WEBVTT
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00:00:10.880Welcome everyone to the Directed IRA webinar and a special Directed IRA podcast episode.
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00:00:13.519This is Matt Sorns and I'll be your tour guide today.
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00:00:15.919I'm an attorney CEO at Directed IRA.
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00:00:19.120And I'm joined by the great and fabulous Lindsay Mercino.
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00:00:20.399Let's show her on camera there.
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00:00:21.120All right, there we go.
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00:00:21.519Look at that.
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00:00:23.039So cinematic.
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00:00:26.160And Lindsay's going to be helping with some questions.
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00:00:28.160She's been in the space for 10 plus years.
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00:00:29.67913?
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00:00:30.399Wow.
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00:00:33.920So um, but she's a pro, super knowledgeable.
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00:00:39.039So between the two of us, we're going to try and get through a lot of content, but also your questions.
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00:00:44.719So if you have questions, um, we like to say use the chat and QA, but nobody follows rules.
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00:00:46.159So we'll be checking both.
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00:00:49.920Um, keep please keep in mind though that this webinar will be recorded.
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00:01:00.320So if you've missed any piece of this, you got something else going on, or you want to rewatch this and relive the great moments, the hits, um, it's going to be recorded and posted to directedira.com/slash webinars.
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00:01:01.840All right, well, let's jump into this.
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00:01:08.879Now I want to level set for everybody that before we dig into primitive transactions to make sure you understand what a self-directed IRA is.
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00:01:10.239This is your IRA account.
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00:01:15.760This could be traditional IRA, Roth IRA, even a health savings account, solo 401k, there's lots of different account types.
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00:01:22.799This is an IRA that can own real estate, crypto, a private company, a small business, a note.
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00:01:24.159You can lend people money.
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00:01:24.560Okay.
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00:01:34.079Your IRA can own a stock or a mutual fund, which is what you're doing with your broker dealer IRA, but a self-directed IRA can own these private, sometimes called alternative assets.
00:01:34.239 -->
00:01:45.599So once you start getting into that and you do that with an amazing company like directed IRA, and there's, you know, maybe 20 other companies that do this, you just need to know the number one company, directed IRA.
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00:01:53.439And um, but when you're doing this, the number one thing you need to know is something called the prohibited transaction rules.
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00:01:58.239And that's our focus for today's webinar is making you a master of the prohibited transaction rules.
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00:01:59.680So you don't screw up your account.
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00:02:03.359Okay, because if you mess this up, it can cause problems with your account.
00:02:03.519 -->
00:02:05.840The nice thing is, it's not that complicated.
00:02:06.000 -->
00:02:10.000And most of you don't really actually need to worry about this, but some of you do.
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00:02:16.000Some of you like to get creative and structure things and some deals that might come across where this is a rule you need to know.
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00:02:21.919Now, I always tell people learning the primitive transaction rules is not rocket science.
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00:02:24.000It's more like learning a board game.
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00:02:26.000You just don't need to know the rules.
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00:02:30.080And then once you learn the rules, it's the same thing over and over and over again.
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00:02:34.800So don't feel like you need to like, you know, master this um to a complex level.
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00:02:41.919Just know about what you do and um understand the rules that are going to apply in your situation, the types of things that you're investing in.
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00:02:43.919Okay, now we do have a slide deck too.
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00:02:52.159I think we'll share that here, um, or at least it'll be posted on the uh webinar page at directaria.com slash webinar once the recording goes up.
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00:02:56.479This is helpful because we do have a lot of detailed information on these slides.
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00:02:58.639Uh, and I've wrote a book on this.
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00:03:01.520We have tons of resources on our website as well.
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00:03:07.039Uh, so we just want to make sure you have enough educational resources if you want to um dive deeper on this.
00:03:07.199 -->
00:03:13.120Also, if you've got like that CPA or the lawyer or financial advisor that's like, we want to do what with your IRA?
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00:03:18.639And you want to give them some ammo with like some tax code citations and cases, we have that here for you too.
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00:03:23.039So, and for any of you CPAs or attorneys on here, you know, we gave those for you guys as well.
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00:03:25.120Okay, enough commentary.
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00:03:29.120Um, anything we else need to say on QA or questions, Lindsay.
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00:03:30.800Drop it in the chat, guys.
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00:03:33.599Uh, we have Michelle who's joining us live as well.
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00:03:39.360So Michelle will drop her calendar link in the chat just in case you guys want to set up a call with her.
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00:03:40.719Pick her brain one-on-one.
00:03:40.960 -->
00:03:42.800It's completely free to book a call with us.
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00:03:43.599So do so.
00:03:43.680 -->
00:03:47.199And if you do decide to open up an account, we've also got an awesome promo this week.
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00:03:48.879So uh ask Michelle about that.
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00:03:52.000And we'll also uh share with you guys what that promo code is here shortly.
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00:03:53.520But make sure that you drop that in the chat.
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00:03:56.479Check the chat for her link and book a call today.
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00:03:57.360Yeah.
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00:03:58.080All right.
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00:03:59.199Well, let's dig in here.
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00:04:06.080So the first thing when we're talking about the prohibited transaction rules, you need to understand is this isn't about what your IRA can invest in.
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00:04:09.439This is about who your account can transact with.
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00:04:16.800If we think about what your IRA can invest in, there are only three things that are on the you can't invest in this list.
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00:04:18.480So let's go to the slides here.
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00:04:19.759I got those on the list here.
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00:04:22.079The first is collectible items.
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00:04:25.439Your IRA cannot invest in a collectible.
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00:04:37.519Now, this would include like an art collection or a stamp collection, coin collection, certain precious metals like American Eagle coins, like gold, silver, platinum, palladium, those are actually excluded from this rule.
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00:04:41.040So you can't own like an American Eagle coin, for example, in your IRA.
00:04:41.120 -->
00:04:50.079But otherwise, like the Kruegeran or the collectible coin, the I don't know, the the I don't know, pneumatic.
00:04:50.160 -->
00:04:50.720What is the word?
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00:04:51.839Pneumismatic?
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00:04:52.240I don't know.
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00:04:53.040Yeah, something like that.
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00:04:53.519That sounds right.
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00:04:55.439You know, these collectible coins.
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00:04:56.240I don't know.
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00:04:59.839Um, I want to say the nerdy coin collector thing.
00:04:59.920 -->
00:05:01.920I don't know what that is, but there's value in that.
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00:05:03.519People collecting my grandpa did it.
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00:05:04.959You can't own that in your IRA.
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00:05:05.519All right.
00:05:05.759 -->
00:05:07.279Um, life insurance.
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00:05:09.279I'm trying to walk it back out of that one.
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00:05:11.360I pissed somebody off that collects coins.
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00:05:12.319I'm sorry.
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00:05:15.040Uh, life insurance, your IRA can't own life insurance.
00:05:15.199 -->
00:05:17.120401ks actually can, IRAs can't.
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00:05:18.560Nobody came here to learn about that.
00:05:18.720 -->
00:05:20.560And then S corporation stock.
00:05:20.720 -->
00:05:25.839So IRAs can own C corporations when you your IRA buys stock in a publicly traded company.
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00:05:27.199That's a C corporation.
00:05:27.279 -->
00:05:28.160Your IRA can own that.
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00:05:30.000It can own a small business C corporation.
00:05:30.160 -->
00:05:37.199Your IRA can own LLCs or limited partnerships, which is what it's doing if it invests in a small business or a private fund or doing an IRA LC.
00:05:37.279 -->
00:05:38.560Your IRA can own those.
00:05:38.720 -->
00:05:40.240It's just S-corporations.
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00:05:44.399IRAs don't qualify as an S-corporation shareholder.
00:05:44.480 -->
00:05:46.000It's really an S-corporation rule.
00:05:46.160 -->
00:05:48.079S-corporations must be owned by individuals.
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00:05:51.600An IRA is not an individual, so it doesn't qualify.
00:05:51.920 -->
00:05:53.360All right, that's it.
00:05:53.920 -->
00:05:55.439Everything else is fair game.
00:05:55.519 -->
00:05:57.680Your IRA can own the duplex down the street.
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00:05:59.360It can invest in a private fund.
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00:06:01.600It can invest in a small business in your community.
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00:06:06.000It can invest in the next greatest startup that can happen out of Silicon Valley.
00:06:06.240 -->
00:06:06.720Whatever.
00:06:06.879 -->
00:06:10.560You could private lend it to other real estate investors or other business owners.
00:06:10.720 -->
00:06:14.480All these things are assets your IRA can own, even crypto and precious metals.
00:06:14.560 -->
00:06:14.879Okay.
00:06:15.040 -->
00:06:18.000Those are all things that your self-directed IRA can own.
00:06:18.160 -->
00:06:18.639All right.
00:06:18.800 -->
00:06:26.079So since the world is your oyster and you can invest in anything you want, we're really not here to teach you about what your IRA can or can't own.
00:06:26.319 -->
00:06:32.639What you need to know is the primitive transaction rule, which is about who can the account transact with.
00:06:33.120 -->
00:06:40.480So for example, if my IRA is buying a duplex down the street, who's selling the duplex to my IRA?
00:06:40.800 -->
00:06:46.720For example, the first person that is restricted here that you couldn't transact with is yourself.
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00:06:53.680So you can't sell the real estate you personally own, that duplex down the street, to your IRA.
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00:06:56.480That would cause this thing called the prohibited transaction.
00:06:56.639 -->
00:06:58.000Now, that's a quick example here.
00:06:58.079 -->
00:07:03.759We're going to break down the rules on how that works, but it's all about who is the account transacting with.
00:07:04.000 -->
00:07:07.680And that's the first level here of what is a prohibited transaction.
00:07:08.240 -->
00:07:13.199All right, so uh the first thing here is you don't want to have a prohibit transaction.
00:07:13.360 -->
00:07:14.720Primitive transactions are bad.
00:07:14.879 -->
00:07:19.040You end up losing your account, it gets distributed, and your account's subject to penalties.
00:07:19.120 -->
00:07:24.399So don't have a primitive transaction because you lose your account and all the tax benefits and privileges of it.
00:07:24.639 -->
00:07:29.680Now, in today's uh webinar, we're gonna go over three types of prohibited transactions.
00:07:29.759 -->
00:07:31.680There's three different varieties that this could hit.
00:07:31.759 -->
00:07:39.120And you have to actually learn each, all three of them, because sometimes you'll say, well, this isn't one type, but it is the other.
00:07:39.279 -->
00:07:41.120Um, so we're gonna go over each of these.
00:07:41.199 -->
00:07:45.519There's per se, extension of credit, and self-dealing.
00:07:45.600 -->
00:07:48.959These are the three different varieties of prohibited transaction.
00:07:49.600 -->
00:07:56.480All right, so let's go to the first type, which is a per se prohibited transaction.
00:07:56.720 -->
00:08:07.680Now you have what is called a per se prohibited transaction when you have three things occur: an IRA transact with a disqualified person.
00:08:08.160 -->
00:08:12.560Well, the whole reason to have a retirement account here is we've already got one.
