. If you want to make it easier, what we've done, and this is through our sister company law firm KKOS Lawyers, what they'll do is they will set up an LLC that's owned by your IRA that you act as manager of. The investments on our books inside your IRA, it shows it owns an LLC. Now, this can be a single-member LLC or a multi-member LLC. Single-member, if my Roth is the only owner of the, of the LLC, that's a single-member LLC. I actually have an LLC that I'm setting up right now that's going to be owned by my Roth and my HSA. That's a multi-member LLC. So the reason why you might want to have this is because that LLC comes with a business checking account. You have access to the business checking account. And when we do that structure first, now it's the LLC that's cutting the checks. Now it's the LLC that's, that's depositing the income or where the income is being deposited from that investment. and you can deploy money quicker oftentimes and easier without having to contact us. So is it required? No. But does— is it helpful for certain investments? Yes. Um, I would say talk to one of our IRA account executives, tell them what you're going to invest in, and have them kind of walk you through whether or not you might need that or not. Oftentimes you don't, but in certain circumstances it does make the process of deploying money and collecting income a little bit easier.

I usually do 3 scenarios. So one is like what Nate mentioned, which is a lot of moving parts for your investments. That's really good. Ease of access. How fast do you need your money? Which goes back to what Nate was talking about. But the third, which ties them all together, is also how many investments are you doing? Are you doing lots of different investments? Are you doing gold? Are you doing cryptocurrency? Are you doing real estate? Are you doing undeveloped land? If you're doing many different avenues of investing, an IRA LLC is definitely going to be right for you as well.

And there's certain investments you might even need it. And this again, I'm going to share some of the circumstances just so you can understand why you might need it and why you might not. I deal with a lot of real estate investors. I've been in real estate for a long time, so most of the clients that I talk to, they're buying real estate. Okay. If somebody is just going to buy a 3-bedroom, 2-bath house as a rental, no real rehab, do I need an LLC if all we're doing is deploying money out of the IRA to buy the property? And then a renter is just going to pay rent back into the IRA. I might not need an LLC if it's just that simple. We talked about the rehab example, right? As soon as you add more components to the investment, more moving parts, more people involved, the LLC might be beneficial. But there's some investments that might require you to have an IRA LLC. Two circumstances I can think right off the top of my head: commercial property. I had a client that was buying an ice rink, of all things, in his self-directed IRA. And because that was considered commercial property, there were some other tenants and things like that, but essentially it was a commercial property. His attorney advised, because of the nature of the investment, we need to have it in an LLC that's owned by the IRA. We don't want to have your IRA own this directly and have that account information on public record. And it's just, it's just safer to have it in the LLC. Another reason I've seen people have to use an IRA LLC: buying property at auction. That's not one we talk about very often.

That's a good point.

But if you're buying property at auction, which oftentimes a lot of real estate investors do, they go down to the auction, they bid on properties. A lot of times, depending on where you're buying, there's a trustee that's managing those sales and they want cash on the spot. How do you have IRA money on the spot without taking a distribution?

Right?

You set up an IRA LLC, have your IRAs own the LLC. You're the manager. You walk down with the business checking account and the checkbook for the LLC. You write a check, you endorse a check over to the trustee. Wham! Now your IRA LLC now owns a property you bought at auction. So other reasons why you might not— I just do lending. I just loan to real estate flippers. So if I'm just going to send money to a title company out of my Roth IRA to help a flipper buy a property and they're just going to pay interest payments to my Roth IRA. Do I need an LLC to do that or can I just have a directed IRA deploy those funds and collect them? So it's not, not a requirement, but it is a good question to ask of the IRA account executive.

And we have someone in here, Plasham, you asked, do I need this for tax liens and deeds?

So first off, yeah, another good one. Yep. Tax liens and deeds, another good one, especially if you're buying them in bulk. And if you, if you're not familiar with them, you buy a bunch of tax deeds, tax liens. In some cases I've seen people buy them where some of them are redeemed and some aren't. So if you're buying something like that, easier to have the IRA LLC and the checkbook handy.

And again, I think we're going to lean into this as well. How do I invest in gold, oil market and minerals? IRA LLC will help you with that. But we also do offer self-directed IRAs that can do that for you as well.

