How To Access Money Inside Your IRA Or 401k Penalty And Tax-Free

Land Geek Nation. Hey, it's Mark Podolski, the Land Geek. Your favorite niche real estate website, thelandgeek.com and on this week's podcast, it's gonna be a lot of fun. We've got somebody who's an entrepreneur, a podcaster, bestselling author and speaker. But before we talk to our guest, I'd be remiss if I didn't properly introduce my co host. The brain, the professor, the flight school Sherpa. You know him, you love him. Stop. Todd from Scott Todd.net landmodo.com Learn anything about anything. Investor ninjas.com Scott Todd, how are you? My brother Mark?

I'm great. You scared me with the whole Land Geek Nation thing, so I wasn't even sure I was on the right podcast. But look, I am.

You know what? I'm mixing it up. Mixing it up. Kaizen baby, let's do it. Continues improvement. Our guest today is Daniel Blue. He is a regular contributor to Forbes.com and is the owner of Quest Education, a company that helps entrepreneurs obtain capital for their companies. We all need capital, pay off high interest debt. No one likes that. And make tax free. Make money tax free. Using a self directed retirement account. Under Daniel's leadership, Quest Education has reached the seven figure mark two years in a row and his customers in all 50 states. And I was actually on his podcast how winners Win. First time I've actually done a live podcast in someone's office. Daniel Blue, how are you?

I am doing great. I appreciate you and Scott having me on the show. Looking forward to this.

So Daniel, let's just rewind the tape a bit. How did you get started? How did you become this big deal that you are?

Well, we all have a story, right? We all have adversity usually that shaped us. You look at like famous athletes and you know, CEOs and you know, entrepreneurs, you know, movie stars, like, you name it, like there's some kind of adversity that we all face. I know Scott faced it, Mark. I know you faced it. For me, it was when I was 18 years old. That's really when my, I started writing my own, my own book, so to speak. Three major things happened in my life when I was 18. One, I actually was having a daughter. I had a. I got a woman pregnant at that time. I was scared out of my mind. I was 18 years old, about to have a baby girl. And then two, I got addicted to OxyContin. And then three, dropped out of college. So a bunch of changes happened around 18 years old. And you know, I failed a bunch. Obviously, having a kid at 18, 19 years old, you know, I wasn't ready for it, I wasn't prepared for it. So, you know, I made a lot of mistakes there. And then, you know, getting addicted to drugs, you know, getting injured to pills and oxycontin, you know, I hurt a lot of people. I hurt myself. And I learned a lot as well. I've been clean for over 10 years now. So that was something that I was able to get past and overcome. And then, you know, I think people listening to this right now that are successful entrepreneurs or want to become an entrepreneur, you don't need to be a straight A student, you don't need all of the college degrees to, you know, make money in business. So, you know, I learned a lot at 18, 19, 20 years old. I actually got involved in sales at 18 years old. I was selling real estate, coaching for a number of years. A couple of, you know, people in the flip this house kind of space that, you know, had coaching programs. So I was in the sales space for a number of years. And that's how I got introduced to self directed retirement accounts. The idea of accessing 401k and IRA money, penalty and tax free, and then using that money to invest into real estate, maybe invest into some land deals with you or use that money to fund their online business or real estate business or even pay off high interest rate credit card debt. So our company has a mission to educate people on what financial advisors and CPAs don't talk to people about when it comes to accessing money in a retirement account, penalty and tax free.

Wow. Well, your teen years were dramatic, but.

Yeah, man, I made it harder on myself. Right. That's what we do as entrepreneurs.

Yeah. Yeah. But it's inspiring to know that we can make mistakes when we're young and come out of it. Scott Todd, what are your thoughts?

I mean, that's the thing is you're going to make a mistake. Make it when you're young. Right. You don't necessarily make it when you're older, but that's quite the story.

Yeah. So Daniel, you started seeing in the real estate sales space people's need for capital. So why is self directed 401k or IRA? What's the benefit of that?