00:08:12.720 -->
00:08:13.759We have an IRA.
00:08:13.920 -->
00:08:16.560If I'm gonna make money, I've got to transact it.
00:08:16.879 -->
00:08:22.160So it's really about is the other person in the transaction a disqualified person?
00:08:22.399 -->
00:08:22.639Right?
00:08:22.720 -->
00:08:24.800I'm gonna have an IRA go invest in something.
00:08:24.959 -->
00:08:27.279If I buy real estate, it's gonna have a tenant in it.
00:08:27.439 -->
00:08:30.639If I invest in a startup, someone already owns it or is gonna run it.
00:08:30.800 -->
00:08:36.879So we're looking at who else is involved in this transaction and is there a disqualified person?
00:08:37.200 -->
00:08:40.960So I gave the example earlier, my IRA is buying a duplex.
00:08:41.120 -->
00:08:42.879Who's the seller of that property?
00:08:43.039 -->
00:08:44.320It's my father.
00:08:44.559 -->
00:08:51.200My father is a disqualified person to my IRA, or I'm a disqualified person to my IRA personally.
00:08:51.360 -->
00:08:54.559So that would cause a per se prohibited transaction.
00:08:54.720 -->
00:08:59.600So the question becomes well, who is a disqualified person under the rules?
00:08:59.919 -->
00:09:01.440Well, here's the list.
00:09:01.679 -->
00:09:06.879Okay, anyone here in red is a disqualified person your IRA cannot transact with.
00:09:06.960 -->
00:09:08.399And it starts with you.
00:09:08.639 -->
00:09:11.200You're disqualified to your own IRA.
00:09:11.360 -->
00:09:17.440Your spouse, your kids, your parents, your son-in-law, your daughter-in-law.
00:09:18.000 -->
00:09:24.320Um, for any of you in Utah, all your spouses, okay, they are all disqualified persons under the rules.
00:09:24.480 -->
00:09:32.000Now, if you look there in green on the list in the diagram here, those are people that your IRA can transact with.
00:09:32.159 -->
00:09:35.360These are family members that are actually not disqualified.
00:09:35.600 -->
00:09:37.360So, for example, my brother or sister.
00:09:37.519 -->
00:09:40.720So let's say that my sister's doing a fix and flip property.
00:09:40.799 -->
00:09:45.200She's a real estate investor, and she needs a loan for a hundred grand to fund the rehab.
00:09:45.279 -->
00:09:48.159And I'm like, I could lend my sister a hundred grand on the rehab.
00:09:48.240 -->
00:09:48.960I'll get a note.
00:09:49.039 -->
00:09:52.480She'll pay me 12% interest and two points for the loan.
00:09:52.559 -->
00:09:56.000And I'm gonna put a lien on the property to make sure she pays back my IRA.
00:09:56.159 -->
00:09:57.200That would be totally fine.
00:09:57.360 -->
00:09:57.679Okay.
00:09:57.840 -->
00:10:03.360My IRA is lending her money, that's a transaction, but she's not a disqualified person.
00:10:03.600 -->
00:10:04.559So it's okay.
00:10:04.799 -->
00:10:07.440Obviously, there could be some third-party investor.
00:10:07.600 -->
00:10:13.919I don't even have to worry about these rules if it's just some unrelated third party that I don't even know who the hell they are until we met for this deal.
00:10:14.159 -->
00:10:17.279So, but a lot of people will say, well, family's disqualified.
00:10:17.360 -->
00:10:21.679Or you'll read online, you go on to Chat GPT and you say, Who's a disqualified person to my IRA?
00:10:21.840 -->
00:10:22.960Family members.
00:10:23.440 -->
00:10:24.080Not really.
00:10:24.240 -->
00:10:26.080It depends on who in the family they are.
00:10:26.240 -->
00:10:26.559Okay.
00:10:26.879 -->
00:10:31.919So remember anyone in green there, brothers, sisters, aunts, uncles, cousins, they're all fair game.
00:10:32.080 -->
00:10:34.080The red ones, that means stop.
00:10:34.240 -->
00:10:35.200Do not transact with them.
00:10:35.360 -->
00:10:37.679I tried to do red and green, keep it simple here.
00:10:38.399 -->
00:10:40.240So that's who is disqualified.
00:10:40.320 -->
00:10:42.960Now, transaction can be a lot of things.
00:10:43.120 -->
00:10:50.879So let's say, and I'm just gonna give real estate examples because they're the easiest, but it could be like a company or stock.
00:10:51.200 -->
00:10:55.519Another common one we'll get is hey, Matt, I own these shares in this company.
00:10:55.600 -->
00:11:00.000I've got options at this company I work for, and they're pretty valuable now.
00:11:00.080 -->
00:11:04.639They've gone up in value and they're in my name, but I want to have my Roth IRA buy them.
00:11:04.720 -->
00:11:06.559How do I get my Roth IRA to buy them?
00:11:06.799 -->
00:11:08.799Well, that would be a prohibited transaction.
00:11:08.879 -->
00:11:14.240You can't do that because that would require your Roth IRA to buy them from you personally, which would be a transaction.
00:11:14.399 -->
00:11:16.799And now you've just engaged in a primitive transaction.
00:11:16.879 -->
00:11:18.960That would be a per se primitive transaction.
00:11:19.200 -->
00:11:26.639So no matter what the asset type is, just remember any transactions, buying or selling, even leasing.
00:11:26.799 -->
00:11:28.080So let's go back to the example.
00:11:28.159 -->
00:11:34.799Let's say that, let's say that my IRA just buys real estate, some third party, and and I'll get this question every once in a while.
00:11:35.039 -->
00:11:38.960Hey Matt, my kid's going off to college and I want to buy a rental property in the college town.
00:11:39.039 -->
00:11:42.159It's a pretty good little rental market, and my kid will stay there as the tenant.
00:11:42.480 -->
00:11:44.960Well, that's a per se prohibited transaction, too.
00:11:45.120 -->
00:11:49.519And they'll say, well, um and here's why it's prohibited, by the way.
00:11:50.000 -->
00:11:55.039It's your IRA that owns it, it's leasing the property, so it's collecting rent from your son.
00:11:55.279 -->
00:11:58.080And really, you're probably paying for it anyways, but you know what I mean.
00:11:58.240 -->
00:12:02.879So, like, even if you were giving the money to your son and they're paying it, they're on the list of a disqualified person.
00:12:03.039 -->
00:12:03.360Okay.
00:12:03.600 -->
00:12:06.960So that would cause a per se privated transaction because they're paying rent.
00:12:07.360 -->
00:12:11.200Then I'll have clients say, Well, Matt, what if they stay there and they don't pay?
00:12:11.440 -->
00:12:13.919It's not a per se privated transaction, huh?
00:12:14.639 -->
00:12:15.200Correct.
00:12:15.440 -->
00:12:15.840It's not.
00:12:16.000 -->
00:12:16.879There's no transaction.
00:12:16.960 -->
00:12:18.320They're staying there for free.
00:12:18.799 -->
00:12:21.360But there's something called self-dealing.
00:12:21.440 -->
00:12:23.039See, this is why you got to learn all the rules.
00:12:23.120 -->
00:12:26.960So we'll get to what is a self-dealing privated transaction here in a second.
00:12:27.120 -->
00:12:31.039So just because I don't have a per se privated transaction doesn't mean I'm in the clear.
00:12:31.200 -->
00:12:40.000I got to make sure I get these through these other two varieties, extension of credit and self-dealing, before I know I'm totally in the clear on the primitive transaction rules.
00:12:40.159 -->
00:12:47.679Okay, now one question that typically comes up right now is well, Matt, when is a company a disqualified person?
00:12:48.240 -->
00:12:56.639What if I have an LLC that owns a piece of real estate and I want to sell that property to my IRA?
00:12:57.440 -->
00:13:06.559Well, the way a company is disqualified is if 50% or more of the ownership of the company is owned by disqualified persons.
00:13:06.720 -->
00:13:14.799And this is actually 50% of the capital, the ownership or management of the company, either of those three is over 50% of disqualified people.
00:13:14.960 -->
00:13:17.039That's you, your spouse, your kids, your parents, right?
00:13:17.120 -->
00:13:24.960Any of the individuals, if they own 50% or more of that LLC corporation, whatever the company is, the company is now disqualified.
00:13:25.120 -->
00:13:34.159So if it's just me that owns an LLC 100%, or me and my spouse that owns an LLC between the two of us, we own 100% of it, that company will be disqualified to my IRA.
00:13:34.559 -->
00:13:49.039But let's say instead, though, that me, Lindsay, and Angel here, the three of us, let's say the three of us set up an LLC, we bought a fix and flip property, and we each own one third.
00:13:49.120 -->
00:13:52.000We all just work together, we're not family or anything like that.
00:13:52.799 -->
00:13:54.879And let's say we want to sell the property now.
00:13:55.279 -->
00:13:59.519And I'm like, hey, I actually think that'd be a great rental property for my IRA.
00:14:00.000 -->
00:14:04.320Could my IRA be the buyer of that fix and flip property?
00:14:04.639 -->
00:14:05.919Yes, it could.
00:14:06.080 -->
00:14:08.159It's not a per se primitive transaction.
00:14:08.320 -->
00:14:09.519I only own a third.
00:14:10.080 -->
00:14:15.75966% of the ownership, Angel and Lindsay, is non-disqualified people.
00:14:15.919 -->
00:14:16.240Okay.
00:14:16.639 -->
00:14:23.919Now if I change the facts, and let's say it was me, my spouse and Lindsay that each owned a third of the LLC.
00:14:24.799 -->
00:14:29.279Now me and my spouse total, our ownership, each a third, were 66%.
00:14:29.600 -->
00:14:30.960We've gone over 50%.
00:14:31.840 -->
00:14:34.240So now the LLC becomes disqualified.
00:14:34.399 -->
00:14:34.720Okay.
00:14:34.960 -->
00:14:42.480So for LLCs or corporations or entities, that entity becomes disqualified based on this 50% rule.
00:14:42.639 -->
00:14:42.879All right.
00:14:43.039 -->
00:14:54.960Okay, let's see if there's any questions at this point on who's a disqualified person that we want to bring up or not, or just primitive transactions, we still got to hit extension of credit and self-dealing primitive transactions.
00:14:55.200 -->
00:14:55.440Yeah.
00:14:55.600 -->
00:14:57.039So we've got a couple of questions.
00:14:57.279 -->
00:15:07.759Russ is asking, can a Roth LLC, so I'm assuming that's a Roth IRA LLC, can my Roth IRA LLC own a vehicle that I use for business?
00:15:08.080 -->
00:15:09.200Ooh, great question.
00:15:09.360 -->
00:15:10.000Good question.
00:15:10.159 -->
00:15:16.399The primitive transaction rules for your Roth IRA or Roth 401k apply to any LLC it owns as well.
00:15:16.559 -->
00:15:23.120So if you have an IRA LLC, checkbook IRA, um, all those primitive transaction rules apply to the LLC.
00:15:23.200 -->
00:15:26.080So if it buys a vehicle, you can't use it.