Yeah, yeah. Again, these are— and these are great topics because these are topics on our list of things that we're going to discuss at the Self-Directed IRA Summit. So as a reminder, that's a good lead-in the Self-Directed IRA Summit. We're going to have special sessions on oil and gas and mineral rights. We're going to have a special session on cryptocurrency. We're going to have a special session on oil and gas and precious metals.

Are we gonna— are we gonna maybe talk about livestock as well? Possibly.

Maybe. All right, maybe we'll talk about that. Um, now one of the interesting things. I, I, I want to stick to that question just for a brief second. One of those investments is a little unique compared to the other ones. That's precious metals. Okay, so precious metals is a unique one. When we buy precious metals in an IRA, there's one thing that has to be added on to the investment, which is a storage, uh, facility. When you're buying gold or buying silver from your IR— with your IRA, We have to have somewhere that the metals are stored. Now, based on IRA tax law, you're not allowed to possess the assets that are owned by your retirement plan. As soon as you possess them, it's called a distribution. So when you're buying something that, that's physical gold or physical silver, they could be great investments, but you can't store it at your house. We can't store it at the office. So you use a third-party storage facility. Well, we use first Delaware Depository. Sorry, just slipped my mind. Delaware Depository. They've been in business for decades and decades.

They're not just located in Delaware.

They're not just located in Delaware. Right. So oftentimes when a client tells us they want to buy gold or silver, that company is going to store it for you. And oftentimes, sometimes you're even buying it from from the depository too, because they have the precious metals that you're actually buying and they just change the account number. So that's just one unique thing with precious metals. It has— you have to have a third-party storage facility that's regulated.

And for those of you that are maybe getting uncomfortable sleeping on your gold and wanting to move it into your IRA, you cannot do that. Okay. It has to— it has to remain outside of your IRA, but you can purchase new gold and silver and platinum and palladium, I think.

Yes.

Inside of your IRA for the future, ones that you don't have to sleep on.

Yes. All the other ones you don't need this— the storage facility. Cryptocurrency, there's usually platforms that actually will hold it or you've got like storage or a wallet. Those are done oftentimes. Crypto IRAs are one of our leading products that people like to have. And oil and gas and mineral rights, another great investment. We have a lot of clients buying into mineral rights right now. And that's, that's really a real estate investment when you look at it. Oftentimes, depending on how that investment's structured, if my Roth IRA or my self-directed HSA is going to invest in a mineral right package, I actually might have a piece of a deed on that investment. So we don't need any extra special storage for that. Typically what we're doing as the custodian is when we deploy the money from your IRA to purchase that investment, we're going to retain the rights of ownership, which is usually just held on a deed or a purchase contract. So those types of investments are very easy to process as well. Very popular in the space, right? Yeah.

I also just got some news I haven't told you yet that a certain competitor is not holding mineral rights in their IRAs.

Really?

Yeah. I have a client that we had to work extensively with. I brought in our asset team to help us out. It took about a month to get this, uh, other person to work with us and help us get their asset over to us. So we really put in a lot of legwork to get—

interesting. We have, we have some— if you guys are interested to learn more about that, you can go to our Directed IRA, uh, YouTube page. We have a lot of recorded webinars that dive deeper into those specific asset classes, um, with some knowledgeable experts in the space. So I'm sure if you want to learn more about it, just type in Directed IRA mineral rights and those videos pop up.

Yeah, pretty much if you ask any question into Google, it's going to be, uh, us or the IRS that's going to pop up for your answers. Great, great question. Yeah, so let's look. I'm not a huge fan of this question. I would like to hear your answer of it because I get it every now and then, and maybe it's just because I don't know how to answer it very well, but can a self-directed IRA invest in foreign currency? And I think that goes back to IRA LLC stuff as well.