Well, to answer that question, I'd like to talk about a lady that I'll remember the rest of my life. She's a real estate agent out in the Bay Area and she needed about $100,000 out of her IRA to invest into some kind of syndication, some kind of multifamily real estate deal. And she approached her financial advisor and said, hey, I've got over $100,000 in my IRA. I want to use this money to invest into this real estate asset. Can you help me? And he's just like, no, you can only invest into REITs or mutual funds or real estate stock with this IRA, so what you're trying to do, I can't help you with. And she's like, really? And he's like, no, I can't do anything for you. So she said, well, what are my options? And he's like, well, I really don't have a whole lot for you. I mean, you can always just withdraw money out of the account, but you're going to pay penalties and taxes. So he starts discouraging her from doing that. She really wants to do this deal. So she pulls out money from her IRA to invest into this real estate investment. And when she does that, she pays a 10% early withdrawal penalty. Plus she's in California, so she has to claim that money as income. We know how expensive that's going to be, right? There's probably another 30% in taxes. So altogether she's paying 30, 40% and penalties and taxes to the IRS when she withdraws $100,000. So when she takes out $100,000, she's really only left with like 60,000 DOL. So for her to get to the 100,000 that she needed to make this deal work, she had to pull out way more than 100,000 to account for the penalties and taxes, right? So she goes through it, pulls the money out, has that money go towards the deal. And then a while after that, I end up talking to her and she tells me this story and I'm like, did you know that you could have taken the money in your IRA, converted it into either a self directed IRA or a self directed Solo 401, and then from there, because the money goes from the IRA to a self directed retirement account. There's no taxable event, so there's no penalties and taxes. You can now have that 100,000 sit in your self directed retirement account and invest directly into that real estate asset and zero penalties and taxes happen. And now your self directed retirement account owns this real estate asset and then that money can grow tax deferred or tax free, depending on if it's Roth or not. And when I explain all this to her, she's just like blown away. She's like, why didn't my financial advisor Tell me this, how is this possible? Why didn't he explain this to me? And guys, it's pretty simple. Wall street makes money when you use the money in your IRA and 401 to buy stocks, to buy mutual funds, they don't make money if your retirement account owns land. If you use your retirement account to fund your business, they don't make money off of that. So why would they be so forthcoming and help people accomplish that?

Yeah, absolutely. The financial system is not really built for the guy on Main street at all. It's really built for the institutions. And it's a sad state of affairs. But luckily there's companies like yours that are helping, you know, see these more creative solutions. Scott. Todd, what's your thoughts?

Well, I mean, it's great to know that that's out there, but look, I mean, not, not. And maybe your company's different, right? I'm not trying to, I haven't interacted with your company at all. But there are a lot of self directed IRA companies out there that, that kind of offer the promise of, yeah, you're going to be able to self direct your own funds. And then when it comes to actually executing on it, it's an absolute nightmare. I mean, I've had that happen with companies that I've worked with where it's been a nightmare to execute. As an example, hey, I need to go do this transaction. Next thing you know, you're in like form bureaucracy nightmare. Right? Because they want all these forms done. It's not like I can just take out the checkbook and write the check to myself and let it roll. Essentially you start to go through this custodian to go do this stuff and they're still overseeing this and micromanaging it. And then when you ask them about it, they go, well, we are the custodian, we're responsible for it. Well, okay, so is that just a bad experience I had or is it really just a pipe dream that, yeah, you get the freedom to manage the money the way you want to?

Yeah, no, that's a great point, Scott. I'm glad that you bring that up. And to be direct, it's not a pipe dream. So like two things that come to my mind when you say that one, and you're savvy enough, you probably already know this and maybe some of your audience already knows that you can set up a checkbook, control a checkbook IRA or a checkbook 401k where essentially you bypass the custodian and now you have the money in your business bank account and you literally write a checkout and you bypass the custodian and you don't have to deal with all that paperwork. However, there's a little bit more record keeping on your side and you do answer to the IRS like, there's prohibited transactions. You can't use your retirement account to own a property and then live in it, for example. But to your point, as far as custodians, you know, lacking, you know, that customer service, customer experience, that's why we exist. So quest education, we're not the custodian. We are the buffer between the custodian and the client. And that's a big reason why we exist. Because everything you just explained, we've seen that in the marketplace over the years where these big massive custodians, they just treat everyone like a number. They'll set up the account and then they say, hey, Scott, here you go, here's all the paperwork. Best of luck, have a great day. And if you have a question, email us and we'll get back to you later this week. Right. And that's not what people want. You know, we're in 2021. We want to be able to get real time action, real time customer service, customer experience. We want to make things faster and easier. Right. So, you know that that's where we exist in kind of providing that higher level customer experience and taking people by the hand and making it nice and seamless to, you know, offload a lot of that paperwork burden. Because most of our clients are running an online business, a real est. They have a day job with a side hustle. They're busy. They're not trying to get knee deep with all the paperwork and the nuances. So that is a big problem in our space with the self directed custodians just being essentially lazy and not helping out a lot on the customer journey.