00:15:26.240 -->
00:15:34.879Now we have had clients do like Toro or things like that, where they've had an LLC that owns a vehicle for that's that they lease out on Toro.
00:15:35.759 -->
00:15:40.000So that wouldn't be prohibited if you're renting it out to third parties.
00:15:40.320 -->
00:15:45.759Um but if you're personally using it, that would cause a prohibited transaction.
00:15:46.080 -->
00:15:47.600Now let's think about this.
00:15:48.480 -->
00:15:56.559If you're like, well, the Roth bought it, but I'm using it, there's no per se prohibited transaction because I didn't transact, right?
00:15:56.960 -->
00:16:01.120Now if I paid my IRA L L C for it, that would be a transaction.
00:16:01.440 -->
00:16:06.799But why is this a um prohibited transaction?
00:16:07.279 -->
00:16:08.639Well, this is self-dealing.
00:16:08.720 -->
00:16:12.399Let's actually jump to self-dealing and we'll come back to extension of credit.
00:16:12.720 -->
00:16:13.679Because this is a good question.
00:16:14.159 -->
00:16:22.799A self-dealing prohibitive transaction occurs whenever you have a disqualified person benefit from an IRA's investment.
00:16:23.120 -->
00:16:24.720That's the easiest way to think about it.
00:16:24.879 -->
00:16:29.519Does it did a disqualified person benefit because my IRA made an investment?
00:16:29.759 -->
00:16:35.519And here, with your IRLC that bought a car that you use, well, you're a disqualified person.
00:16:35.600 -->
00:16:38.559You're benefiting because you're using assets you're IRA owned.
00:16:38.639 -->
00:16:38.879All right.
00:16:38.960 -->
00:16:42.320So that would cause a self-dealing primitive transaction.
00:16:42.639 -->
00:16:45.200The other one is like the vacation rental property.
00:16:45.360 -->
00:16:49.039Let's say that your IRA or your IRLC, the rules are the same here.
00:16:49.120 -->
00:16:52.240This could be Roth, traditional, SEP, doesn't matter the account type.
00:16:52.480 -->
00:16:58.159Let's say that it owns an Airbnb property, and you're like, well, no one's gonna stay there for a week.
00:16:58.320 -->
00:17:00.720Why don't I just go stay there with my family?
00:17:01.039 -->
00:17:02.480You know, I'm not gonna pay rent.
00:17:02.559 -->
00:17:06.400That I know that would be prohibited, but I'm just gonna use it because it's just gonna sit there vacant, Matt.
00:17:06.480 -->
00:17:08.559There's no there's no harm, no foul.
00:17:08.799 -->
00:17:11.680Well, you've benefited from using the property.
00:17:11.839 -->
00:17:18.160So that would actually cause a self-dealing primitive transaction because you're a disqualified person.
00:17:19.359 -->
00:17:23.119So now a question a lot of people raise after I give that example.
00:17:23.759 -->
00:17:28.000Sorry, I've been teaching this for a long time, is what if my brother stays there, Matt?
00:17:28.559 -->
00:17:32.319What if my brother stays there because and they don't pay any rent?
00:17:32.960 -->
00:17:34.319He's not a disqualified person.
00:17:34.559 -->
00:17:35.279Can we do that?
00:17:35.519 -->
00:17:35.839Sure.
00:17:36.079 -->
00:17:37.039Your brother could stay there.
00:17:37.119 -->
00:17:37.920I don't care, I guess.
00:17:38.000 -->
00:17:44.079I mean, it's not they're not disqualified, so they could have self-dealing in their favor, I guess, you know, if you want to.
00:17:44.319 -->
00:17:48.480Um, like, what if my brother stays there and he invites me over?
00:17:48.880 -->
00:17:55.440Okay, now you're we're back to your benefiting from use of the of the asset or benefit from the investment.
00:17:55.759 -->
00:18:01.200Okay, another example of self-dealing, and the self-dealing is kind of tricky because it's subjective.
00:18:01.440 -->
00:18:07.599The first variety of per se is IRA, transacts, disqualified person.
00:18:07.759 -->
00:18:09.359It's like very objective.
00:18:09.440 -->
00:18:11.440Like we know who's a disqualified person.
00:18:11.599 -->
00:18:16.640A transaction is pretty much any time money's going in and out of the out of the account to somebody or some company.
00:18:16.720 -->
00:18:18.079That's gonna be a transaction.
00:18:18.240 -->
00:18:21.039And obviously, we have an IRA, otherwise we wouldn't be talking about this.
00:18:21.200 -->
00:18:24.559So it's really objective to like figure out per se.
00:18:24.960 -->
00:18:32.079Self-dealing, though, is subjective because did a disqualified person benefit?
00:18:32.319 -->
00:18:34.640You know, it's it can be very subjective.
00:18:34.720 -->
00:18:36.880But use of assets is gonna be pretty clear.
00:18:37.039 -->
00:18:45.680Whether that's a car you buy from an IRLC or the Airbnb that you actually stay in, that's gonna be clear you're benefiting because you're having use of the assets the account owned.
00:18:45.920 -->
00:18:52.079Another way you can get self-dealing is if you get compensation because the IRA invested.
00:18:52.240 -->
00:18:58.799So, for example, let's say that your IRA goes and buys the duplex, okay, the rental, the single family rental, whatever, it doesn't matter.
00:18:58.960 -->
00:19:01.599It buys a piece of real estate as an investment asset.
00:19:02.240 -->
00:19:04.400And let's say you happen to be a real estate agent.
00:19:04.480 -->
00:19:07.359So you receive the commission on the purchase of the asset.
00:19:07.519 -->
00:19:09.440You get a 3% buyer's agent commission.
00:19:09.599 -->
00:19:11.119The property was$300,000.
00:19:11.279 -->
00:19:15.519So you got a$9,000 commission to you personally as the agent.
00:19:15.839 -->
00:19:19.359Well, you benefited because the IRA made a transaction.
00:19:19.440 -->
00:19:22.720You personally, at disqualified, benefited by getting that commission.
00:19:22.880 -->
00:19:26.880So that would cause a self-dealing prohibited transaction as well.
00:19:27.839 -->
00:19:43.599So now self-dealing, remember, this is um you're benefiting, whether it's compensation, use of assets, but it has the same ramification of the account becomes distributed, your account's subject to penalties and interests.
00:19:43.759 -->
00:19:46.960If you're under 59 and a half, you have an early withdrawal penalty.
00:19:47.039 -->
00:19:55.279If it's a Roth account and you haven't had it for five years, you're under 59 and a half, all that get growth you've had in is now taxable and subject to penalty.
00:19:55.519 -->
00:20:03.119And also any of the investments you made after the primitive transaction that you didn't have to pay tax on are now subject to tax as well.
00:20:03.279 -->
00:20:10.960So it's kind of like not good, obviously, to have a primitive transaction, no matter the type here.
00:20:11.680 -->
00:20:16.480It's also not worth it to try and think that you're being really sneaky.
00:20:16.559 -->
00:20:19.119That's also called potentially tax evasion.
00:20:19.279 -->
00:20:20.400So let's not do that.
00:20:20.480 -->
00:20:21.759Let's not try to be sneaky.
00:20:21.920 -->
00:20:26.400If you're trying to think of a loophole, the IRS has probably thought of the loophole and close the loophole.
00:20:26.480 -->
00:20:28.240But call us and ask us those questions.
00:20:28.319 -->
00:20:29.200That's what we're here for.
00:20:29.440 -->
00:20:29.680Yeah.
00:20:29.759 -->
00:20:31.440And we can help educate you, of course.
00:20:31.519 -->
00:20:39.680If you want to get crazy and have super complicated questions, you need to call a lawyer and have attorney-client, you know, conversation about your interesting ideas.
00:20:39.920 -->
00:20:49.279Um, so well, let's hit a couple that we know are like, as um Lindsay said, uh, these are could be loopholes, but the IRS is closed out.
00:20:49.519 -->
00:21:06.480For example, there's something called a stepped transaction, which is something where you say, hey, Matt, um I really want to get this money out of my IRA and I was just gonna lend it to myself or my business, but that but I'm a disqualified person, so that'd be a prohibited transaction.
00:21:06.640 -->
00:21:09.359So what if I lend it to my sister?
00:21:10.240 -->
00:21:14.720Um, and then my sister will just give me the money or she'll lend it to me.
00:21:14.960 -->
00:21:16.240Would that be prohibited?
00:21:16.400 -->
00:21:20.880Yeah, that'd be prohibited because that's called what the IRS calls a step transaction.
00:21:21.039 -->
00:21:30.079Anytime you put an artificial step in the middle of a transaction to get around a tax rule, whether it's primitive transactions or frankly anything else, the IRS blows through that.
00:21:30.240 -->
00:21:45.359So they would really look at that as if your IRA lent money to your sister and your sister just gave it to you personally, they're gonna see that you're there's no economic substance to your sister being in the transaction and that the ultimate intent was you got money from your IRA without taking a distribution.
00:21:45.680 -->
00:21:47.839That's gonna be a primitive transaction.
00:21:48.000 -->
00:21:54.559So don't try to put artificial steps in the process to get around a primitive transaction rule.
00:21:54.720 -->
00:21:55.920It will never work.
00:21:56.240 -->
00:22:04.960I was, I probably charge clients hundreds of thousands of dollars as a lawyer for clients to find a way to get around the primitive transaction rules.
00:22:05.119 -->
00:22:10.319Now, there's way they apply and don't, and it's you can definitely get a lot of advice on what you can and can't do.
00:22:10.400 -->
00:22:18.079And sometimes there's gray areas, but this type of stuff of like just putting somebody in the middle of the deal to get around the rule never works.
00:22:18.319 -->
00:22:18.720All right.
00:22:18.880 -->
00:22:22.720So don't try to do the deal with your sister or brother.
00:22:22.960 -->
00:22:33.599Another one that I don't love, and this is where you start getting the gray area, is let's say you're like, hey, um, hey, Lindsay, you've got an IRA with a hundred grand in it.
00:22:33.759 -->
00:22:35.440I've got an IRA with a hundred grand in it.
00:22:35.599 -->
00:22:40.799Why don't my why doesn't my IRA lend you a hundred grand and then your IRA lends me a hundred grand?
00:22:41.119 -->
00:22:43.920Neither of us have to take a distribution from our retirement account.
00:22:44.000 -->
00:22:45.680We won't pay taxes or penalty.
00:22:45.759 -->
00:22:46.799That's a no-go either.
00:22:46.960 -->
00:22:47.519I won't be doing that.
00:22:48.240 -->
00:22:48.640Yeah.
00:22:48.880 -->
00:22:49.519Sorry.
00:22:50.000 -->
00:22:59.200Um, because now we're basically saying, well, the only reason my IRA, the only reason my IRA would lend to Lindsay is because Lindsay was personally going to give me money.
00:22:59.440 -->
00:23:01.839So I'm personally benefiting because my IRA lend her money.
00:23:01.920 -->
00:23:03.440We're back to self-dealing here.