Yeah, I mean, it can, it can. I mean, the IRS only deems two investments restricted in your IRA. Life insurance contracts, and collectibles. So with foreign currency, it's one of those ones is, is how, how are we, how are we trading on a platform? How are we setting out? How are we building the structure to get your IRA to trade? Right. Sometimes we have to add an entity or have some sort of platform in between. So on those specific investments, yes, you can invest in foreign currency. You could buy property on the moon if you wanted to. But just talk to an IRA specialist. These are the questions that when you, when you call, when you call or book a call with our IRA account executives, tell them what you're looking to do specifically. And they've got— they have these phone calls all the time. They'll give you, without recommending or advising, they'll give you at least what clients are doing to invest in that type of investment or give you a couple of options so that you can decide which structure is going to be best for you. Let me preface this, though. On, on most investments, we are not having to set up special structures to do these sorts of investments. If your IRA just wants to invest into a multifamily syndication, there's absolutely no special structure that we need for that. The IRA just invests into whatever investment sponsor you decide. We sign an operating agreement and we're done. Okay. Your IRA wants to buy just a rental property, right? With not a lot of moving parts. Okay. Don't need a special structure for that. You're— you want to be a private lender like I do. You want to just make private money loans secured by real estate out of your IRA. No special structure necessarily needed for that. So I would say 90% of our investments do not need a special structure. But if you do have an investment that, again, it's a little bit, you know, off the beaten path, yeah, you can do it. But talk to us and let us figure out how we can best structure it for you.

All right. What is a minimum amount in an IRA suggested to make an investment? And do I have to move my whole IRA over or can I just do some of it?

Okay, very good. Very good question. So, One, you do not need to move your IRA at Fidelity, IRA at Charles Schwab. You do not have to close down that entire account in order to self-direct here at Directed IRA. In fact, I would say it probably suits most people best to have at least two IRAs. Have an IRA at Fidelity or Charles Schwab that you can buy your stocks, bonds, mutual funds in, and then have an IRA here at Directed IRA that you can buy your alternative investments in. There's no limit on how many IRAs you're allowed to have. I have a client that has 35 IRAs. Okay. I don't— I'm not suggesting you need 35, but you might need at least 2.

Yeah.

Having 2 IRAs at custodians that let you invest in different things, public assets over at Fidelity, private assets with Directed IRA, that really gives you true diversification. Right. So you don't have to break down your entire IRA. All we have to do is you open an account here at Directed IRA. You decide how much you want moved from your Fidelity or Charles Schwab account over to your Directed IRA account. One key point is you want to make sure that whatever investments you have in the Fidelity account or in the brokerage account, you sell so that there's cash that we can transfer. That could be $5,000, $10,000, $50,000, $500,000. That's for you to decide. What I usually tell people is just move enough over to directed IRA to purchase the alternative investment that you want to buy. You don't need a bunch of money over here sitting with us that's uninvested because it's, it's just making 0%. So just move enough money over to purchase the alternative investment you need us to buy. Now, how much do you need? What's the minimum? I, I've seen some really creative investments with very, very small dollar amounts. It really just goes to what is your investment? What are you trying to do? Right. If you're just trying to buy a rental property, you might need a couple hundred thousand dollars unless you use one of these non-recourse lenders that has a low— I'm sorry, loans for IRAs. In that case, I can buy a property owned by my IRA where my IRA only has to come in with the down payment. Okay, so the down payment, Could be, could be negotiable. It's probably up to the bank on how much you need to put down from the IRA. So typically those banks want to see 30% down from the IRA. If you're doing something more creative, I had a client do a real estate option with a $10,000 option fee paid to a struggling homeowner just to lock up the— just to have the first right to buy the property. So for you real estate professionals, you know what I'm talking about.

You—

sometimes we can make money in real estate without owning the real estate. We can make money by just controlling real estate. So one way that we can control real estate is through real estate options. I know it's a little probably over the head for most people, but long story short, this investor knew how to create this option agreement, sent $10,000 to a struggling homeowner, and that, that investment ended up in 2 years turning into a $297,000 tax-free investment. So I usually say if you're going to buy real estate, you at least need enough to cover the earnest money deposit because that's really where all real estate investments start. If you're going to go out and be active and find the real estate that you're looking to buy, you need enough to at least cover the earnest money deposit. I've seen clients just wholesale the contract right after they get it under contract. I've seen clients take $50 and deploy an earnest money deposit with $50. But if you're not an experienced real estate investor, what are some other avenues? There's multifamily syndications, there's commercial syndications. There's a lot of these investment sponsors that are buying bigger projects. They might have an investment minimum, and sometimes those investment minimums could be $50,000, $25,000, or $100,000. So it's really kind of all over the board. It really just goes back to what are you trying to invest in? We don't have an investment minimum. You can invest $10 if you have an investment that costs $10.

