Prohibited Transactions in a Self-Directed IRA (You Know It's a Prohibited Transaction When...)

WEBVTT
00:00:06.240 --> 00:00:08.480
Welcome everyone to the Directed IRA podcast.
00:00:08.560 --> 00:00:11.359
This is Matt Sorensen joined by the great and powerful Mark J.
00:00:11.519 --> 00:00:12.000
Kohler.
00:00:12.160 --> 00:00:19.120
We are two tax lawyers here to teach you what is a prohibited transaction when you're using a self-directed IRA.
00:00:19.199 --> 00:00:23.519
These are IRAs that can own in real estate, private companies, you can invest crypto.
00:00:23.679 --> 00:00:26.800
All these private assets you can actually own with your IRA.
00:00:26.879 --> 00:00:30.480
But there's one critical rule, the most important rule I should say, that you need to know.
00:00:30.719 --> 00:00:32.479
Is you're gonna have fun during this podcast.
00:00:32.719 --> 00:00:33.439
That's why I'm here.
00:00:33.920 --> 00:00:34.240
Yes, yeah.
00:00:34.399 --> 00:00:34.799
Can we do that?
00:00:34.880 --> 00:00:39.280
Yeah, I'm gonna obviously lobbying for comic relief on the podcast today.
00:00:39.359 --> 00:00:40.320
I'm like, we need to be serious.
00:00:40.560 --> 00:00:41.920
I know, he's like plowing through.
00:00:42.079 --> 00:00:46.240
I'm like, I gotta get a word in here, you know, to make sure you guys are gonna have a great time.
00:00:46.399 --> 00:00:48.479
But apparently you're saying there's a number one rule.
00:00:48.799 --> 00:00:50.479
And it's the prohibitive transaction rule.
00:00:50.640 --> 00:00:57.520
And it's really once you know it, you can be super powerful and unstoppable with your self-directed IRA.
00:00:57.679 --> 00:00:57.920
I love it.
00:00:58.000 --> 00:01:01.119
And I was like, I love this time because I love Jeff Foxworthy.
00:01:01.200 --> 00:01:05.200
We have some younger people here who have never heard of this guy who said, you know, you're a redneck when.
00:01:05.519 --> 00:01:06.799
Anybody remember that joke?
00:01:07.040 --> 00:01:08.560
Well, we're here to tell you today.
00:01:08.719 --> 00:01:14.879
We're gonna spatter or sprinkle in some of these great jokes of you know it's prohibited transaction when.
00:01:15.200 --> 00:01:15.920
So stay tuned.
00:01:16.000 --> 00:01:16.480
It's gonna be good.
00:01:16.640 --> 00:01:17.840
Are you gonna give us one on the day?
00:01:18.239 --> 00:01:18.959
I'm gonna lead out of one.
00:01:19.200 --> 00:01:20.159
Okay, I'm gonna lead with one.
00:01:20.319 --> 00:01:23.120
Okay, so everybody, you're you're gonna, you're never gonna forget.
00:01:23.280 --> 00:01:33.200
See, this the beauty of this podcast today, you're never gonna forget what a prohibited transaction is again, and you're gonna make so much freaking money in your IRA because we're gonna make this fun to learn.
00:01:33.359 --> 00:01:34.879
Okay, so I okay, you want one of my?
00:01:35.120 --> 00:01:36.560
I'm gonna go with a holiday one.
00:01:36.879 --> 00:01:46.000
You know it's a prohibited transaction when your IRA owns a vacation home and somehow your whole family accidentally spent Christmas there.
00:01:46.319 --> 00:01:49.359
If you're not laughing right now, that's because you thought that was great.
00:01:49.519 --> 00:01:53.280
Yeah, that's because you know, sometimes delivery matters, you know.
00:01:53.519 --> 00:01:56.560
Um, you know, comedy's all about timing.
00:01:56.799 --> 00:01:57.040
Okay.
00:01:57.280 --> 00:02:00.239
And also, you probably don't know what a primitive transaction is.
00:02:00.319 --> 00:02:01.680
Because if you did know, you would be laughing.
00:02:01.760 --> 00:02:01.920
Okay.
00:02:02.159 --> 00:02:02.879
Because that was funny.
00:02:03.359 --> 00:02:06.239
So we know you get it, your whole family accidentally.
00:02:07.040 --> 00:02:07.120
Yeah.
00:02:07.680 --> 00:02:07.760
Yeah.
00:02:07.920 --> 00:02:08.159
Whatever.
00:02:08.560 --> 00:02:09.599
Because they can't stay there.