00:23:03.680 -->
00:23:04.240All right.
00:23:04.400 -->
00:23:13.200So I know some people get creative with these ideas, but in the end, if you're getting personal benefit because your IRA invested, it's just going to be prohibited.
00:23:13.359 -->
00:23:17.680The benefit that should happen from your IRA's investment is your IRA grows in value.
00:23:17.839 -->
00:23:18.960That's what you're focused on.
00:23:19.039 -->
00:23:20.319And you can benefit that way.
00:23:20.480 -->
00:23:22.000That's the whole point of this thing.
00:23:22.240 -->
00:23:25.359But you can't personally benefit now in your personal name.
00:23:25.440 -->
00:23:25.680All right.
00:23:25.759 -->
00:23:27.599And that's the big distinction.
00:23:27.759 -->
00:23:41.440So if you're like super focused on just making great investments and building wealth on your retirement account, as you should be, and most of you here, of course, is just think about growing the retirement account balance and how to make good investments.
00:23:41.519 -->
00:23:46.720Don't think about how you get to make money now or how you get a benefit because your IRA did something now.
00:23:46.880 -->
00:23:47.200Okay.
00:23:47.440 -->
00:23:50.559Another one we'll get, and I'll just throw out, you know, examples here.
00:23:50.799 -->
00:23:52.319We'll start taking some other questions too.
00:23:52.400 -->
00:23:56.480We still got to hit extension of credit and some, we'll hit statute limitations.
00:23:56.559 -->
00:23:58.799How does the IRS discover primitive transactions?
00:23:58.960 -->
00:24:00.400We're going to hit those topics too.
00:24:00.480 -->
00:24:08.640Um, but another one that's kind of common, that's a little bit of a gray area, too, is people say, Well, Matt, I want to get one of these golden visas in Europe.
00:24:08.880 -->
00:24:10.960Uh, you know, Portugal is a popular place.
00:24:11.119 -->
00:24:16.240And if I invest at least, you know, 250 grand into Europe, I can get a visa.
00:24:16.319 -->
00:24:20.799I can get one of these golden visas in my personal name and I can go live in Europe full time if I want.
00:24:20.960 -->
00:24:23.359Well, isn't that self-dealing?
00:24:23.519 -->
00:24:33.839If my retirement account makes an investment into Europe for 250 grand, and the only reason I was doing that was to personally get a visa so I could personally live in Europe full time.
00:24:34.319 -->
00:24:36.160Isn't that self-dealing?
00:24:36.480 -->
00:24:37.440Probably is.
00:24:37.680 -->
00:24:39.680Maybe there's a lawyer that thinks it's not.
00:24:39.839 -->
00:24:42.960It sounds like self-dealing to me if that was the intent.
00:24:43.119 -->
00:24:47.839Um, now maybe you already made the investment and had nothing to do with you getting the visa, and now you're getting around to it.
00:24:47.920 -->
00:24:50.160You're like, oh, maybe I'll go live in Europe for a year.
00:24:50.319 -->
00:24:52.880And the IRS can't tie those two things together.
00:24:53.119 -->
00:24:54.559Could you get it get around that?
00:24:54.720 -->
00:24:55.279Possibly.
00:24:55.440 -->
00:24:56.400Could that work?
00:24:56.480 -->
00:24:56.880Yes.
00:24:57.039 -->
00:25:01.599But the presumption from the IRS is the only reason you did that was to go get the golden visa.
00:25:01.680 -->
00:25:04.640And so you're benefiting from your IRA's investment.
00:25:04.880 -->
00:25:10.799Okay, we could go on and on with examples here, but let's see if there's any other questions on self-dealing.
00:25:10.880 -->
00:25:12.640We'll still hit extension of credit here.
00:25:12.960 -->
00:25:18.160Yeah, so just some just kind of general questions regarding uh prohibitive investments and disqualified parties.
00:25:18.319 -->
00:25:19.920Uh, Wayne has a good one that I'll take.
00:25:20.079 -->
00:25:25.680Uh, Wayne says, as long as you're not purchasing from a disqualified person, your Roth can make the investment.
00:25:26.160 -->
00:25:27.200So almost.
00:25:27.359 -->
00:25:33.920Um, so you want to remember, Wayne, not only do you have to look at the disqualified parties, but you also want to look at the prohibited investments as well.
00:25:34.079 -->
00:25:38.799So just keep in mind you can't do the life insurance contracts, the collectibles, or the S-Corp shares.
00:25:38.880 -->
00:25:40.559That already uh is in play.
00:25:40.720 -->
00:25:48.480And but if those three are not your concern or not what you're considering, plus there's no disqualified parties, then the answer is likely yes.
00:25:48.720 -->
00:25:52.559Unfortunately, the IRS doesn't have an all-inclusive list of all the investments you can make.
00:25:52.640 -->
00:25:54.240They only list the ones you can't make.
00:25:54.480 -->
00:25:57.039So we presume fair game for the rest.
00:25:57.279 -->
00:25:58.880Um, which is actually nice.
00:25:58.960 -->
00:26:00.160In some ways, that's the problem.
00:26:00.400 -->
00:26:02.079Is like like crypto, for example.
00:26:02.240 -->
00:26:06.000Like, there's nothing in the tax code that says your IRAs can can buy crypto or not.
00:26:06.160 -->
00:26:09.039But it it only the IRS just tells you what you can't do, right?
00:26:09.200 -->
00:26:13.440They don't tell you, you know, they just say the speed limit or what you can't do.
00:26:13.519 -->
00:26:14.640That's what the law's all about.
00:26:14.960 -->
00:26:16.799So, like, well, how what does this mean?
00:26:16.960 -->
00:26:18.319I can I walk on the sidewalk?
00:26:18.400 -->
00:26:19.680There's no law that says I can.
00:26:19.839 -->
00:26:20.559Well, shit.
00:26:20.720 -->
00:26:22.640There's just a law that says you can't walk in the road, okay?
00:26:22.720 -->
00:26:24.400Or like Jaywalk or run across the street.
00:26:24.559 -->
00:26:28.640So, so this is just how the tax code is built, too, with primitive transaction.
00:26:28.720 -->
00:26:32.559There's not green lights of what you can do, there's just red lights of what you can't do.
00:26:32.720 -->
00:26:38.880And then when it's a gray area, I call that like the caution light or the yellow light, and I gotta look around.
00:26:39.039 -->
00:26:42.400I don't know, just and then you determine if it's good enough to exactly.
00:26:42.559 -->
00:26:45.680So it's really nice that we can just presume everything else is fair game.
00:26:45.759 -->
00:26:48.720It's a lengthy list of what you can actually do.
00:26:48.880 -->
00:26:54.640So don't get too hung up on the assets you can't buy or the disqualified parties you can't transact with.
00:26:54.880 -->
00:27:06.319There are endless numbers of different types of investments that you can invest in, and there are millions and billions of other people outside your family members that you can transact with and invest with.
00:27:06.480 -->
00:27:12.640So don't get hung up on the six or seven that you can't invest with, uh, or eight or nine if you're in Utah and have multiple spouses.
00:27:12.880 -->
00:27:16.720Um but other than that, you're you're fair game to just slid that one in.
00:27:16.799 -->
00:27:18.319I sold that one from Matt.
00:27:18.559 -->
00:27:23.279Um, the only other comment that I wanted to uh share here is from Anitha.
00:27:23.440 -->
00:27:24.400This is actually a good one.
00:27:24.480 -->
00:27:26.880I I haven't heard this one before, so I thought it was kind of unique.
00:27:27.039 -->
00:27:33.119Uh Anitha asks, what are the rules for prohibited transactions and disqualified parties if you're over the age of 59 and a half?
00:27:33.359 -->
00:27:34.480The rules don't change.
00:27:34.640 -->
00:27:40.799So the rules will always stay the same, regardless of your age when it comes to prohibited transactions and disqualified parties.
00:27:41.119 -->
00:27:43.359Yeah, great, great question though.
00:27:43.519 -->
00:27:46.400Um the rules don't change, but the penalty is different.
00:27:46.960 -->
00:27:47.279There you go.
00:27:47.440 -->
00:27:52.240So if you think about like if I have a prohibited transaction, I'm 45, I am 45, right?
00:27:52.400 -->
00:27:54.240My account gets distributed.
00:27:54.400 -->
00:27:56.000I'm under 59 and a half.
00:27:56.079 -->
00:27:58.000So I have a 10% early withdrawal penalty.
00:27:58.079 -->
00:28:01.599If this is my Roth account, any of the earnings are now subject to tax too.
00:28:01.680 -->
00:28:02.880It's like nasty, right?
00:28:03.200 -->
00:28:11.359But let's say I'm 62 and even and I've had a Roth IRA for five years, and I end up having an account.
00:28:11.599 -->
00:28:13.680My account has a primitive transaction.
00:28:13.920 -->
00:28:20.240Well, I just that just asked, it's just the account's distributed, no tax, no penalty, because I'm over 59 and a half.
00:28:20.319 -->
00:28:21.920Now I don't have a Roth IRA anymore.
00:28:22.000 -->
00:28:22.559That sucks.
00:28:22.799 -->
00:28:25.759Whatever was in that account is fully distributed.
00:28:26.079 -->
00:28:30.960And so I have had clients over the years, and this was attorney mat when I used to consult clients.
00:28:31.039 -->
00:28:35.200I don't do that now, but like uh hardly I do that.
00:28:35.359 -->
00:28:48.880But when I'm like if if I'm advising a client who's over 59 and a half, and I had to have many that are have large Roth account, we're always thinking about all right, if this there is some gray area in a transaction, let's say, what is the risk?
00:28:49.200 -->
00:28:51.279The risk is you don't have a Roth IRA anymore.
00:28:51.839 -->
00:28:56.880Now, one thing that's really, really important to understand is the consequence of a primitive transaction.
00:28:57.039 -->
00:29:07.039For IRAs, if you have, let's say you have a million-dollar IRA, Roth traditional doesn't matter, but you engage in a$10,000 primitive transaction.
00:29:07.200 -->
00:29:10.559Well, the IRS distributes the whole million-dollar account.
00:29:10.799 -->
00:29:11.599It doesn't matter.
00:29:11.680 -->
00:29:13.039There's only$10,000 involved.
00:29:13.119 -->
00:29:24.079For IRA rules, one primitive transaction in the account, the the consequence is distribution of the entire account back to January 1st of the year when the primitive transaction occurred.
00:29:24.400 -->
00:29:30.160And so it can be very risky if you're in a gray area here, let's say, where is it a primitive?
00:29:30.240 -->
00:29:30.640Is it not?
00:29:30.799 -->
00:29:31.039I don't know.
00:29:31.200 -->
00:29:33.039Maybe we can hit some gray area questions.
00:29:33.200 -->
00:29:37.519But so a strategy would be is separate that investment.
00:29:37.599 -->
00:29:49.519If you've got the million-dollar account or the larger account and you have a$50,000 investment that might be a gray area, you'd want to put that$50,000 into a new IRA.
00:29:49.759 -->
00:29:53.119Let's say it's a Roth IRA, and it would make its own investment.