So, and I know people who went into notes and they bought a distressed note and now they have a $75,000 piece of land in their IRA.

Yeah, I did a note investment once with $500. I've talked about that. I had $500 in my Roth IRA just sitting there doing nothing. I had a real estate flipper approach me and he only needed $55,000 for this. Hoarder house that he was buying in Houston. Now, I already had my money deployed in other notes, but I liked the deal. And to me, I was just nerding out going, I think I can structure this as a fractionalized note and make this fun. So long story short, what did I do with my $500 and his $50,000 loan they needed? I went and knocked on the door of 4 of my friends and I said, hey, anybody got any loose change in their IRAs? They want to partner on this deal. I've got a great deal. This, this investor in Houston found this property. It's got a ton of equity in it. He only needs $55,000. That was to buy and rehab it, by the way. $55,000. And it's a great deal. So does anybody want to partner their IRAs with my Roth IRA and we can all make 12% on this note? So we brought in a total of 8 IRAs. One was mine, 7 were from 3 other people, and we listed every IRA on the promissory note as the lender. It's just called a fractionalized note. It was still one loan to the investor. It was just coming from 7 different IRAs. This is powerful stuff because you could, you could see you can partner different accounts together. So it doesn't really matter How much your IRA has, do you have some other people that you know that have more money in their IRAs and bring them all together? So again, you can get as creative as you want. I like those kind of deals, but that was my $500 deal.

So am I able to combine a 401(k) with my IRA to make one IRA?

Not technically. So Now, if you've got a 401(k), now, did he say solo 401(k)?

I think it was just 401(k). Yeah.

Okay. Okay. So that's a little bit different of an answer. So most people who have a 401(k), they have it at their employer or former employer. These plans work a little different than IRAs. First, if you are still working at a company that has a 401(k) and you're an active participant in the 401(k) and you want to move that money out to self-direct, chances are the company won't let you move the money out while you're still an employee of the company. So oftentimes you've got to call the company and ask if you can do what's called an in-service rollover option. Rollover just means we're going to take it out of the 401(k) and dump it into an IRA. Now, if you've ever left a job, right, you know that you have to roll it into an IRA at some point because you have separation of service from that company that set up your 401(k). So when you're leaving that company, that 401(k) typically rolls into an IRA. So what— sorry, what was the question again? Can you combine them?

Can you combine them? Basically, yeah.

I mean, you can't combine them because they're two different things. IRA and 401(k) are two different accounts. Can you roll one into another? Yes. Can you roll an IRA into a 401(k)? Sometimes you can roll traditional IRAs. Into 401(k)s. It's weird. You can't roll Roth IRAs into 401(k)s though, so just keep that in mind. But can you move money back and forth from those accounts? Oftentimes, but you can't combine them as, as just one account as being the same thing.

Perfect. What types of investments within a self-directed IRA eliminate capital gains taxes?

All of them. So that's the beautiful part about buying real estate in an IRA is an IRA doesn't pay tax. The definition— the, the what an IRA is, is a tax-exempt trust. So is a 401(k). Tax-exempt is the key word there. It's a trust that doesn't pay taxes. So if my Roth IRA buys a stock, let's say buys Walmart stock for $100 and it sells it for $200, okay, that $100 gain is not taxed because the IRA doesn't have to pay a tax. There's no tax return. It's not income to me. It's income to my IRA. Replace the word stock and put real estate. I can buy a $100,000 house, my IRA can buy a $100,000 house and sell it for $200 grand, and the $100,000 gain is not taxed because it's the IRA's gain. It's not my gain. So there's no capital gains tax in an IRA. There's no tax on the rental income. This is the beautiful part about buying real estate in an IRA, is to eliminate that tax completely. Um, and then I always love the question— you always get this, I'm sure You got this because you're speaking a lot now. You ever get the guy in the yellow shirt in the room that says, why would you ever buy real estate in an IRA when you don't get depreciation? Yeah, you ever get that guy?

Yeah, that's one of my favorites.