00:02:09.840 --> 00:02:13.280
So, all right, let's unpack what is a primitive transaction.
00:02:13.520 --> 00:02:13.840
I like it.
00:02:13.919 --> 00:02:14.080
Okay.
00:02:14.159 --> 00:02:14.240
Okay.
00:02:14.400 --> 00:02:16.240
Let me say one thing on at the outset here.
00:02:16.400 --> 00:02:19.120
Your IRA can really own any asset allowed by law.
00:02:19.199 --> 00:02:22.560
It just can't own life insurance, collectibles, or S corporation stock.
00:02:22.719 --> 00:02:24.240
Everything else is fair game.
00:02:24.400 --> 00:02:30.960
It can own the duplex down the street, it can own an Airbnb, it can own a vacation rental, but your family can't stay there.
00:02:31.039 --> 00:02:32.719
And this is because of the prohibited transaction rule.
00:02:32.960 --> 00:02:33.919
And I want to add to this too.
00:02:34.000 --> 00:02:39.599
A lot of people hear prohibited transaction rule, and they think it's all about stuff you can't buy.
00:02:40.080 --> 00:02:40.960
It's not that.
00:02:41.199 --> 00:02:43.360
You got world is your oyster.
00:02:43.680 --> 00:02:49.680
The prohibited transaction rule is what you do with it after you buy it or who you buy it from.
00:02:50.000 --> 00:02:52.159
That's what the prohibited transaction rule is about.
00:02:52.240 --> 00:02:54.479
It's not about what you're buying, it's how you're buying.
00:02:54.800 --> 00:02:56.639
Yeah, and there's really three varieties of this.
00:02:56.719 --> 00:02:58.159
We're gonna teach them here, we'll get through it.
00:02:58.240 --> 00:02:59.280
It's not, it's pretty simple.
00:02:59.439 --> 00:02:59.599
Okay.
00:02:59.919 --> 00:03:02.800
The first is what's called a per se prohibited transaction.
00:03:03.120 --> 00:03:09.520
And like Mark said, this is about who is your IRA, once you have money in your self-directed IRA, who is it transacting with?
00:03:09.680 --> 00:03:14.800
If my IRA is buying the duplex down the street as a rental property, who's selling that?
00:03:15.199 --> 00:03:17.520
Who's selling that property to my IRA?
00:03:17.680 --> 00:03:19.280
So I have a primitive transaction.
00:03:19.360 --> 00:03:24.159
If I have an IRA, transact with the disqualified person.
00:03:24.400 --> 00:03:27.199
Well, the whole point of having a retirement account is to have one.
00:03:27.439 --> 00:03:30.800
So I got one and I gotta make money, so I gotta transact it.
00:03:31.120 --> 00:03:33.520
But who is on the other side of the transaction?
00:03:33.919 --> 00:03:41.680
And this is where people start to play games and want to benefit themselves and their IRA at the same time.
00:03:41.919 --> 00:03:55.199
And themselves means your mom, your dad, your kids, your spouse, you're trying to benefit your family somehow and have your IRA provide some cool asset or payment or use of property to your family.
00:03:55.360 --> 00:03:58.000
That's where, and this is the crazy part.
00:03:58.319 --> 00:04:04.159
Just this principle alone, your IRA can make so much more money than a Wall Street structured product.
00:04:04.319 --> 00:04:05.280
That's the beauty of it.
00:04:05.439 --> 00:04:09.599
But then some people push the envelope even farther and say, ooh, ooh, that's great.
00:04:09.759 --> 00:04:11.439
Now I'm gonna use that rental property.
00:04:11.599 --> 00:04:14.800
No, just just enjoy the incredible ROI.
00:04:15.120 --> 00:04:17.839
Don't screw it up by trying to use it.
00:04:18.079 --> 00:04:21.519
So so I'd like so first example is I like your point.
00:04:21.759 --> 00:04:28.160
Prohibited transact transaction number one is I am doing a deal with a person that I shouldn't.
00:04:28.319 --> 00:04:32.560
I'm either buying a property from them or selling it, I'm leasing it.
00:04:32.720 --> 00:04:34.480
So let's just go through the clear example here.
00:04:34.639 --> 00:04:38.639
My IRA is buying the duplex down the street, and the seller is my father.
00:04:38.800 --> 00:04:39.120
Okay.
00:04:39.279 --> 00:04:42.560
Well, my father's on this list of who is a disqualified person.
00:04:42.639 --> 00:04:44.160
It's what it's called in the tax code.