00:29:53.359 -->
00:29:59.839That way, if something happened in that and that was deemed a primitive transaction, only at that account that made the$50,000.
00:30:00.480 -->
00:30:02.880Investment that doesn't have anything else in it is distributed.
00:30:03.039 -->
00:30:09.039Your other IRAs, your other Roth IRA with us or other account at Schwab or wherever, those are not affected.
00:30:09.119 -->
00:30:12.559So it's only the account involved in the primitive transaction that gets distributed.
00:30:12.640 -->
00:30:13.839But it is the whole thing.
00:30:14.079 -->
00:30:18.880So not that everybody needs to do that, and 99.9% of you don't need to know that.
00:30:19.200 -->
00:30:32.799But if you have a lot of creative structures and strategies where you can run into gray areas a little more advanced, that is a kind of a higher account, more advanced strategy to separate out your accounts to limit the risk of a privately transaction.
00:30:32.880 -->
00:30:34.400Because it is like the death penalty.
00:30:34.559 -->
00:30:50.319And I've even been involved in lobbying Congress, and there was a there's a bill called the IRA Preservation Act that was introduced in the House about six or seven years ago, where we were trying to change that rule so that the penalty was only on the amount involved, not on the entire account.
00:30:50.480 -->
00:31:03.759Which the that amount involved, by the way, is if you have a 401k, even a solo 401k, the consequence of a primitive transaction there is um only the amount involved is subject to penalty.
00:31:03.839 -->
00:31:08.559And it's a 10, it's a 15% excise tax, and you have to correct the primitive transaction.
00:31:08.720 -->
00:31:16.400So solo 401ks, any of you self-directing those, or just any 401ks that are employer-based plans that are self-directing.
00:31:16.640 -->
00:31:19.519Um, it's a there's no death penalty on the whole account.
00:31:19.599 -->
00:31:22.559The consequence is just on the amount involved.
00:31:22.720 -->
00:31:23.359Okay, sorry.
00:31:23.440 -->
00:31:25.920That was a little legal east for a while.
00:31:26.240 -->
00:31:26.880Anyone still listening?
00:31:26.960 -->
00:31:28.240Is there anyone on still or did everyone leave?
00:31:28.480 -->
00:31:31.599No, you lost everybody, Matt, with all your tax attorney chatter.
00:31:31.759 -->
00:31:32.240No excuse.
00:31:32.640 -->
00:31:33.599So that was very helpful.
00:31:33.680 -->
00:31:36.799And it's also awesome to hear just about the lobbying that you're doing as well.
00:31:36.880 -->
00:31:38.960So thanks for pushing that on your end.
00:31:39.119 -->
00:31:41.200Um we lost, but you know, whatever.
00:31:41.440 -->
00:31:43.440We'll try again another time, right?
00:31:43.599 -->
00:31:46.240Um, no, I think everybody's asking some really awesome questions.
00:31:46.319 -->
00:31:48.319There's some really advanced and specific ones too.
00:31:48.400 -->
00:31:49.279So way to go, guys.
00:31:49.359 -->
00:31:51.920It looks like we've got a really good uh audience here today.
00:31:52.000 -->
00:31:52.880We're super engaged.
00:31:52.960 -->
00:31:57.279So just keep in mind, too, that if you've got some super specific questions, book a call with Michelle.
00:31:57.359 -->
00:32:00.319So we'll drop her calendar in the chat here in just a second.
00:32:00.480 -->
00:32:02.960I just found out she's working Thursday and Friday, guys.
00:32:03.039 -->
00:32:05.599So book her for the holidays if you've got nothing else going on.
00:32:05.759 -->
00:32:12.559You're home with the kids or just trying to escape for a little bit and take a little quiet time, take a meeting with Michelle, learn some more about self-directing.
00:32:12.720 -->
00:32:14.960And she's also got an awesome promo for you guys, too.
00:32:15.039 -->
00:32:16.000I'm gonna give it to you right now.
00:32:16.079 -->
00:32:17.519So make sure you write this down, guys.
00:32:17.680 -->
00:32:22.000It is BF250, BF250.
00:32:22.160 -->
00:32:23.920It's gonna get you$250 off.
00:32:24.000 -->
00:32:28.000It's our Black Friday special, gets you$250 off the account establishment.
00:32:28.079 -->
00:32:35.839So make sure you put that when you book a call with her, add that promo code to the uh to the actual booking itself so that we know you're one of those from the webinar.
00:32:36.079 -->
00:32:38.400Yeah, and this will only go until Cyber Monday.
00:32:38.559 -->
00:32:42.160So that promo code is like we don't do it that high ever.
00:32:42.640 -->
00:32:44.240So if you're gonna use it, use it now.
00:32:44.319 -->
00:32:45.839You got till Monday, till Cyber Monday.
00:32:46.079 -->
00:32:48.000Matt told us to do BF200.
00:32:48.160 -->
00:32:50.640We slipped in the 250, so don't tell them, okay.
00:32:50.880 -->
00:32:53.519Yeah, well, I just heard, but it's too late now.
00:32:53.680 -->
00:32:54.400Damn it.
00:32:54.640 -->
00:32:54.960Okay.
00:32:55.680 -->
00:33:02.480Um all right, well, let's come back to extension of credit primitive transaction because I kind of skipped over that.
00:33:02.640 -->
00:33:08.000Um, this one's a little easier to understand, and we'll give a good case example of it too.
00:33:08.319 -->
00:33:18.880So an extension of credit credit primitive transaction occurs whenever there is an extension of credit between an a plan, which means IRA, and a disqualified person.
00:33:19.039 -->
00:33:19.359All right.
00:33:19.519 -->
00:33:27.920So, for example, let's say your IRA is buying real estate and you have 100 grand in your IRA, but the property's 300 grand.
00:33:28.240 -->
00:33:31.200Well, you can get a loan actually to buy that property.
00:33:31.279 -->
00:33:35.680So the bank will lend 200 grand on it, but you can't guarantee the loan.
00:33:35.839 -->
00:33:38.960You can't be the guarantor or have your credit ran on that.
00:33:39.119 -->
00:33:39.359Okay.
00:33:39.680 -->
00:33:50.160That would cause this extension of credit prohibited transaction because now I've provided my personal credit and I'm a disqualified person to benefit my IRA and in the investment.
00:33:50.799 -->
00:34:04.240So when I'm getting loans for purposes of an IRA, when I'm buying assets or even improving assets or whatever it may be, um I can get a loan, but it needs to be something called a non-recourse loan.
00:34:04.400 -->
00:34:09.840And there's seven or eight banks that really specialize in these and will do loans to single family rentals.
00:34:10.000 -->
00:34:13.679You know, it doesn't have to be some big apartment or commercial property.
00:34:13.840 -->
00:34:21.039In fact, most of the time it's just on single-family rentals, where they will lend you money to your IRA or your IRA-owned LLC.
00:34:21.119 -->
00:34:23.760They will lend it money to go acquire real estate.
00:34:24.000 -->
00:34:29.199Now, these need to be income-producing properties because there's debt service that needs to be met.
00:34:29.360 -->
00:34:38.719And they'll do this like kind of like a they'll they'll have a debt service coverage ratio, you know, that it needs to meet, which frankly, you'll want to meet that, otherwise, it's a bad rental property, anyways.
00:34:38.880 -->
00:34:43.280They want to make sure that the rents that you should be able to collect on this will cover the debt service.
00:34:43.519 -->
00:34:50.880Also, these loans are going to require about 30% down, um, sometimes up to 40, depending on the property or the lender.
00:34:51.039 -->
00:34:59.199Um, the reason for that is under these non-recourse loans, in the event of default, the bank can't come after you because you didn't guarantee the loan.
00:34:59.360 -->
00:35:02.239They can't come after your IRA either because that violates IRA rules.
00:35:02.320 -->
00:35:05.920The only thing they can do is foreclose on the asset they lent on.
00:35:06.079 -->
00:35:08.239So they can foreclose and take that property back.
00:35:08.320 -->
00:35:13.599But if your IRA has other assets or money in it, they can't come after your IRA, nor can they come after you personally.
00:35:13.760 -->
00:35:17.840So they're only recourses on the asset itself that they've lent on.
00:35:18.079 -->
00:35:18.559All right.
00:35:18.719 -->
00:35:20.960Um, and that is a non-recourse loan.
00:35:21.119 -->
00:35:22.559Uh, lots of banks out there do it.
00:35:22.639 -->
00:35:26.719If you go to on directed on our website, there's a number of lenders on there.
00:35:26.800 -->
00:35:28.880Um, it's under the resource directory, I believe.
00:35:28.960 -->
00:35:29.039Yes.
00:35:29.119 -->
00:35:35.599If you go to directria.com and you get to the resource directory from our homepage, you'll see a number of banks that you can contact there.
00:35:35.920 -->
00:35:44.719Also, for any of you that are creative real estate investors, or you're acquiring properties subject to or with seller financing or whatever that is, that's fine too.
00:35:44.800 -->
00:35:46.480You can acquire properties that way.
00:35:46.639 -->
00:35:50.880That your IRA or Roth IRA or IRA LC is the buyer on that.
00:35:51.199 -->
00:35:55.360And you you take it subject to the existing, you know, loan.
00:35:55.599 -->
00:36:01.599Um, and that, and then usually you'll be using an IRA LC for this, and the LLC is, you know, will be agreeing.
00:36:01.679 -->
00:36:06.960So this is your IRA LC, XYZ Investments LLC, will agree to make those payments.
00:36:07.199 -->
00:36:16.000Um, or they'll agree to make them to the seller of the property, but you can't guarantee the seller that the LLC or your IRA will make those payments.
00:36:16.079 -->
00:36:16.239Okay.
00:36:16.639 -->
00:36:18.960That would cause this extension of credit.
00:36:19.119 -->
00:36:24.320Now there was a big case on this about 10 years ago called Peak and Fleck versus Commissioner.
00:36:24.480 -->
00:36:29.920Um, this was two guys that used Roth IRAs actually, and they formed a new company.
00:36:30.320 -->
00:36:37.440This new company, the sole purpose of this new company, it was on 50-50 between their Roth IRAs, was to purchase an existing small business.
00:36:37.679 -->
00:36:48.239So they bought this existing small business, but when they cut the deal from the person that owned this business before them, they said, Hey, we don't have all the money to buy you out of the business.
00:36:48.400 -->
00:36:52.239I think the business is like a million bucks, a couple million bucks to buy it.
00:36:52.559 -->
00:36:56.239Like, here's 500 grand that we have between our Roth IRAs.
00:36:56.320 -->
00:36:58.159We'll pay you the rest over time.
00:36:58.320 -->
00:37:04.239And so there's a seller finance note from the seller of the business saying, Hey, I'm gonna sell you this business for three grand.
00:37:04.480 -->
00:37:08.320I'm just giving, I don't know the exact numbers here, but we're gonna sell you this business for three grand.
00:37:08.880 -->
00:37:10.559Sorry, three million.
00:37:11.440 -->
00:37:12.159Slight detail.