Yeah, really interesting. So that's phenomenal. You've got checkbook writing capabilities. You can completely sidestep the custodian and be your own banker, if you will. But Daniel, let's get to the nitty gritty. You got a high earning guy like Scott Todd, how much money can he put into his solo 401k or self directed IRA each year? Is there a limit?

Yeah. So there's no limit. If someone has a 401 from an old job or an IRA and converting that into a self directed IRA or solo 401, whether they've got 100,000 or a million, there's no limit. They can just simply convert that. There is a ceiling. There is a limit for the contribution limits and that's why I'm a big proponent over a solo 401k, over a self directed IRA. A self directed IRA you can only put in, depending on your age, 6 to $7,000 per year of new money. Whereas a solo 401k, you can contribute anywhere from 58,000 to $64,000 per year. And we've got several clients that will add a spouse to the plan, to the business. And now the spouse can put in an additional $58,000, depending on the income from the business, into the Solo 401K. So there's an opportunity for the husband and wife to put in over $100,000 into the solo 401k. And that could be either pre tax contributions or it can be one of my favorite Roth contributions where you're paying taxes on the seed but not the harvest. So the money grows tax free.

You can put $58,000 into a Roth.

Yep. And there's no income restriction. So you know, so some of the borrowers listening to this podcast, you might make more than the IRS allows where you don't qualify for a Roth ira. The IRS won't let you put money into a Roth IRA because you make more than the 130,000 ish that you can make per year. With the Roth Solo 401K, you could be clearing quarter million, half a million, doesn't matter. There's no restriction on your income, so you can still take advantage of a Roth Solo 401. However, the Solo 401K, it's not for everyone, just like it sounds, it's for solopreneurs. So, you know, if you've got some kind of side hustle, some kind of business activity going on and that project, that business doesn't involve W2 employees beyond you or your spouse, then you qualify. So maybe you're a real estate agent and you get 1099 income and you've got some kind of LLC or sole proprietorship, or maybe you do consulting, freelancing work, some kind of real estate business, e commerce business. There's a good chance that you qualify for the Solo 401K.

Scott Todd, I know you got questions.

I didn't know, I didn't know that. That's very interesting fact right there. Look at that. Tax free.

Tax free. So let's say that we've got a qualified retirement plan set up already. Can we set up in addition to a Solo 401 to do a Roth or do we have to convert? How would that work.

Yeah. So you can. But where it gets tricky is like for example, you can't have a 401k with your day job. Max out those contributions and then max out the contributions into your solo 401k. Or maybe you've got a SEP IRA with your business. You max out those contributions. You can't max out those contributions, the contributions with the Solo 401K. So the contribution limit covers all retirement plans. So the IRS kind of thought about that ahead of time. They're like, yeah, you can't set up a 401k with your job. A SEP IRA over here in this LLC and then a solo 401k in this S Corp. And you don't contribute in all three buckets. So it does cover all of the accounts as far as the limits of contributing the money.

I see. And then you'd mentioned what are the prohibitive things that you can't do? You can't buy your own home and live in it. What are some other things we can't do in a solo 401k or self directed IRA?

Yeah. So let's talk about one fundamental difference is the self directed IRA does not have a loan feature. Right. The Solo 401K does. That's a big difference maker between both of those accounts. And that's why most of the people that we help are entrepreneurs and we help them with the Solo 401K. So if you have a Solo 401K, there's two ways that you can use that money to make a transaction happen. One, you can have your Solo 401K own the asset. Let's just say the Solo 401K owns the rental property. For example, that rental property, you can't live in it, you can't rent it out to a lineal descendant. You can't do the work yourself. As far as like a rehab cost, you have to have an arm's length distance kind of scenario. You have to hire a contractor and things like that. So those are some prohibited transactions right there. And then number two, the second way to have a transaction take place with a solo 401k is just using the loan feature. In the loan feature states, per the IRS, you can borrow 50% of the account value or 50,000, whichever number is less, and you can use that money however you want. There's no prohibited transactions you have to play by because you're withdrawing the money out of the retirement account. So your retirement account doesn't own that asset anymore. Right. You're taking the cash out and what you do with that cash is totally up to you. You can use it to pay off high interest rate credit card debt. Maybe you owe 20% to Discover. Maybe you want to use some of that money to rehab a property that you're going to rent out to your son. Maybe you want to use it to go to a seminar or a mastermind or a coaching program. You can use it however you want. The caveat is, when you take the money out From a Solo 401k as a loan, you do have to pay it back within five years. It's a five year loan at 5.25% interest. It's prime plus one to two points. That's how I'm getting to the 5.25%. But the 5.25%, it's fixed and the interest goes back to your retirement account. So when you take the money out, you're going to pay yourself back the principal and the interest over five years. And as long as you do that, there's zero penalties in taxes on that money that you take out.