00:04:44.240 --> 00:04:46.000
This is section 4975.
00:04:46.079 --> 00:04:47.920
I did tip warn you, we're tax lawyers, okay?
00:04:48.160 --> 00:04:51.040
All right, you might think we're comedians or some, you know, well, I don't know.
00:04:51.199 --> 00:04:52.639
I know I don't know what you're thinking right now.
00:04:52.800 --> 00:04:54.000
Okay, I don't really don't know.
00:04:54.160 --> 00:04:56.000
Okay, but you're still listening and watching.
00:04:56.079 --> 00:04:56.399
Okay.
00:04:56.720 --> 00:04:59.279
So um, but your father's prohibited.
00:04:59.439 --> 00:05:00.639
Now, you're prohibited.
00:05:00.800 --> 00:05:07.519
So this is what we get a lot of times, too, is they're like, hey Matt, I own this stock or I got some options in this company I work at, and they've gone up in value.
00:05:07.600 --> 00:05:09.439
And if I sell them, I'm gonna pay all this tax.
00:05:09.519 --> 00:05:11.680
Can I just sell them to my Roth IRA?
00:05:11.920 --> 00:05:13.040
Well, now let's look at that again.
00:05:13.199 --> 00:05:18.399
This is your IRA buying stock, a transaction or options here from yourself.
00:05:18.560 --> 00:05:19.600
You're disqualified.
00:05:19.759 --> 00:05:22.000
So this would cause a prohibited transaction as well.
00:05:22.160 --> 00:05:25.279
Now let me change one fact here, and then I'll let it let you take it from me.
00:05:25.519 --> 00:05:30.000
I will defer to you, I will, you know, yield, I will yield the balance of my time.
00:05:30.160 --> 00:05:30.319
All right.
00:05:30.560 --> 00:05:30.800
Okay.
00:05:31.199 --> 00:05:34.639
Is let's say you're like, okay, let's go back to this real estate example.
00:05:34.959 --> 00:05:39.439
Now let's say that your IRA is buying the duplex down the street, but the seller's your sister.
00:05:40.319 --> 00:05:42.480
Your sister's not on the list of disqualified people.
00:05:42.560 --> 00:05:45.519
And I know you're thinking, but Matt, I thought family was prohibited.
00:05:45.759 --> 00:05:47.279
It depends on who they are in the family.
00:05:47.600 --> 00:05:49.279
Your brother or sister are actually fine.
00:05:49.439 --> 00:05:54.560
Okay, your aunt, uncle, cousin, obviously third parties, some seller you don't even know, that's totally fine.
00:05:54.959 --> 00:05:59.519
The real issue here is these certain family members that are disqualified, do not transact with them.
00:05:59.600 --> 00:06:01.120
It'll blow up your IRA.
00:06:01.279 --> 00:06:04.800
You have a distribution of your IRA, it no longer exists.
00:06:04.959 --> 00:06:08.079
If you're not yet 59 and a half, you have an early withdrawal penalty.
00:06:08.240 --> 00:06:11.920
So those are some easy examples here, I think, to get the juices flowing about what we're talking about.
00:06:12.160 --> 00:06:21.279
And to give you kind of like why the practical reason why is the IRS knows you would not screw over your mom or dad in a transaction, but you'd screw over your sister.
00:06:21.360 --> 00:06:22.000
And that's okay.
00:06:22.079 --> 00:06:23.439
They're like, that's fine, you know?
00:06:23.600 --> 00:06:23.759
Yeah.
00:06:23.920 --> 00:06:34.879
But so or they thought, or they thought, you know, your mom or dad wouldn't collude in a transaction with you to avoid taxes, but your brother and sister I don't know what they're thinking.
00:06:35.040 --> 00:06:37.040
Actually, let's let's not even worry about this.
00:06:37.120 --> 00:06:39.360
This try to think what Congress was intending when they were.
00:06:39.759 --> 00:06:40.639
Yeah, that's almost impossible.
00:06:40.879 --> 00:06:41.519
That's a disaster.
00:06:41.600 --> 00:06:41.839
Yeah.
00:06:42.319 --> 00:06:44.879
No, I actually think I'd like your example because I do want to say it.
00:06:44.959 --> 00:06:54.639
The IRS actually thinks your mom and dad would collude with you to increase the value of your IRA and screw over the IRS, but your sister would be like, hell no, just buy my house.
00:06:54.800 --> 00:06:55.759
You know, you jerk.
00:06:55.920 --> 00:06:58.319
And so that's kind of what's going on there.