00:37:12.559 -->
00:37:21.679Selling this business for three million, but I'm gonna take 500 from you now, which could the Roth IRAs put into the new company, and the new company paid the seller 500 grand.
00:37:22.079 -->
00:37:26.239But you're gonna owe me 2.5 million that you'll pay me over the next five to ten years.
00:37:26.320 -->
00:37:26.719All right.
00:37:27.679 -->
00:37:29.840Now that was all fine.
00:37:30.079 -->
00:37:30.719You can do that.
00:37:31.039 -->
00:37:35.760However, the seller said, but I really want to make sure you guys pay me back.
00:37:35.920 -->
00:37:50.239So I want you to guarantee these notes personally that you will personally guarantee that you will pay me back this extra couple million dollars, plus I'm gonna put liens on your homes to as collateral to make sure you really pay me back because I don't trust you.
00:37:50.320 -->
00:37:51.920I'm not just gonna take your word for it.
00:37:52.880 -->
00:38:08.639Now, that is what caused an extension of credit prohibited transaction because they agreed to personally guarantee the seller finance note, and they use their personal homes, their personal assets, as collateral for the loan that was really for their Roth IRAs.
00:38:08.800 -->
00:38:12.880Now, Peak and Fleck, bless them, they tried to fight this out in tax court as they should.
00:38:13.360 -->
00:38:18.559There's some arguments they made here that there was a company involved in the middle and they tried to work around this with the tax court.
00:38:18.719 -->
00:38:19.199They lost.
00:38:19.360 -->
00:38:19.760All right.
00:38:19.920 -->
00:38:32.719And um, and the tax court basically said your IRA benefited and received credit extended from you personally when you personally guaranteed the note and used your personal assets as collateral.
00:38:33.119 -->
00:38:35.119Now, here's what happened in this case.
00:38:35.519 -->
00:38:37.280Their IRAs got distributed.
00:38:38.320 -->
00:38:39.840These were Roth IRAs.
00:38:41.119 -->
00:38:45.199The IRS didn't realize this until they'd already sold the business and made a couple million bucks.
00:38:45.679 -->
00:38:58.000So what happened is the IRS audits them later and says, Oh my gosh, you made over they each over made over a million dollars of profit in their Roth IRAs from buying this business, improving it, and selling it for a profit.
00:38:59.280 -->
00:39:06.639But they came in, unwound the transaction, realized that they had guaranteed the debt to acquire it, caused a primitive transaction.
00:39:06.960 -->
00:39:12.159And what happens is the privative transaction goes back to when they guaranteed the loans in the first place.
00:39:12.480 -->
00:39:16.000So the IRS said, you didn't have Roth IRAs when you owned this business.
00:39:16.159 -->
00:39:19.679So any of the profits you're making in the business, those are actually taxable now.
00:39:19.840 -->
00:39:26.880And when you both sold it and there was a couple million of profit, each of your IRAs got a million dollars of profit, that's subject to capital gains tax now.
00:39:26.960 -->
00:39:28.639Because you don't have Roth IRAs anymore.
00:39:28.800 -->
00:39:30.239You had a primitive transaction.
00:39:30.480 -->
00:39:30.719All right.
00:39:30.880 -->
00:39:45.280So that's another angle of the consequences here is if you have transactions and investments where you're making money, which is the point here, those things actually become taxable now because you don't you didn't have an IRA at the point you engage in a primitive transaction.
00:39:45.599 -->
00:39:47.119So that's extension of credit.
00:39:47.280 -->
00:39:49.840Hopefully that example and case is helpful.
00:39:50.079 -->
00:39:57.920Um, bottom line takeaway is don't guarantee debt or pledge personal assets as collateral when your IRA is getting a loan.
00:39:58.079 -->
00:40:00.559Work with a bank lender that understands these loans.
00:40:00.639 -->
00:40:07.360Don't call your friend the loan officer that does loans for LLCs all the time if they don't understand IRA and non-recourse loan rules.
00:40:07.599 -->
00:40:14.000Also, if you're doing creative deals with seller financing or subject to, also just make sure you're not personally guaranteeing that.
00:40:14.239 -->
00:40:20.960Um, that will also cause a extension of credit privy transaction, just like it did for Peak and Fleck.
00:40:21.199 -->
00:40:22.320How are we doing on questions now?
00:40:22.559 -->
00:40:24.480Yeah, full tax attorney honest, guys.
00:40:24.719 -->
00:40:25.599What a treat.
00:40:25.760 -->
00:40:29.760Uh so we do have some questions, but they're not necessarily applicable to this particular segment.
00:40:29.840 -->
00:40:32.639So we can still hit some of them, though, because they're really good.
00:40:32.719 -->
00:40:34.159Uh Wayne's got another good one.
00:40:34.400 -->
00:40:42.480Wayne says, as a realtor, can the commission benefit be rolled into the purchase of the home, which benefits the IRA by lowering the cost basis and no payout to me.
00:40:42.719 -->
00:40:43.519Yes, love that.
00:40:43.679 -->
00:40:44.559Great, great idea.
00:40:44.719 -->
00:40:45.519And that's what I would do.
00:40:45.679 -->
00:40:48.559Just reduce the purchase price if you're the buyer by that 3%.
00:40:48.960 -->
00:40:50.480Either do it in the offer from the beginning.
00:40:50.559 -->
00:40:51.920That's probably the cleanest way to do it.
00:40:52.079 -->
00:40:54.320Just say, hey, you know, I'm the agent, but I'm not taking the commission.
00:40:54.400 -->
00:40:59.599Let's just reduce the purchase price by that 3%, or have it credited back in closing.
00:40:59.760 -->
00:41:07.760Um, maybe your broker takes a little bit of a fee, but otherwise it would go to the agent that can just um be part of the proceeds to purchase.
00:41:08.000 -->
00:41:09.679So your IRA can benefit.
00:41:09.760 -->
00:41:10.400That's the other thing.
00:41:10.480 -->
00:41:13.280Your IRA can benefit from your IRA making an investment.
00:41:13.360 -->
00:41:14.159That's okay.
00:41:14.480 -->
00:41:15.440You just can't.
00:41:15.840 -->
00:41:16.719There you go.
00:41:16.880 -->
00:41:17.280All right.
00:41:17.440 -->
00:41:19.599Um we've got a few more.
00:41:19.920 -->
00:41:20.559Let's see.
00:41:20.719 -->
00:41:22.559How about, ooh, okay, this is a good one.
00:41:22.639 -->
00:41:25.199Terry has a good question about fixing prohibited transactions.
00:41:25.760 -->
00:41:30.239Terry says if you take out, take it out and realize it's prohibited, can you repay it back?
00:41:30.400 -->
00:41:35.519So if you take money out and do a transaction, make an investment, can you repay it back as like a you know, whoopsie?
00:41:35.599 -->
00:41:37.519Or how do you return it back as a refund?
00:41:37.599 -->
00:41:40.559Or is it a second contribution, or what happens?
00:41:41.440 -->
00:41:45.760Okay, let's say you had a transaction where you got money from your IRA.
00:41:45.920 -->
00:41:46.239Okay.
00:41:46.960 -->
00:41:49.840And you're like, oh, damn it, I just watched this webinar.
00:41:49.920 -->
00:41:51.840Apparently that's prohibited.
00:41:52.000 -->
00:41:52.320Okay.
00:41:52.639 -->
00:41:54.639Um, this is attorney client privileged.
00:41:54.719 -->
00:41:54.960Okay.
00:41:55.119 -->
00:41:57.440I'm not going to use the real name here.
00:41:57.679 -->
00:42:00.880Um, first, what I would do is this, you kind of want to talk to a lawyer.
00:42:00.960 -->
00:42:02.880Do not call your IRA custodian on this.
00:42:03.039 -->
00:42:08.400Do not call if the directed IRA or whoever your IRA custodian is and say, hey, I did this.
00:42:08.559 -->
00:42:09.760Is that prohibited?
00:42:10.000 -->
00:42:12.960Because if they say yes, they're going to distribute your account.
00:42:13.199 -->
00:42:13.760All right.
00:42:14.079 -->
00:42:18.239So you need to go talk to a lawyer and have attorney-client privilege conversation about this.
00:42:18.400 -->
00:42:25.760Maybe you trust your CPA, but by the way, your CPA's information is subject to audit, and the IRS could interrogate them or request any of the records.
00:42:25.920 -->
00:42:29.920But if you talk to an attorney, it's attorney client privilege, the IRS can't get any of that info.
00:42:30.239 -->
00:42:34.079So have a professional conversation with an attorney about it.
00:42:34.320 -->
00:42:41.599Um, and uh and and what what you're gonna find in that conversation is, and I'll just kind of outline this.
00:42:41.760 -->
00:42:48.000I've done, by the way, I did continue education, just I did a um for lawyers and financial advisors.
00:42:48.159 -->
00:42:55.920Um, I did a course on primitive transactions and self-directed retirement accounts that was for continue education credit.
00:42:56.000 -->
00:42:58.000I've been to other of those events with lawyers.
00:42:58.079 -->
00:43:00.480It's a small niche industry of people who play in this.
00:43:00.639 -->
00:43:08.880And the consensus of other professionals, once an IRA is engaged in a primitive transaction, is you have a few options.
00:43:09.039 -->
00:43:15.519One, report it as a primitive transaction, just let your custodian know, eh, I engaged in a primitive transaction, you're gonna have to distribute my account.
00:43:15.599 -->
00:43:15.760Okay.
00:43:16.320 -->
00:43:17.840And that's gonna go on your tax return.
00:43:17.920 -->
00:43:19.440You're gonna put that on your 1040.
00:43:19.519 -->
00:43:19.760Okay.
00:43:19.840 -->
00:43:21.039That that is one approach.
00:43:21.119 -->
00:43:21.360Okay.
00:43:21.440 -->
00:43:24.000That's frankly what the IRS is expecting you to do.
00:43:25.199 -->
00:43:30.480The second approach might be like, hmm, I might have some forgiveness here with the IRS.
00:43:30.880 -->
00:43:31.840I'm gonna fix it.
00:43:32.239 -->
00:43:32.559All right.
00:43:32.639 -->
00:43:34.800Now there's no official procedure on this for IRAs.
00:43:34.880 -->
00:43:46.079There actually is for 401ks in some instances, but you can take an approach to try to fix the transaction and put your account back in the position it would have been if you didn't engage in a primitive transaction.
00:43:46.239 -->
00:43:53.760You're subject to audit, and frankly, now it depends on who's the IRS agent you get, and then the tax court judge you get later if the IRS agent didn't like what you did.
00:43:54.000 -->
00:43:57.119So it's not saying there's you've washed yourself clean of it.
00:43:57.199 -->
00:44:00.079Your IRA custodian can't bless it or anything like that.
00:44:00.239 -->
00:44:05.840This is an attorney-client privilege conversation with your lawyer to say, ah, I did that, but I fixed it.
00:44:06.000 -->
00:44:08.559I got my account back into the same position it was.
00:44:08.800 -->
00:44:12.719Now, there's a lot of exceptions to the prohibitive transaction rules.