I love that. I love that one. First of all, what is depreciation? Depreciation is, is an offset to tax. So depreciation is great outside of an IRA, right? If I'm an active real estate investor and I've got some passive income or some self-employment income, I'm looking for every opportunity to minimize the taxes I pay as an individual because I'm a taxpayer. If I'm buying real estate in an IRA, some people say, why would you ever do that? You don't get depreciation. Well, what am I depreciating against if there's no tax? It's not that I can't use it, there's no need for it. There's no tax in an IRA, so there's nothing to depreciate against. So, um, but I think that it's great to buy real estate inside and outside of an IRA, but don't get stuck in the box. So I see a lot of CPAs get stuck in the box because they only think real estate as a reason to get depreciation. Now, real estate's a great wealth-building vehicle. Real estate has appreciation and cash flow. If you can acquire assets that have multiple streams of income and own them in an account that doesn't pay tax, that is a life-changing opportunity for you. So don't get caught in the box of, you know, that stuff. But no, there's no capital gains tax in IRA because an IRA is not a taxpayer.

And to go off of that, which is going to lead me into my next question too, depreciation is great. And whenever I get that question, I always ask them, how many deals did you turn down last year? And usually when they're being smartasses, they, they usually say none.

Yeah.

But, you know, it's usually like 1 or 2. Real estate investors are turning down deals every now and then. And I go, okay, if you're so worried about depreciation, great. Do all the deals that you can do with your own money outside of your IRA to get that depreciation. When you run out of money, Don't turn down the deal. Use an IRA. Yeah, you don't always need to use your own money. You can use your IRA's money. Stop turning down deals. Pick them all up.

I would say this: there are circumstances where an IRA can use depreciation if we turn the IRA into a taxpayer. Now, what the heck? What the heck is Nate talking about now? There's certain circumstances where an IRA can incur a tax. Now, if my IRA buys a rental property all cash, there's no tax, right? I pay no capital gains tax on any gains. I pay no taxes on— no taxes on the rental income, or my IRA pays no tax on the rental income. But if I want to leverage some other bucket of money, and we kind of mentioned this real briefly, that there's banks that have loans for IRAs. I was in the mortgage business. I never even knew this existed. But there are banks that have loans. They'll actually give a loan to your IRA to help it buy property so the IRA only has to bring in a down payment. So in this circumstance, let's say my IRA puts $30,000 down on a $100,000 property and my IRA has to borrow $70,000 from a bank, or I just choose to borrow $70,000 from a bank. The $70,000 my IRA borrows is subject to tax. Now, don't let this scare you because this is actually sometimes a good thing because this tax now that the IRA is incurring, not you, the individual, it's the IRA, can be offset with depreciation and expenses. It's only when we bring in the tax that we can start using the normal things that we use to offset the tax. So it's not necessarily a bad thing that my IRA incurs a tax. It just means that now I get to use some depreciation expenses to whittle it down. So it's, it's to me, it's a cost of doing business. If my IRA, if I've got money in my IRA, will I make more money buying one house all cash or will I make more money buying 3 houses with debt? Okay, that's a, that's a calculation that you have to make on each deal. I've seen more people make money on 3 houses with debt than one house all cash. One way to avoid that is if you, if you're self-employed and you use one of our products called a Solo 401(k), there's no tax on debt. So this is some of the fun stuff that we learn here at Directed IRA is how we can strategize or how we can be creative with our investing. How can we buy larger investments with smaller amounts of capital? Right. And how do we minimize or eliminate the tax if we do that? How can we maximize our profit even when we're using money from banks to help our IRAs acquire more property?

And that goes into the next question, which is this person asked two specific accounts, but let's talk about all the accounts we offer.

Yeah.

So that's going to be Roth, traditional. So your personal accounts, we're going to have solo 401(k)s and SEPs, and we're also going to have HSAs and ESAs. Okay. So those are for accounts that you can use on expenses for today.

Okay.

So we offer all of those accounts. We're— I always like to explain it to, to people. We're no different than a Fidelity or Schwab. We're custodian just like they are. We just follow the IRS rules and we say you can invest in whatever they say you can invest in. So we're gonna offer all the same accounts. So I know David asked that one a while ago. I wanted to get to that one.