00:06:58.480 --> 00:07:03.360
Um, okay, now that's the acquisition transaction issue.
00:07:03.519 --> 00:07:05.600
Okay, so everybody, let's let's knock these out.
00:07:05.759 --> 00:07:12.000
So when you're using your IRA to buy assets, you can't buy something from yourself, your parents, your kids.
00:07:12.079 --> 00:07:15.600
Uh, you know, the spouse and all the spouses for the NBU in Utah.
00:07:15.839 --> 00:07:17.519
Kind of yeah, there you go.
00:07:17.920 --> 00:07:25.120
Now, the next rule that you want to be aware of is kind of this use and kind of transaction stuff.
00:07:25.360 --> 00:07:30.000
Like, once I buy the property, so I buy it from a third party, it's all good.
00:07:30.160 --> 00:07:31.920
But now you want to go stay there.
00:07:32.079 --> 00:07:43.839
Say it's a short-term rental, or it's a long-term rental and you want your kids to go live in it while they go to college, or um you want you buy this business and you want the business to hire you or hire your kids.
00:07:44.000 --> 00:07:57.279
Um, but your IRA owns it, and we know that the IRA could very well make more money because you're gonna play games with this, or benefit your family with money that's stuck in your IRA, and it could go both ways.
00:07:57.360 --> 00:08:01.040
Some people want their IRA to own the business so that it can suck money out faster.
00:08:01.199 --> 00:08:05.519
Other people want the IRA to own it so you can work in it for free and make it go up faster.
00:08:05.680 --> 00:08:06.160
You never know.
00:08:06.319 --> 00:08:11.439
So the IRS says, with all that crap going on, no, you can't do it with these prohibited parties.
00:08:11.519 --> 00:08:13.519
Once you buy something, leave it alone.
00:08:13.680 --> 00:08:16.639
Go make some money, but don't transact with it.
00:08:16.879 --> 00:08:17.120
Yeah.
00:08:17.199 --> 00:08:22.160
So now my IRA owns that duplex that I bought from my sister, not a disqualified person, right?
00:08:22.319 --> 00:08:23.199
I can go rent it.
00:08:23.279 --> 00:08:31.199
I can have any tenant that I want to rent that property, but it's not me, not my spouse, not my parents, not my kids, anyone on this disqualified person list.
00:08:31.360 --> 00:08:31.759
All right.
00:08:31.920 --> 00:08:35.039
And also, you can't stay there for free.
00:08:35.200 --> 00:08:35.519
Okay.
00:08:35.679 --> 00:08:40.559
So whether you you're having a disqualified person rent from there, that's a problem.
00:08:40.720 --> 00:08:51.360
They're they're transacting because they're paying rent to your IRA, or you're staying there for free and getting some unfair benefit, this causes what's called a self-dealing transaction prohibited transaction.
00:08:51.519 --> 00:08:59.440
So the bottom line is once your IRE owns an asset, don't have use or benefit of it yourself or any of these people that are disqualified on the list.
00:08:59.679 --> 00:09:06.639
Now, for 99.99%, well, I say for 99.98% of you, all right, let's be precise here.
00:09:06.799 --> 00:09:08.159
Um, this doesn't matter.
00:09:08.559 --> 00:09:22.159
But we know we run across the people that are like, they're trying to manipulate and use the IRA some way unfairly to benefit them or their kids or their spouse, or they think that the self-directed IRA gives them this freedom to use it in these ways that benefits them.
00:09:22.399 --> 00:09:23.759
No, that's not what we're talking about here.
00:09:23.919 --> 00:09:31.360
You are investing in that duplex because you think it's going to appreciate in value and cash flow rent better than the mutual fund that your IRA owned before.
00:09:31.519 --> 00:09:38.159
That's why we're buying these assets, not to have some weird use or benefit from them or to do some crazy transactions to screw over the IRS.
00:09:38.320 --> 00:09:41.840
And so that's what this primitive transaction rule is really all about at the end of the day.
00:09:42.000 --> 00:09:42.399
I love it.
00:09:42.559 --> 00:09:47.200
And you know, and the reality is some of you are like, well, that's that's not that complicated.
00:09:47.279 --> 00:09:48.480
That makes sense.
00:09:48.720 --> 00:09:55.039
And it actually is quite easy to absorb and understand and then put into practice.
00:09:55.200 --> 00:09:59.120
So I think we're ready for another, you know it's a prohibited transaction when.
00:09:59.279 --> 00:09:59.519
All right.
00:09:59.679 --> 00:10:00.000
May I?
00:10:00.080 --> 00:10:00.320
Yeah.