00:44:12.960 -->
00:44:19.519Um, that's the nice thing about the tax code, is it giveth and it taketh away, but here it giveth right back with the exceptions.
00:44:19.679 -->
00:44:28.079So, yes, we can do self-directed IRAs and invest in real estate, but there are some prohibitive transaction rules that you can screw up, but there are also some exceptions to it.
00:44:28.400 -->
00:44:31.199So, no way we could get through this today.
00:44:31.280 -->
00:44:35.920I'm already trying not to make this boring and have Lindsay joke that I'm doing tax attorney mat today.
00:44:36.079 -->
00:44:38.159So we'll avoid the exceptions.
00:44:38.480 -->
00:44:51.519But as the geeky tax lawyer that did talk to clients for years about this and actually did advice, and my law firm still does this at KQS lawyers, so so there's a team still that can help you, and there's other uh attorneys out there that are smart on this too.
00:44:51.760 -->
00:44:56.480Um, but uh there are sometimes exceptions you can rely on.
00:44:57.119 -->
00:45:00.559So, but don't talk to your IR custodian about it.
00:45:01.840 -->
00:45:05.119Best person is an attorney because that's attorney client privileged.
00:45:05.599 -->
00:45:15.199And you may have ways where it's actually not privated because there's an exception, or there is a way to get your account back in the same position, and then you're gonna have to worry about what's my audit risk on this.
00:45:15.360 -->
00:45:15.920All right.
00:45:16.079 -->
00:45:26.639Um, again, more of a professional conversation, not really for me at directed I to say, but it is helpful um to know how are privative transactions discovered or alleged.
00:45:26.880 -->
00:45:27.280All right.
00:45:27.440 -->
00:45:30.400So here's how primitive transactions are discovered or alleged.
00:45:30.480 -->
00:45:32.079It's a common question I'll get.
00:45:32.320 -->
00:45:34.880This is actually isn't interesting, I I think.
00:45:36.559 -->
00:45:37.039Just you.
00:45:37.280 -->
00:45:38.000Yeah, just me.
00:45:38.079 -->
00:45:44.719I think it's is the the IRS does not have a department that audits or is responsible for IRAs.
00:45:44.960 -->
00:45:46.320Well, don't give them ideas.
00:45:46.480 -->
00:45:46.880Yeah.
00:45:47.920 -->
00:45:51.519So like there's no IRA department that audits IRAs.
00:45:51.679 -->
00:45:56.320There's actually a department for employer plans, like 401ks, that actually audits 401k plans.
00:45:56.480 -->
00:46:01.119Obviously, there's an individual department that audits individuals' returns.
00:46:01.280 -->
00:46:07.119There's a business department that audits business returns, and there's an estate department that audits estate and trust tax returns.
00:46:07.199 -->
00:46:09.920Okay, so there's different departments that will audit different things.
00:46:10.159 -->
00:46:13.280There's no department for IRAs, for better or worse.
00:46:13.440 -->
00:46:21.920So the way IRA privated transactions come about is your IRAs invested in a company and that company return got audited.
00:46:22.079 -->
00:46:25.440Okay, like I've read every primitive transaction case out there.
00:46:25.599 -->
00:46:33.440The vast majority of primitive transactions are come from a business return got audited, and the IRA was invested in that business.
00:46:33.599 -->
00:46:35.840Peak and Fleck, perfect example.
00:46:36.000 -->
00:46:38.320They had a company, they had a corporate tax return actually.
00:46:38.400 -->
00:46:49.199It was actually a C corporation that they did because it was an operating business that could have had UBIT, but their IR Roth IRA's own 50-50 of it, and that 1120, the tax return that a corporation files, got audited.
00:46:49.360 -->
00:46:54.239And then they started digging into the business that they bought and the all the nature of the transaction.
00:46:54.320 -->
00:46:56.079So that's how that one got discovered.
00:46:56.239 -->
00:47:06.559The other one is your IRA custodian sees that you committed a prohibited transaction, whether that's us or any other IRA custodian, or you call them up and tell them you did it, and then we will issue a 1099.
00:47:07.599 -->
00:47:10.480And I believe it's like code five on the 1099.
00:47:10.559 -->
00:47:10.800I don't know.
00:47:10.880 -->
00:47:13.360There's like a code we have to code it that says it was prohibited.
00:47:13.440 -->
00:47:16.079But it basically your entire account gets distributed.
00:47:16.239 -->
00:47:18.880Okay, so that's the second way it happens.
00:47:19.119 -->
00:47:40.719Um the third is um if your IRA um is uh is like on your 1040, so there's like a number of cases where um there's a guy that owns some real estate in his IRA LLC, and he was taking all the expenses on schedule on his on Schedule C, actually.
00:47:40.960 -->
00:47:44.480Um it might have been Schedule E, but he was putting on his personal return.
00:47:44.559 -->
00:47:49.119He was trying to write off the property on his personal return and claim the income in his IRA.
00:47:49.280 -->
00:47:50.480He was just doing a dumb thing.
00:47:50.559 -->
00:47:51.360That's not what you do.
00:47:51.519 -->
00:47:57.599So he kind of like exposed what he was doing to the IRS on his personal return, and so they audited it.
00:47:58.000 -->
00:48:07.599401ks, um when you have a solo 401k with more than 250k of assets, you have to file a tax return for the solo 401k.
00:48:07.760 -->
00:48:11.360So we have thousands of clients that have solo 401k accounts that they self-direct.
00:48:11.760 -->
00:48:16.320Your solo 401k return, this it's called a 5500 return, could get audited.
00:48:16.719 -->
00:48:20.159So it's a low likelihood on smaller 401ks, but it's possible.
00:48:20.559 -->
00:48:24.880So that's the three areas where you'll typically see a primitive transaction.
00:48:25.519 -->
00:48:34.639Um, and again, the most likely is that there's some company return or your IRA is involved in a transaction and someone got audited in that and they see an IRA and kind of dig deeper.
00:48:35.199 -->
00:48:40.239So all right, now let's talk about the statute of limitations here.
00:48:40.880 -->
00:48:44.400Um so there's an actual case on this.
00:48:45.599 -->
00:48:48.800I'm just waiting for Lindsay to make fun of me again.
00:48:48.960 -->
00:48:49.280All right.
00:48:49.519 -->
00:48:51.679I mean, if any of you want to read this, I think it's fascinating.
00:48:51.920 -->
00:48:53.280Decent versus commissioner.
00:48:53.440 -->
00:49:05.440And I actually I was like excited when this case came out because I'm like I I couldn't figure out what the statute of limitations was, and I was advising clients for so long, guessing I had the the guess right, but like now there's a good case on it.
00:49:05.840 -->
00:49:09.519So the statute of limitations is basically three years.
00:49:09.920 -->
00:49:14.800So but it's three years from the time you filed your personal return.
00:49:15.280 -->
00:49:20.239So for example, let's say like right now we're in November of 2025.
00:49:20.480 -->
00:49:24.000Okay, so your 2024 return was due by now, right?
00:49:24.079 -->
00:49:30.159You had to file that even with extensions until um October 15th.
00:49:30.239 -->
00:49:38.159Okay, so it so with 24 is at play to be audited, 23 is at play to be audited, 2022 is at play to be audited.
00:49:38.239 -->
00:49:41.199Okay, so those are the three years you would be subject to audit right now.
00:49:41.920 -->
00:49:42.880What does that mean?
00:49:43.199 -->
00:49:44.880That means 22 is being audited.
00:49:44.960 -->
00:49:50.159The IRS is always auditing the last year possible because they're always behind.
00:49:50.400 -->
00:50:00.000So um, but 2021 and 2020, they're only auditable if there's an exception met here, which I'll get into here in a second.
00:50:00.159 -->
00:50:09.119But for the general purposes, even the IRS's internal revenue agent manual for IRS agents says to only audit up to three years for prohibited transactions.
00:50:09.280 -->
00:50:09.599Okay.
00:50:10.000 -->
00:50:19.039Now, the IRS under statute can go up to six years to audit for a primitive transaction, where they get an additional three for a total of six.
00:50:19.280 -->
00:50:36.960Now, this they can only do this if under if they allege a primitive transaction and your adjusted gross income because of the primitive transaction on your 1040 on your personal return would go up 25%, meaning it was significant enough, then they let the IRS go back an additional three years to a total of six.
00:50:37.119 -->
00:50:46.960But this is only if the assistant secretary of the treasury agrees and authorizes a additional three years for a total of six.
00:50:47.119 -->
00:50:48.719I have never heard of that happening.
00:50:48.800 -->
00:50:51.360I've never seen a case where they went past three years.
00:50:51.519 -->
00:50:55.679I don't even know who this assistant secretary on the treasury is that authorizes this.
00:50:55.840 -->
00:50:58.079And I don't know that that person knows either.
00:50:58.400 -->
00:51:00.960So, bottom line, worry about three years.
00:51:01.119 -->
00:51:08.719Now, if you're committing tax fraud or doing something totally fraudulent, um, there's an unlimited statute of limitations, and that's the tax code in general.
00:51:08.880 -->
00:51:18.559But what I really worry about, if you typically made a mistake or something, um, is you've really got a three-year window for statute limitations on a prohibited transaction.
00:51:19.760 -->
00:51:20.079Okay.
00:51:20.400 -->
00:51:21.599I thought that was interesting.
00:51:21.920 -->
00:51:22.800That was fascinating.
00:51:22.880 -->
00:51:23.679I actually did not know that.
00:51:23.760 -->
00:51:27.199So in my 13 years, I never had statute of limitations.
00:51:27.280 -->
00:51:28.800I got schooled today, guys.
00:51:28.960 -->
00:51:35.920Um I think I think the whole prohibited transaction area is so fascinating, though, because your average investor doesn't realize that this is a thing.
00:51:36.000 -->
00:51:37.360So you guys already have a leg up.
00:51:37.440 -->
00:51:43.199There's not a lot of people that realize that prohibited transactions and disqualified parties take place when it comes to dealing with your IRAs.
00:51:43.360 -->
00:51:49.039And that's because a lot of people are used to your traditional kind of IRA where you're buying Google or you're buying a mutual fund.
00:51:49.360 -->
00:51:51.760You don't have to worry about the owner of Google, right?
00:51:51.920 -->
00:51:53.440Being your father, hopefully.
00:51:53.760 -->
00:51:55.199Um so yeah, it's just fascinating.
00:51:55.440 -->
00:51:56.559Actually, you're hoping it is your father.
00:51:56.800 -->
00:51:57.440Yeah, you are hoping.
00:51:57.519 -->
00:51:57.599Yes.
00:51:58.639 -->
00:52:00.800Then you wouldn't need an IRA if you're preparing for retirement.
00:52:01.280 -->
00:52:01.599Exactly.
00:52:01.679 -->
00:52:01.920Yeah.
00:52:02.400 -->
00:52:04.800Um we do have a lot more questions coming through.
00:52:04.880 -->
00:52:08.559I've got a really good one in regards to IRA LLCs.