Scott Todd this sounds familiar.

I sound familiar, doesn't it, Mark?

It does, it does. So, Daniel, there's a program out there called EQRP, a qualified retirement plan. Solo 401. Sounds identical.

Yeah, it is. A qualified retirement plan is simply just like it sounds, a qualified retirement plan. It's either an IRA or 401k. So a lot of people try to. You know, there's different marketing terms out there and branding terms and I get that. But fundamentally, at its core, it's either an IRA or 401k. Those are the two vehicles. Right. It's either a Tesla or a Mercedes Benz. You can call it whatever you want to call it, but it's one or the other.

It's got that up to 100 something thousand dollars or $54,000 if it's just individually or 58,000 into our Roth. Not just our, not the tax deferred piece, the sep. The Roth.

Yeah. So, for example, the amount of money that you put into a Roth Solo 401k is going to be dependent on the amount of income that is tied to the business. So if you have an LLC, that LLC that has no W2 employees, for example, can have its own retirement plan, which would be, in this case a solo 401k. Depending on how much income that LLC earns is going to be directly correlated to the amount of money that you put into a solo 401k. And if your business made enough money, let's just Say you put in $58,000 into the Roth Solo 401K. That's it, that you max out those contributions. You can't then take another 58,000 and put it in a pre tax part of the solo 401k. So the 58k is total contributions for pre tax or Roth.

Got it. Scott. Todd, I didn't know this. Did you know this?

I knew parts of it, but not the whole, not the whole thing. It's like you got just a little bit.

I haven't been funding my Roth and now I'm really mad. But thank God for Daniel Blue. That's a lot of tax free income I've been missing out on.

Thanks. It's not too late, Mark.

It's not too late, which I absolutely love. So the book, tell us a little bit about the Amazon bestselling book. I love the title.

Yeah, so it's called blueprint to your best retirement. You know, We've got about 1,000 customers in all 50 states and everything we do is over the phone, right? I mean I think we might have 30 customers here in Las Vegas. You know, I've got just over 10 employees, full time employees that live here in Las Vegas. And everything we do for the most part is over the phone. So we're educating over the phone, we're teaching people over the phone, zoom calls, phone calls, things of that nature. And it's a lot to take in. Right. Most people aren't aware of solo 401ks and self directed retirement accounts. So I wanted a way to be able to reach the masses and help people understand how some of this stuff worked without overwhelming them. Right. It's like when someone asks me what I do for a living and I tell them I own a company that helps people access retirement accounts, penalty and tax free. They're like, wait, why? Like how is that possible? So I wanted a book that can simplify it. You know, you guys are really smart guys. You've been around a lot of financial lingo and terms. I mean, how many times have we been at a workshop, been in an event and we hear speakers, speaker talk about finances and insurance and all this cool stuff. But it's like it goes over our head a lot of the times, right? So I wanted a book that someone can read, that someone is between 40 and 60 years old, maybe comes from corporate, knows a little bit about finances, but not a ton. And they can just read this book. And it's super simple, easy to follow, relatable stories, and it's really short and when they get done reading it, there's action, actionable items that they can move forward with it. So I made it to a point where I simplified it. I intentionally did not use fancy words so people can get value from it and then get done reading it and do something about it.

Well, that's fantastic. I'm not going to use that as my tip of the week, but that is a really good way to get started with learning more about you, your story and these investment vehicles. But now, Daniel, your mentorship has been phenomenal. But we're at that point in the podcast where we're going to put you on the spot and ask you for your tip of the week. A website, a resource, another book, something else actionable for the art of passive income listeners to go improve their businesses, improve their lives. What do you got?

