All right, today we're going to jump into self-directed IRAs.
I've been consulting with a few people about these,
and I've just been seeing them pop up a little more often lately.
But we're going to talk about the good, the bad, and the ugly with
self-directed IRAs. So here's an example of someone that might want to use a
self-directed IRA. So say you've been working somewhere as a W2 employee,
10, 15, 20, 30 years,
and you've been, you've been accumulating a 401k in there.
Um, 401k or IRA,
I'll use those interchangeably, but you've got,
say this big nest egg, um,
in a 401k or in an IRA, and you,
you've got it invested, likely it's like a mortgage statement.
And as you've seen, like there are a lot of investment
options in those brokerage accounts,
but it's limited to paper assets.
And by paper assets, I mean, you've got stocks,
you've got mutual funds, you've got ETFs,
you've got the typical types of investments that you can invest those in.
One of the biggest things, so we'll jump right into the good parts of
self-directed IRAs. One of the good,
one of the main reasons that people will do a self-directed IRA or set
it up because you can take those funds that you've been accumulating somewhere else
in like a regular 401k or IRA and you can move those over into
a self-directed IRA. And when you do that,
all of a sudden it opens up a lot more opportunities or just different
types of investment opportunities. So different types of investment vehicles.
So I'll go through each of those. So one of the big ones lately,
you want to buy Bitcoin, you want to buy cryptocurrency,
which actually now in the last year,
we've got ETFs, Bitcoin and,
and cryptocurrency ETFs. So actually there are some scenarios where you could.
Invest into those through your existing account,
if, if they allow it at the brokerage, but historically that,
that was one of the big reasons is to get into cryptocurrency,
uh, very common,
especially if people are consulting with me. To get into real estate.
Um, if you want to buy real estate in a regular 401k,
a regular IRA, you can't do that. But if it's self-directed,
you are in control of what assets you can invest in.
So you can't invest in real estate and that could be directly,
like you could buy it directly and own it directly a hundred percent under
your self-directed IRA. You could invest into like a syndicated
real estate deal to say they have a 50,000 minimum or a hundred thousand
minimum. You could put some of your funds into that and your self-directed IRA
could own part of a partnership that will drill a state managed by someone
else there's. If you want to buy gold,
gold or silver, or you want to buy a physical,
I don't know, assets, you, you would need to do it through self-directed IRA.
But those, those are the main ones. Or another one,
if you want to invest in a business,
that's not publicly traded like you,
you couldn't, you can't invest in your own business and actually we'll get into
the goods. The bad and the ugly parts of it in just a second.
But if, if you know someone that has a startup or new
business, venture capital, private equity type of investments,
it would need to be through a self-directed IRA.
Because a typical brokerage, you're not going to be able to do that.
So remember that is probably the best part of self-directed
IRAs is the types of investments you can get into,
which we just covered. And then the other part is.
So if you compare like why we even have the retirement accounts,
like what's just the general benefit of having an investment in a retirement account,
you've got two main types of accounts, like a traditional and a Roth traditional,
is those investments can grow tax deferred.
And then, of course, in retirement, when you pull it out,
it's taxable. But then in the Roth,
one of the biggest, if you can have a self-directed Roth account,
those investments can grow taxable. Tax-free and in retirement,
you can pull them out tax-free. So it's like that part of it is
not unique to retirement account or unique to self-directed,
but now you can get those retirement benefits with Roth.
Non-typical investments. So that,
like bringing those together really is one of the main reasons,
like the main benefits of self-directed IRAs.
So then things to watch out for. So the bad and the ugly parts
of self-directed IRAs. And we,
unfortunately we do see this. It's, it's pretty common that either the administrators
that are helping people set these accounts that set them up,
they just either don't mention it or they're not reminding people of it.
But you can't, you can't invest in your own business or
in your own house or in the property that you're living in.
You can't invest your retirement funds into something that you are running. You,
you can invest in those other assets, say you're like a passive investor,
but you can't invest into something that you're doing.
There's some, there's some unique structures where you can do like a rollover as
a business, a C corporation, that's a different thing.
We'll, we'll do a topic on that later, but in typical self-directed IRA accounts,
like you can't go, you can't,
and you can't go, uh, partner,
say with your spouse on something. If you go, Hey,
I'm going to put in, or you can't partner with yourself.