00:10:00.480 --> 00:10:00.799
Okay.
00:10:01.279 --> 00:10:09.200
You know it's a prohibited transaction when your IRA buys a rental and your mom is the tenant and she pays rent in cookies.
00:10:10.480 --> 00:10:11.519
I love that one.
00:10:11.759 --> 00:10:13.600
Because your mom would do that, you know?
00:10:13.840 --> 00:10:14.240
Yeah.
00:10:14.720 --> 00:10:16.159
Like, do I have to really pay rent?
00:10:16.240 --> 00:10:17.679
Can I just bring you a plate of cookies?
00:10:17.840 --> 00:10:17.919
Yeah.
00:10:18.080 --> 00:10:20.799
Um, mom, that is a prohibited transaction transaction.
00:10:20.960 --> 00:10:22.080
You shouldn't even be there.
00:10:22.240 --> 00:10:22.720
Get out.
00:10:22.879 --> 00:10:24.399
I'm gonna go to trip go to jail.
00:10:24.480 --> 00:10:25.039
So yeah.
00:10:25.200 --> 00:10:26.159
A couple more points there.
00:10:26.399 --> 00:10:27.200
Fixer uppers.
00:10:27.279 --> 00:10:27.600
Okay, yeah.
00:10:27.679 --> 00:10:28.480
Fixer uppers.
00:10:28.559 --> 00:10:35.440
We a lot of clients are investing in real estate that needs to be fixed up, or they're buying businesses, frankly, that need someone to get in there and run it and turn it around, maybe.
00:10:35.759 --> 00:10:36.080
All right.
00:10:36.159 --> 00:10:44.080
Now, whether you're buying real estate or you're buying a business, a lot of our clients that are business owners, real estate investors, they're like, I'm going in, I'm going in, put me in, coach.
00:10:44.159 --> 00:10:46.960
You know, I'm putting on the tool belt to go remodel the kitchen.
00:10:47.200 --> 00:10:48.960
The IRS is like, no, you're not.
00:10:49.200 --> 00:10:49.919
All right, okay.
00:10:50.080 --> 00:10:56.879
That is self-dealing because you're adding value to the asset past doing administrative and management oversight.
00:10:57.039 --> 00:11:01.840
So once your IRA owns real estate, let's just stick with that one here for a second, keep it simple.
00:11:02.080 --> 00:11:06.080
We can have the kitchen remodeled, but your IRA is gonna pay someone to come do it.
00:11:06.240 --> 00:11:09.120
It's not gonna pay your kid or your or your parents or yourself.
00:11:09.360 --> 00:11:13.679
It can pay some contractor, of course, unrelated, to come in and remodel and improve the kitchen.
00:11:13.759 --> 00:11:16.639
And that's presumably gonna increase value or get you better cash flow.
00:11:16.879 --> 00:11:18.559
And by the way, can I just say this is okay?
00:11:18.720 --> 00:11:26.320
Now I know some of you listening are like, well, I'm not gonna have my IRA do that because I'm a fix and flip expert and I make half my money when I start going in to make them better.
00:11:26.639 --> 00:11:29.600
If you were a fix and flip expert, you actually don't work on your properties.
00:11:30.399 --> 00:11:30.879
Fair enough.
00:11:30.960 --> 00:11:31.759
Okay, that's a good point.
00:11:31.919 --> 00:11:33.200
And also I used a key word there.
00:11:33.279 --> 00:11:37.759
I said, I make half my money by adding value through my sweat equity.
00:11:38.240 --> 00:11:39.919
Well, what was the key word in there?
00:11:40.159 --> 00:11:41.360
Half the value.
00:11:41.600 --> 00:11:48.320
Just just don't, you don't need that extra half because remember, your IRA can sell this property tax-free.
00:11:48.559 --> 00:11:52.159
So you just don't, just you don't have to have all the cake and eat it too.
00:11:52.320 --> 00:11:55.919
Say, all right, I'll hire a contractor for this sweat equity stuff.
00:11:56.159 --> 00:12:00.559
My IRA is still gonna make a great return, not as much as if you did it yourself.
00:12:00.960 --> 00:12:02.320
Granted, we get that.
00:12:02.559 --> 00:12:06.320
But don't create a prohibited transaction by going and working on the property.
00:12:06.399 --> 00:12:12.320
If you were audited, you'd have to show receipts of actually paying third parties to improve the property.
00:12:12.480 --> 00:12:16.080
You're still gonna make a great ROI and you don't pay tax on the deal.