Yeah. So a good place to get some more information would be danielblue Me. Head over to my website, danielblue Me. The book will teach you how to access your retirement account. If you've got a 401 from an old job or an IRA, there's a really good chance that we could help you access or you could do it on your own because obviously I'm not the only business that does this. There's a ton of other companies out there, but the idea of being able to access your money penalty and tax free, your IRA, your 401k, if that's something that interests you and you're like, shoot, if I could access my money, my retirement penalty and tax free, I'd love to use that money to start my business so I can quit my 9 to 5 job or pay off this high interest rate credit card debt or do this real estate deal with Mark. If. So those are some of the thoughts that came in your head. You know, you can head over to danielblue me, there's a form to fill out and you can speak with me and someone on my team. We can give you some love. Of course we had Mark on our podcast. So if you want some really good tips, Mark gave a ton of value on our podcast called How Winners Win. So if you head over to Spotify or itunes, I want to say he was like, episode 32. So if you just scroll down our episodes, you'll see Mark there. That podcast was great. I really, I got a ton of value out of that Mark, in terms of, you know, you talking about meditating and just the way you balance out your work week. So that was a lot of fun. And I know you listeners. When you get done Listening to that podcast, you'll probably want to listen to it again because Mark dropped some bombs.

Thanks, Daniel. All right, so, Danielblue me. Before we get to Scott's tip of the week, we have to give us a little shout out to our sponsor this week, which is flight school. Learn how the next 16 weeks can literally start transforming your life. Start building that passive income without renters, rehabs, renovations, or rodents. Let Scott Todd take you up that mountain of land, investing quickly, safely, efficiently. Oh, yeah, that flight school tuition ain't going to cost you nothing, guaranteed. Just follow the recipe. Show us your work. You're going to make back that tuition investment. 180 days or less, guaranteed. Schedule a call, learn more. Go tolandgeek.com training thelandgeek.com training Scott Todd, what's your tip of the week mark?

Sometimes writing stuff is just kind of a pain, right? It's find the right words, find yourself. What if you had AI that could do it for you? Right? That'd be kind of cool. Check out my tip of the week. WordHero co. WordHero co. It's AI writing software. One click. Try it out, see if you like it.

All right, I'm check it out right now. Word hero.

Me too.

That's all right. Let's see what the pricing is first. Oh, okay. 29 bucks a month, unlimited copy. It's not bad.

Not bad. Ben.

Revolutionary artificial intelligence writing tool powered by OpenAI GPT3. A first of its kind autoregressive language model with 175 billion parameters. Blog, Content marketing. Content sales, Copywriting. I've seen this stuff for so long, Scott. I'm always. I'm always skeptical of a computer writing my copy.

I mean, listen, when you're struggling to come up with the words, anything might help you.

Okay, that's a good point. It's a good point. Well, my tip of the week is one that I actually use today, so I typically use acuitycheduling.com for people to go to my calendar. But sometimes there's nothing available between, you know, or like, you got to go two weeks out. So check out calendar.comcalendar.com might make it easier to see your slots in your Google calendar where everybody can get in and have a quick meeting. But I'd say that the most important tip is learn more. Go to danielblue.com me. Danielblue me. And certainly at least get the book. So, Daniel Blue, are we good?

Yeah, this is. This is great. I feel like I've only been on here for five, ten minutes and it's already 10:45. Like, man, where'd this time go?

Right? Right?

Yep. Good stuff.

That's how we do it. That's how we do it.

I love it.

Scott Todd, are we good?

Great, Mark.

I want to thank the listeners to remind them the only way, the only way we're going to get the quality of guests like a Daniel Blue from Daniel Duba from DanielBlue me is if you do three little favors. Follow rate Review the podcast. Send us a screenshot of that review. Supporthelandgeek.com I'm going to send you for free a signed copy of Dirt Rich, which Scott Todd, as of today has a market value of $2.2 million. Not US dollars, but 2.2 million. Maybe Jamaican dollars.

Maybe.

Maybe. Either way, it helps us. All right, let's do this. 1, 2, 3.

Let let freedom Freedom ring Ring.

Thanks, everybody. Thanks, Daniel.

Thank you.

Thanks for listening to the Art of Passive Income podcast. Are you ready to learn how you can start building a passive income without renters, rehabs, renovations or rodents? Schedule a free consultation@thelandgeek.com forward slash training. Let freedom ring.