Yeah. Now I will challenge anybody on watching this to prove to me you only need one account. I have not found anybody on this planet that only needs one of those accounts. 'Cause if you think about the different accounts we have, we've got accounts for individuals, which are your traditional and your Roth. We've got accounts for self-employed individuals, which are your SEP and your solo 401(k). If you're self-employed, you should have an item on both menus because you get to stash more money in through the contributions and essentially escape any tax on your investments. So you should be leveraging the personal plans, the IRAs, and you should be leveraging the employer plans, the solo 401(k) specifically is one that I love. But then we've got the other two accounts that Daniel mentioned that are not retirement accounts, but they're accounts that grow tax-free that you can use the income to pay for health expenses for you and your family and education expenses with tax-free dollars. And that's the self-directed health savings account. A lot of you might have an HSA. If you have an HSA right now, a lot of times employers will set it up for you. That is not just a savings account. A lot of people just think it's an account you put money in, you get a tax deduction. Yeah, that's one of the 3 tax benefits you get. But you can also invest. HSAs, HSAs can buy stock, HSAs can buy real estate and other alternative investments. HSAs can buy cryptocurrency, HSAs can buy precious metals. But the difference between an HSA buying that investment versus my Roth is my Roth becomes tax-free and penalty-free once I hit 59 and a half. My self-directed HSA is tax-free whenever I want to take the money out to cover a medical expense. Things like prescriptions, acupuncture, holistic medicine, copays, dental work, vision, your eyeglasses, braces for the kids.

I had a colleague buy a juicer.

Yeah, I've had clients buy pools because they're with tax-free income from their HSA because their doctor said for their bad back they needed a pool. So, I mean, it's wild how many things that you can actually pay, expenses you can pay for that you're paying for, I bet, right now with the money in your back pocket. That's your taxable money. If you think about it, in theory, it pays— it makes less sense to pay those expenses with the money in my back pocket because I got to make money as a taxpayer first. So if I've got $20,000 of medical expenses for me, my spouse, and any of my dependents— so this is not just about who's on your insurance, it's about who's in your household. So if I've got $20,000 of, let's say, those related medical expenses and I'm paying it all, you know, these are the things insurance doesn't cover. If I'm paying it out of my back pocket as a taxpayer, that means I have to go make $32,000, $35,000 of income, pay my taxes, and then be left with $20,000 after I pay taxes to pay those expenses. If I switch my mindset as an investor and I just use my self-directed HSA to make investment, I can make $32,000, say $35,000 in my HSA, and none of it's taxed. So I get to use $35,000, all of it, to pay for those expenses. I essentially consume more goods with the same amount of money because Uncle Sam is out of the equation. And the same thing goes with our self-directed Coverdell Education Savings Account, which Daniel mentioned, which is for kids and their education expenses. So this is the one account that you can have that can buy alternative investments, that you can take the income out of the ESA to pay for that child's education expenses from pre-K through college. So if you're paying for things like tuition, books, computers, iPads, tutoring, your home internet bill is a qualified education expense in the tax law. Again, these are expenses most parents are paying with their back pocket it, HIPAA national money, and having to make more money just to pay more taxes, just to pay more expenses. Again, switch your mindset and start using these tax-exempt accounts to invest and use the investment income, tax-free investment income, to pay for the same expenses so that you don't have to pay it with your money. I have a, I have a client in Arkansas that has a $400,000 ESA for his child just by buying and flipping small parcels of land. But that's a $400,000 tax-free bucket that he can use to pay for any of his son's education expenses for the of his life.

All right, perfect. So I have one, uh, if you move funds from a traditional IRA to a self-directed Roth, will that cause a tax event? And then this one, I, I've been getting a lot of people asking for investment advice. We're not here to give investment advice, guys, just to be clear. Um, can I buy a truck to write off on my taxes?

Okay, so let's first address the— I think it was Roth conversion question.

Okay.