00:12:16.320 --> 00:12:17.519
Just enjoy that.
00:12:17.679 --> 00:12:18.799
You don't have to have it all.
00:12:18.879 --> 00:12:20.000
Don't get greedy.
00:12:20.320 --> 00:12:29.120
So that is that sweat sweat equity rule of adding something to your business or adding something to that rental property that you normally would.
00:12:29.200 --> 00:12:30.720
Go do that with your own LLC.
00:12:30.799 --> 00:12:33.519
Just don't do it with the LLC that your IRA owns.
00:12:33.759 --> 00:12:34.559
Yeah, absolutely.
00:12:34.720 --> 00:12:37.360
And so um But you can be the manager of the LLC.
00:12:37.519 --> 00:12:38.080
Yeah, you can.
00:12:38.159 --> 00:12:41.200
So the IRS says, like, hey, look over things.
00:12:41.360 --> 00:12:46.320
You can even go to the property, you can oversee the make sure the work was done properly.
00:12:46.480 --> 00:12:49.759
All this administrative oversight management, totally fine.
00:12:49.919 --> 00:12:55.840
Your IRA can even own an LLC 100%, and the LLC can own the property and you can be manager of the LLC.
00:12:55.919 --> 00:12:58.000
This is called an IRA LC checkbook IRA.
00:12:58.080 --> 00:13:00.639
We've got a lot of other content on that if you want to read up on that.
00:13:00.799 --> 00:13:02.960
Very popular, of course, for real estate investors.
00:13:03.039 --> 00:13:04.399
Now let's go over to the business too.
00:13:04.480 --> 00:13:05.919
Your IRA buys a business.
00:13:06.080 --> 00:13:10.879
Go hire, the IRA is going to pay for a manager, or the cash flow from the business is gonna pay for a manager.
00:13:11.039 --> 00:13:16.559
You're not gonna be the one working in the business, particularly when your IRA owns 50% or more of that company.
00:13:16.879 --> 00:13:20.720
And uh just to give you, you may say, well, that sucks or whatever.
00:13:21.279 --> 00:13:23.039
Just know there's some guardrails.
00:13:23.200 --> 00:13:28.720
For example, if your IRA owns a minority interest, you might be able to work in the business.
00:13:28.799 --> 00:13:35.759
Now, when you do a consult with one of our tax lawyers, they'll tell you where that line is because it's a it's a subjective line.
00:13:35.919 --> 00:13:40.080
The case IRS case law says 50% hell no.
00:13:40.399 --> 00:13:44.559
If you own 50% or more of this business in your IRA, you are not working for it.
00:13:44.639 --> 00:13:45.519
That's prohibited.
00:13:45.600 --> 00:13:50.879
But somewhere between 49% and 2%, there might be flexibility.
00:13:51.039 --> 00:13:54.960
It depends on who owns the other 50% plus, the majority.
00:13:55.120 --> 00:14:02.720
Just know there are some options there, but you and family cannot, and your IRA cannot own a majority of this company and you work for it.
00:14:02.879 --> 00:14:04.799
So you'll get to know those rules.
00:14:05.039 --> 00:14:13.279
And maybe like if Matt's IRA or someone uh owned an IRA and he wanted to hire someone to work for it, that's great if they're not family.
00:14:13.360 --> 00:14:20.240
It it's it really looks at who has majority control of the company and would they normally pay someone to do this and how much.
00:14:20.320 --> 00:14:23.759
That's their iris is really letting people just kind of self-regulate.
00:14:24.000 --> 00:14:30.399
Yeah, and once we're below 50%, it gets into this self-dealing issue and it's all facts and circumstances.
00:14:30.559 --> 00:14:32.960
Did your IRA own 5% or 49%?
00:14:33.279 --> 00:14:35.600
If it frankly owned five, we're not gonna really care.
00:14:35.759 --> 00:14:38.399
If you're at 49%, it's gonna be super aggressive.
00:14:38.559 --> 00:14:41.279
Then also it's gonna look at what was the compensation you were receiving.
00:14:41.440 --> 00:14:44.720
Did you actually show up for work every day and do this as a job, you know?
00:14:44.879 --> 00:14:47.200
So it's gonna kind of get into facts and circumstances.
00:14:47.360 --> 00:14:50.000
Now, there are a lot of cases on this actually, and they're in my book.
00:14:50.159 --> 00:15:01.200
I have a whole chapter on self-dealing primitive transactions, probably 10 to 15 uh opinion letters, revenue rulings, cases out there on this self-dealing primitive transaction issue.