00:52:08.639 -->
00:52:09.760Uh, this one's from Gloria.
00:52:10.000 -->
00:52:20.639And Gloria asks, can you elaborate on the pros and cons of using a checkbook self-directed IRA when investing in tax liens and deeds specifically?
00:52:20.719 -->
00:52:23.599But I think the pros and cons of just using it in general would be awesome.
00:52:23.840 -->
00:52:25.440Yeah, I love the IRA LLC.
00:52:25.519 -->
00:52:27.039Some people call it a checkbook IRA.
00:52:27.119 -->
00:52:31.840I actually use that myself for real estate investments that I do with my self-directed retirement account.
00:52:32.159 -->
00:52:36.639So um the most common application is real estate investors.
00:52:36.880 -->
00:52:42.559You're you're buying a property, it's a buy and hold rental, it's a rehab that you're gonna hold or flip.
00:52:42.800 -->
00:52:46.079Um, or you're doing tax deeds or tax liens.
00:52:46.559 -->
00:52:52.400Um, the reason, the the primary reason someone uses an IRA LLC is it's just easier to do deals.
00:52:52.639 -->
00:52:59.360So whether I'm buying a property that's a rent that I'm gonna rent or I'm in a rehab, if you just think of the logistics of it.
00:52:59.599 -->
00:53:05.760If my IRA owns the property, right, there's a lot of back and forth with me and my IRA custodian.
00:53:05.920 -->
00:53:06.800Hey, did you send the money?
00:53:06.880 -->
00:53:08.719Hey, did they you got to sign the contract?
00:53:08.880 -->
00:53:11.840Hey, you gotta pay this person that went and worked on the property.
00:53:12.000 -->
00:53:14.559It's kind of a pain in the butt for you and us.
00:53:14.719 -->
00:53:22.880Um, but you can use this IRLC structure instead, or rather than from your IRA owning the real estate or the tax lien or deed here, I'll come back to that in a second.
00:53:23.039 -->
00:53:29.440Your IRA owns an LLC, the LLC has a bank account, you're the manager of it, and now you just transact in the LLC's name.
00:53:29.519 -->
00:53:36.559So let's say you called the LLC ABC Investments LLC, the contract to purchase is in the name of ABC Investments LLC.
00:53:36.639 -->
00:53:39.199You don't need us to approve anything or sign anything or send a wire.
00:53:39.360 -->
00:53:41.599You have a bank account in the name of the LLC.
00:53:41.840 -->
00:53:44.559You can authorize the wires as manager of the LLC.
00:53:44.719 -->
00:53:48.880And so it puts you in a lot more control to just manage the investments.
00:53:49.119 -->
00:53:57.199If your IRE is just investing into a private fund or a startup and it's buying shares or units and something, you don't need the IRLC because we're just going to process the paperwork.
00:53:57.280 -->
00:54:02.320Your IRE is going to go subscribe and own the shares, and then it's going to get distributions or a payout at some time in the future.
00:54:02.480 -->
00:54:05.280There's not a lot of maintenance or things you got to do to make the deal happen.
00:54:05.440 -->
00:54:07.599You're not dealing with a title or escrow company.
00:54:07.760 -->
00:54:09.599It's pretty straightforward and simple.
00:54:09.840 -->
00:54:16.000Now, on tax liens and tax deeds, what I've just seen over time is that's a volume game, right?
00:54:16.320 -->
00:54:18.880And some of those may pan out, some of them may not.
00:54:19.039 -->
00:54:25.519Some of them might turn into a property you actually end up acquiring, um, which some and sometimes is your end game goal there.
00:54:25.760 -->
00:54:32.239Um, so because of all that maintenance and back and forth and volume, um, you just want to have an LLC.
00:54:32.320 -->
00:54:32.960That's what I would do.
00:54:33.039 -->
00:54:35.519If I was to, I haven't done tax liens, tax deeds.
00:54:35.679 -->
00:54:39.920Um, but this is where you can, if you're someone's like, what the hell is he talking about?
00:54:40.079 -->
00:54:42.880You can go buy people's property tax liens from the county.
00:54:42.960 -->
00:54:47.440If they don't pay their property taxes, you can go buy the lien from the county.
00:54:47.840 -->
00:54:54.559And if they don't pay that back in a certain amount of time, you can foreclose and take the property and wipe out mortgages too, even.
00:54:54.719 -->
00:55:09.199And so there's some there's various state to state, and there's even some nuances within the counties, within states, but the general just is is you can own that lien right, which has some interest, and that they have to the that the the ower of the property will have to pay.
00:55:09.280 -->
00:55:11.599And also there's some foreclosure rights as well.
00:55:11.760 -->
00:55:19.199Now, there are some rights of prior lien holders and mortgage holders and stuff as well there, but um that's just a quick summary there.
00:55:19.280 -->
00:55:22.559So if someone's doing that, I've always seen it as a volume play.
00:55:22.800 -->
00:55:28.880Endgame is you want to acquire the property anyway, you'll be far better off just having an LLC where you're managing all those transactions.
00:55:29.280 -->
00:55:32.239Especially when you're going to tax lien auctions or anything like that.
00:55:32.400 -->
00:55:37.519When you're live at the auction, you want to be able to sign contracts and write checks and handle everything right then and there.
00:55:37.599 -->
00:55:41.280Um if you don't have the IRA LLC in place, then you have to reach out to us to do so.
00:55:41.440 -->
00:55:42.639Now we're super quick.
00:55:42.800 -->
00:55:43.920We can move really quickly.
00:55:44.079 -->
00:55:45.519Not every custodian can, though.
00:55:45.599 -->
00:55:48.079So be extra cautious, especially with timing on those things.
00:55:48.159 -->
00:55:50.559If you're at an auction, the LLC could benefit you for that purpose.
00:55:50.719 -->
00:55:53.119Yeah, and a lot of them make you bring a cashier's check, right?
00:55:53.199 -->
00:55:57.519And so, like getting a cashier's check out of your IRA from us, it's it's not simple.
00:55:57.679 -->
00:56:01.039And I, if you're calling, if you're trying to do that, I'm just gonna just do an IRA LLC.
00:56:01.119 -->
00:56:01.840You'll thank me later.
00:56:02.000 -->
00:56:03.840I know it's a little cost to get that set up.
00:56:04.000 -->
00:56:06.400It's like$1,200 for an IRA LC.
00:56:06.480 -->
00:56:19.440Their IRE owns 100%, but your time and your life cycle of making these investments, if you're trying to grow this account over 10, 20 years, I don't know your time period of trying to grow this, you will, it'll be well worth it for you.
00:56:19.760 -->
00:56:21.119Um, and we want to work with you.
00:56:21.199 -->
00:56:22.159Don't and we want to hear from you.
00:56:22.239 -->
00:56:22.880It's not about that.
00:56:22.960 -->
00:56:24.320Don't, don't feel, don't feel that.
00:56:24.559 -->
00:56:27.599But um it's guys, I use it.
00:56:27.679 -->
00:56:28.000Okay.
00:56:28.079 -->
00:56:28.800I'm in the office.
00:56:28.880 -->
00:56:29.360I know everything.
00:56:29.440 -->
00:56:30.639I can tell people what to do.
00:56:30.800 -->
00:56:33.440I use the IRL C for my own account.
00:56:33.920 -->
00:56:35.840Yeah, IRA LCs are awesome.
00:56:35.920 -->
00:56:38.639So go to kcoslawyers.com if you want to learn a little bit more.
00:56:38.719 -->
00:56:45.360Um, or when you book your phone call with Michelle, she can also go over a lot of the basics with you um to tee it up to get you set up properly for that.
00:56:45.440 -->
00:56:47.519Um, on that note, don't forget to book a call with her.
00:56:47.599 -->
00:56:49.760I just checked her calendar and she's completely booked for today.
00:56:49.840 -->
00:56:54.719So sorry guys, if you're trying to get in for today, she's fully booked, um, but she does have some availability tomorrow.
00:56:54.800 -->
00:56:58.159And then she's got even less availability on Thursday and Friday.
00:56:58.239 -->
00:56:59.760So it looks like you're getting full, Michelle.
00:56:59.920 -->
00:57:03.039Sorry about that, but glad, glad you're working uh the entire week.
00:57:03.119 -->
00:57:04.400So thank you for doing that.
00:57:04.719 -->
00:57:06.000This is her decision, okay?
00:57:06.239 -->
00:57:07.039This is not me.
00:57:07.199 -->
00:57:09.360Don't be like Matt's a terrible boss.
00:57:09.679 -->
00:57:13.519No, no, we uh he absolutely allows us to have days off, just not Michelle.
00:57:13.599 -->
00:57:14.639So no, I'm just gonna kidding.
00:57:14.800 -->
00:57:16.559Michelle's allowed days off too, but she volunteered.
00:57:16.639 -->
00:57:17.840So we appreciate you, Michelle.
00:57:17.920 -->
00:57:20.719Um, again, don't forget that promo code guys, BF250.
00:57:20.880 -->
00:57:23.440That's Black Friday 250, 250 bucks off.
00:57:23.599 -->
00:57:25.920So add that to your notes when you book the call with her.
00:57:26.000 -->
00:57:28.480And there's a little spot you can add some notes for your call as well.
00:57:28.639 -->
00:57:30.800That'll make sure you get$250 off.
00:57:31.280 -->
00:57:31.840Awesome.
00:57:32.000 -->
00:57:32.239Okay.
00:57:32.400 -->
00:57:34.960Well, remember this is recorded, so you can come back to this.
00:57:35.039 -->
00:57:37.039You'll get a notification on it in the next day or two.
00:57:37.119 -->
00:57:39.840It'll be up at directedira.com slash webinar.
00:57:40.000 -->
00:57:41.760Make sure you're signed up for our newsletter.
00:57:41.840 -->
00:57:44.400If you're not getting our newsletter, make sure you're signed up for that.
00:57:44.480 -->
00:57:45.840You can do that at directira.com.
00:57:45.920 -->
00:57:48.639You'll get notices of all the other upcoming webinars that we have.
00:57:48.800 -->
00:57:52.960You'll get reminders of recordings of webinars and all the content we're putting out every week.
00:57:53.119 -->
00:57:56.960Just trying to give you more education so you can take control of your retirement.
00:57:57.119 -->
00:57:58.880It's a pleasure to be your IRA custodian.
00:57:58.960 -->
00:58:01.199For any of you that are clients, we do appreciate your business.
00:58:01.360 -->
00:58:09.119And for any of you that are prospects and thinking about, you know, self-directing your IRA and what's who's the right IRA custodian, you finally found that.
00:58:09.280 -->
00:58:10.000You're here.
00:58:10.239 -->
00:58:11.599Just join the team already.
00:58:11.760 -->
00:58:12.960We we want to help you.
00:58:13.119 -->
00:58:14.960Um, and so now's a great time.
00:58:15.119 -->
00:58:16.400Take advantage of that promo.
00:58:16.639 -->
00:58:17.519Thanks, everybody.
00:58:17.679 -->
00:58:19.599Stay calm, self direct on.