So what he mentioned was it's considered a Roth conversion. So Roth conversions are always a hot topic in our, in our space and other, even Fidelity, Charles Schwab. But it's when you have a traditional pre-tax account, okay, an IRA or an old 401(k) that you haven't paid taxes on that money yet. It grows tax deferred, meaning you're going to pay taxes when you start taking distributions. However, some people like the Roth IRA because the Roth IRA is an after-tax tax account. It grows and you don't have to pay taxes on the distributions. So in theory, if you're going to take a small amount of retirement dollars and make it larger, do you want to pay taxes when it's small, or would you rather wait and pay taxes when it's big? Most of us don't get this education, but it probably makes more sense to pay taxes when it's small, regardless of what tax bracket you're in when you retire. So there's this opportunity that anybody has nowadays to pay taxes on some or all of their pre-tax IRA or old 401(k) and convert it to a Roth. Now, if you want to take it from after-tax— sorry, pre-tax— if you want to take it from a pre-tax account and move it to an after-tax account, you just have to pay the tax. You don't have to pay a penalty. It's not a distribution to you, but you're saying to the IRS, I'm going to pay taxes now versus pay it later. And this is called a Roth conversion. So how Roth conversions work is let's say you've got $100,000 in your old rollover IRA and you want to convert the whole thing to a Roth IRA.

Okay.

All you have to do is fill out a Roth conversion form. Okay. Most of the time you're just going to see that $100,000 be in your traditional IRA one day and then the next day, once we convert it, now there's $100,000 in your Roth. But where do the taxes go? We don't take the taxes out of the conversion. That $100,000 is just reported on a 1099 to you. So it's treated as normal income to you. Now, I know some of you might be a little squeamish right now. Well, I don't want to pay taxes on $100,000 more. If you're going to grow it to $1 million, trust me, you're getting a better deal paying taxes on $100 grand. But here's the key. You don't get the 1099 the day you do the conversion. You get a 1099 after we conclude the year. So let's say you're deciding, do you want to consider doing a conversion today? If you did a conversion of $100,000 today, you don't pay taxes on a conversion done in 2026 until April 2027 when taxes are due. So one, you've got a lot of time to prepare for those taxes because typically it's best to pay the taxes out of your back pocket. It just comes to you on a 1099, you add it to your adjusted gross income, you pay normal income tax on it. So there's some strategy there. Obviously, low-income years are better years to do conversions. Most advisors would tell you if you're self-employed and you're running a loss— I was just having a couple of conversations this weekend at a dental event that we were at, and a couple of the new investors were actually just starting their practice and they were showing losses on paper. So their advisor was a good advisor. So if you're showing a $50,000 loss on paper and you do a conversion of $50,000, What's negative $50,000 plus $50,000? You're still at zero. So there's some better years, obviously, to do conversions because sometimes you can convert at a discount or convert for free. But I think the biggest thing that should make you decide whether or not you're going to do a conversion is what's the investment going to be? Does it make sense to pay the taxes before you do the investment? The investment should be the key indicator as to whether or not you want it owned in a Roth or owned in a traditional. I had a client in Austin, Texas convert a $300,000 traditional IRA, and in one year— and his CPA told him he was insane. He goes, you're in your largest income year, why are you doing this conversion this year? It makes no sense. You're gonna have to pay taxes on an extra $300 grand this year, and this is your best year ever. He said, that's not why I'm doing it. I'm doing it because I found a property with a motivated seller that I can make way more than what the taxes I have to pay out to do the conversion. So long story short, he had to pay about 37% in taxes on $300 grand, but he converted everything to a Roth IRA. His Roth IRA bought a property in Austin, Texas that was a rehab, fixed it up, flipped it. The property made 72% gain, cash-on-cash return, 72% in 6 months. Who is the smarter person in that decision?

Exactly.

The investor that knew that what he can make on the investment, or a CPA trying to talk him out of doing that conversion. He essentially has a $1.5 million Roth IRA now, and he started with $300,000. But that $1.5 million is tax-free, and he only had to pay tax on that $300,000 back in 2014.

All right, perfect. So what if my IRA buys a property and I want to keep that property personally later down the road? Is that doable?