00:15:01.279 --> 00:15:08.000
So if you want to geek out on it or you want to test, know where the limits are, this is where it's not as cut and dry as we've been talking up to here so far.
00:15:08.080 --> 00:15:09.840
But our lawyers at Kick Yoast Lawyers can help.
00:15:10.080 --> 00:15:11.120
Okay, you ready for another one?
00:15:11.279 --> 00:15:11.440
Yeah.
00:15:11.679 --> 00:15:12.000
Okay.
00:15:12.480 --> 00:15:13.279
This is a good one.
00:15:13.519 --> 00:15:14.399
We're gonna do the joke.
00:15:14.559 --> 00:15:26.879
Yeah, I'm gonna I'm gonna tell you, okay, you know it's a prohibited transaction when you use your IRA to buy a fixer upper, and the IRS shows up because your sweat equity is literally sweating.
00:15:27.039 --> 00:15:27.600
Get it?
00:15:27.759 --> 00:15:29.679
You're you're sweating, working on it.
00:15:30.720 --> 00:15:31.919
I get it for sure.
00:15:33.519 --> 00:15:43.200
Okay, first of all, no good comedian finishes his joke and says, get it, get it, because this well, you know, I mean some of us have a little more humor.
00:15:45.519 --> 00:15:47.200
Well, you know, I'm just trying to bring it out of you.
00:15:47.440 --> 00:15:49.039
When a joke lands, it just lands.
00:15:49.360 --> 00:15:49.519
Okay.
00:15:49.600 --> 00:15:50.639
All right, you try one here.
00:15:50.720 --> 00:15:50.879
Okay.
00:15:50.960 --> 00:15:53.600
You go with that with that solo 401k.
00:15:53.840 --> 00:15:54.000
Okay.
00:15:54.080 --> 00:15:54.240
Okay.
00:15:54.399 --> 00:15:54.639
All right.
00:15:54.799 --> 00:16:05.759
So you know it's a prohibited transaction when your solo 401k buys a business and your business card says president, treasure, and guy who definitely pretends this isn't self-dealing.
00:16:08.879 --> 00:16:10.000
Yeah, we're we're nerds.
00:16:10.080 --> 00:16:11.519
We pen drop, we don't mic drop.
00:16:11.600 --> 00:16:12.879
Okay, I got I'll see.
00:16:13.679 --> 00:16:14.879
We got Mark Kohler in this one here.
00:16:15.039 --> 00:16:15.440
Oh, okay.
00:16:15.519 --> 00:16:26.000
You know it's a prohibited transaction when you tell Mark Kohler, don't worry, I only used my IR, my IRA credit card for one tank of gas, and he passes out like a fainting goat.
00:16:28.799 --> 00:16:30.000
Oh, I don't know about that one.
00:16:30.159 --> 00:16:32.080
Okay, you want to just we're just going with these.
00:16:32.320 --> 00:16:33.759
Okay, you read that you go with that one.
00:16:34.000 --> 00:16:34.720
Yeah, that one sucks.
00:16:35.120 --> 00:16:38.159
All right, then let's try this one.
00:16:38.320 --> 00:16:48.000
You know it's a prohibited transaction when your IRA LLC writes you a check and you call it a management fee, and Matt Sorensen suddenly appears behind you, like, nope, try again.
00:16:49.039 --> 00:16:55.519
You know it's a prohibited transaction when you refer to your IRA owned rental property as our little getaway place.
00:16:55.679 --> 00:16:57.679
And Mark Kohler says, Who's R?
00:16:58.320 --> 00:17:00.799
Yeah, who is R in that equation?
00:17:00.960 --> 00:17:02.960
Okay, I'd love it.
00:17:03.200 --> 00:17:03.519
Okay.
00:17:03.759 --> 00:17:06.799
Um, let's do one more and let's team.
00:17:06.880 --> 00:17:09.519
You know, team team play the I'm gonna try and set you up.
00:17:09.680 --> 00:17:09.839
Okay.
00:17:10.079 --> 00:17:13.519
I'm gonna throw the alley oop and you're gonna throw it down.
00:17:13.839 --> 00:17:14.000
Okay.
00:17:14.079 --> 00:17:14.160
Okay.
00:17:14.240 --> 00:17:14.720
All right, all right.
00:17:14.799 --> 00:17:14.960
All right.
00:17:15.200 --> 00:17:25.279
So you know it's a priveted transaction when your IRA owns an Airbnb and has a glowing five-stair review from aka definitely not the owner.
00:17:28.480 --> 00:17:33.680
Uh which means you cannot stay in your own Airbnb that's owned by your IRA.