You can't say I'm going to put 50,000 in from my self-directed account and
then 50,000 in from my personal funds.
And we're going to be partners on this, on this partnership together.
You can't do that. That's there.
There's some. Requirements. There's some self-dealing rules.
Um, you can't sell things to and from your own,
your own retirement account. Um,
so just watch for that. I won't even get into all those rules,
but there's self-dealing rules and there's There's limitations of things you can own with
yourself. Like, you can't do deals with yourself and your self-directed,
your self-directed account. So that's, and that's like the bad part of it is
just watch for that. And then the ugly part.
Like what can get really bad as if,
um, the administrator,
a lot of times, and honestly,
these self-directed IRA administrators, they don't really charge that much money.
It might be like three, four or $500 a year.
For the, like, just setting up your plan,
but at the same time, they also don't do a lot like they're not
holding your hand through a lot of the transactions and they give you flexibility,
which is good, but sometimes they're not going to,
like, stop you from doing something that the IRS could completely unravel and disallow.
So the, the worst thing that can happen, well,
worst thing that can happen, I'd say, is when people,
they go, oh, my money's in a safe self-directed IRA.
I'm just going to go throw it, throw it at some investment,
any investment. They don't care. Sometimes, unfortunately,
if you just throw your money in a self-directed IRA account,
some investment, and you lose all the money, if it was just a bad
investment. That's a bad investment.
So, of course, that's the worst thing that can happen. You lose all your
money from that. I would just make sure you're going
after good investments, and don't let the tax savings or the
tax ideas or the tax strategy drive your decision in which investments to
get into. Make sure it's a good investment first,
and then plan for the, the tax benefits later.
Like, that's, that's, uh, unfortunate.
We've seen people lose money just chasing tax deductions or a tax strategy,
not thinking of what the investment is itself.
Investment crumbles, they lose their money, and it's like,
well, now you're out the tax money and your investment money.
So there's that.
The other part I say to just watch out for is if,
so there's a little more record,
there's a little more scrutiny. Like, I don't want to scare anyone because I
honestly, I'm not worried about it. And it's really not a huge like audit
red flag for the IRS. I wouldn't say it's an audit red flag at
all, but there's just a little more paperwork that you've got to do.
You just want to make sure you're getting, if you.
Distribute money from it that you get a 1099.
If you put money into it, just make sure the administrator is reporting it
correctly. So it's a little more paperwork, but if done right,
it's really not that complex and it really doesn't raise audit red flags.
But just understand that there is a little more risk if you're doing it
wrong. But really, so I said the worst thing you can,
that can happen is if you lose all your investment money. The second worst
is that if, say you do some self-dealing,
or the paperwork's messed up, and it's done wrong,
you report it wrong in your tax return, if the IRS comes in and
audits you, and again, very low risk,
but if they do, and they unravel the whole,
the whole retirement, like self-directed.
structure and they go, actually, you moved a hundred thousand from here to here
into an investment that you were living in,
like a house that you're living in type of thing. Like you just bought
a personal house with it. They could say that.
That's, that's a taxable transaction. You actually,
like, that's not an investment that's valid for self-directed.
We're going to charge tax on all that. And so they,
they could retroactively create a taxable event.
If you're doing the self-dealing or the disallowed transactions.
So that's, that's the other thing, just, it blows up in your face and,
uh, and you end up paying tax on the whole thing.
So there's a saying I came across someone just reading more about self-directed transactions.
And someone's like, using a self-directed IRA is kind of like playing
with fire. If done correctly,
you can cook your dinner, but if done incorrectly,
it can burn your house down. So, so fire is good.
Right? It can,
there's a lot of good things with it, but just make sure it's controlled
and you're doing it correctly. And you're not just jumping in decisions without thinking
through it or planning for it or documenting it correctly.
So that is self-directed IRAs. We will do,
I'll do another. Episode on specific assets and some of the strategies related
to self-directed IRA planning,
like getting real estate in there,
getting cryptocurrency in there and some of the tax advantages and kind of some
of the more, more of the specifics. And we'll cover those,
um, the specifics or examples or questions you have on the weekly wealth
game alliance calls as well. So, uh,
yeah, well, that's, that's good. We will end there with,
the self-directed IRA and stuff, but we'll see you later.
Thank your time.