Sort of. Let me— so any investment in your IRA, when it's owned in your IRA, it can, can never be used for personal use while it's owned in the IRA. So that's one of the restrictions. The IRS doesn't want us to use the investments inside of our retirement accounts for personal use. So you can't buy the property that you live in and have it owned by your IRA. You can only buy investment property. You can't buy a second home owned by your IRA and live in You can't buy a vacation rental and then go vacation in it. You can rent it. You can have other people stay in there and have it as an investment where they pay the IRA to stay there or be tenants there. But you as the account owner are not allowed to use the property for personal use. If you do, and I've had clients do this where you decide, you know, I've got these, I, properties owned in my IRA, and I really like this one. I like this condo. This is a real story, by the way. Client had a real estate portfolio in his Roth IRA. He was retired. It owned a pretty nice condo in Florida on the beach. He decided he wanted to retire in Florida on the beach, but he really liked this property owned in his IRA. So he can't stay in the property or, or be be a resident in the property while it's owned in the IRA. He's restricted from selling the property from his IRA to him. He can't buy— you can't buy assets from your retirement account. So what did he do? He just took a distribution. He just took it out of the IRA. It's no different than taking cash. The only difference is we just have to get an appraisal on what the, what the distribution amount is. But essentially what he did is he just titled the property out of the name of his IRA and titled it to him. So this is just a distribution. We're not distributing cash, we're distributing an asset. So here's the cool thing about that story. Because he owned it in a Roth IRA, he paid no taxes on that distribution. So he made a ton of money on this condo in Florida and decided, I want to use it. How do I do it legally? Just take it out as a distribution. But while it's in the IRA, you can't use it for personal use.

Perfect. And then for the conversions, when do these have to be done by? Before April 15th or by the end of the tax year?

By the—

or by the— yeah, or excuse me, April 15th or December?

Great question. This confuses a lot of people because they think of conversion and associate it with tax filing deadline. If you want to, it depends on when you want to pay the taxes, what year you want to pay the taxes in. So if I want to pay, if I want to do a conversion and I want the converted amount added to my 2026 income, I have to do the conversion before 2026 ends because it has to be reported as income in this year. So if I'm looking to do the conversion for 2026, my deadline is December 31st, 2026. We have a lot of clients— not a lot of clients, but every, every, every year it happens the same way where you get clients that are doing their taxes. And let's say, let's fast forward in time, say it's 2026. Or sorry, 2027, and they go, I'm doing my taxes now, I need to make some contributions. I also want to do a conversion for last year. You missed the deadline. Yeah, you can't do a conversion in 2027 to pay taxes for 2026. So the conversion deadline is actually the end of the year, December 31st of every year.

All right. Well, I don't see any more questions in the chat. I think we knocked them all out.

Okay.

So if you guys have any more, you can, you can ask away. We've got, we've got a little bit of time if you want. But again, These are— you keep us here as long as you want us. So if there are no questions, you know, we can end it short. But we definitely want to make sure you guys know about the Self-Directed IRA Summit we have coming up.

Let's pull that back up. Okay. So just as a reminder, guys, if you want a full-day crash course on everything self-directed IRAs, you can get free tickets. Okay. Just go to SDIRASummit.com or scan that QR code and type in the code SD2026. That'll get you a free ticket. Free ticket. You're saving a couple hundred bucks, but I guarantee you the education is going to be more— it's going to more than pay for itself. So get your free tickets, SD2026, and go to SDIRESUMMIT.com. And if you guys are interested in setting up a call or booking a call with our IRA account executives and you decide you want to open an account and start investing into real estate or other alternative investments, use the promo code FORUM200. And remember that $495 fee I said every year? You save $200 right off the top. So it's only $295 for the first year. Just make sure you use Forum 200 and you can scan that QR code to book a call with one of our IRA account executives or go to directedira.com and just right at the top, click schedule a call.

And we got one more question. We'll probably end with this, which is what is the conversion process? How do we do an IRA conversion?

Very easy. Just fill out a Roth conversion form. That's really all it takes. You set up an account. Let's say if you've got it at Fidelity or Charles Schwab, you got a traditional IRA there. They've probably got a Roth conversion form for you. Oftentimes we're seeing clients move a traditional IRA to us and then they do the conversion. That's fine too. So all you got to do is, is just fill out a Roth conversion form and open a Roth IRA. And we'll do the conversion. It usually takes about 24 hours to process that.

All right. I think that's it.

Okay.

Yeah.

Awesome. Well, thanks, guys. We'll see you on the next Directed IRA webinar. You can get on directedira.com and look for our next webinars we've got scheduled and get those registered early. So thanks, guys. Have a good rest of your week.

Bye, everybody.