00:17:33.759 --> 00:17:36.799
I should say you cannot stay in an Airbnb that's owned by your IRA.
00:17:36.880 --> 00:17:37.039
Yeah.
00:17:37.200 --> 00:17:46.799
Anyway, I I hope that was fun and a few of those, but you're getting the the gist here that we actually have a lot of these questions come through to us.
00:17:47.279 --> 00:17:50.000
And we should probably do that, take more of those.
00:17:50.240 --> 00:17:53.680
But um, this is something that you shouldn't be afraid of.
00:17:53.839 --> 00:18:02.559
It's easy to understand this rule, and it's so easy to make more money in your IRA just playing in the right in in the right lanes.
00:18:02.720 --> 00:18:11.599
You don't have to get a go off-roading and start taking risks to be successful at this and and just rapidly increase the value of your IRA.
00:18:11.680 --> 00:18:13.759
So yeah, and we got tons of resources here.
00:18:13.839 --> 00:18:18.880
You can book a call with our team, they can help you go over the resources, understand and educate you on this.
00:18:18.960 --> 00:18:31.039
And if you have crazy complicated questions, you're like, but I want to do a deal with myself or anybody who's a disqualified person or this LLC that I'm a part of, that's where you want to talk to your tax lawyer or CPA, our firm of KQS Lawyers can help you with that.
00:18:31.200 --> 00:18:33.599
Also, my book, the self-directed IRA handbook.
00:18:33.680 --> 00:18:35.359
I hate to plug it, but you should.
00:18:35.599 --> 00:18:37.680
You know, yeah, it is the number one book in the field.
00:18:37.839 --> 00:18:40.000
Government regulators, literally, buy my book.
00:18:40.160 --> 00:18:41.279
Other competitors in the industry.
00:18:41.519 --> 00:18:43.279
I normally wouldn't brag about that, but he does.
00:18:43.759 --> 00:18:48.160
I'm just saying that, you know, if they're trying to learn this, where do they go?
00:18:48.319 --> 00:18:48.559
Yeah.
00:18:48.799 --> 00:18:49.279
Just saying.
00:18:49.680 --> 00:18:50.799
Really, they're stalking him.
00:18:50.880 --> 00:18:53.519
It's you know, you're looking at just glass half full.
00:18:53.599 --> 00:18:54.079
I like that.
00:18:54.240 --> 00:18:56.720
But you know, they loved it.
00:18:56.799 --> 00:18:57.119
Yeah, yeah.
00:18:58.160 --> 00:19:01.200
I mean, if the feds have a wiretap on you, it's you know, probably a good thing.
00:19:01.279 --> 00:19:02.079
They're trying to learn from you.
00:19:03.119 --> 00:19:05.119
Man, you really spun that the wrong way.
00:19:05.440 --> 00:19:05.839
Jeez.
00:19:06.960 --> 00:19:08.400
No, it's no, I love it.
00:19:08.640 --> 00:19:10.240
It is the best-selling book, and I love it.
00:19:10.319 --> 00:19:11.599
I have a copy of it on my desk.
00:19:11.680 --> 00:19:12.960
You guys should as well.
00:19:13.119 --> 00:19:14.400
Uh, don't give up.
00:19:14.559 --> 00:19:15.440
Keep investing.
00:19:15.599 --> 00:19:24.559
Know that you control your retirement, no one else, and you're gonna be the best person to determine what really investment is gonna work best for you and get you the greatest return.
00:19:24.720 --> 00:19:26.319
So keep listening, please.
00:19:26.400 --> 00:19:31.519
Uh, we're gonna be here every week trying to help you on your American dream and building your retirement account.
00:19:31.680 --> 00:19:37.119
If you enjoyed this, please give us a five-star, two thumbs up, double high five, whatever.
00:19:37.279 --> 00:19:41.519
And uh, we'll see you next week for another episode of the Directed IRA podcast.
00:19:41.680 --> 00:19:43.039
And thank you everyone for listening.
00:19:43.200 --> 00:19:58.240
A quick disclaimer and reminder: this presentation does not constitute an attorney or CPA client relationship, and it is always in your best interest to consult competent legal and tax professionals when conducting your own personal transactions.
00:19:58.480 --> 00:20:02.640
We also want to make sure you know this is not investment advice or financial advice.
00:20:02.720 --> 00:20:08.880
We're just trying to give you education, ideas, and strategies you can take to your professionals or conduct your own research on.
00:20:09.200 --> 00:20:10.559
We'll see you next time.