Self-directed retirement accounts or self-directed IRAs is something that a lot of people are not too familiar about. A self-directed retirement account is no different than any other retirement account or IRA. Legally speaking, according to IRS regulations, you can self-direct virtually any retirement account, and what you can put into a retirement account is almost limitless. Amanda Holbrook, Vice President of Specialized IRA Services, talks a little bit about the benefits of self-directed retirement account and how to utilize them. If you want to know how you can take advantage of expanding or growing your portfolio using a self-directed retirement account and a little bit about diversification, this episode is for you.
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We’re going to talk a little bit about self-directed retirement accounts and this is something that a lot of people are not too familiar about. With my guest, we’re going to talk a little bit about the benefits of them, how to utilize them. How you can take advantage of expanding or growing your portfolio using a self-directed retirement account and a little bit about diversification because we want to marry those two topics. A self-directed retirement account is no different than any other retirement account or IRA. Legally speaking, according to IRS regulations, you can self-direct virtually any retirement account and what you can put into a retirement account is almost limitless. There are a few exceptions, but many IRA custodians only allow investing in certain things like stocks and bonds, mutual funds and CDs.
A self-directed IRA custodian or any custodian for a retirement account allows you to invest in other types of assets like real estate, notes, private placements and businesses, tax lien certificates and a whole lot more. When you think about the potential benefits of a self-directed IRA, it’s limitless. You can tap into dollars that are pre-tax dollars depending on the type of retirement account you’re talking about and allow the power of compounding. If you understand how compounding works, but allow the power of compounding to work for you because you are utilizing 100% of your contributions, which are before tax to work for you instead of putting in after-tax dollars. There are different types of retirement accounts and those work a little differently.
Some of them are pre-tax. Some of them are after-tax dollars. This is something you can discuss with whoever your tax advisor or custodian is. You want to work with a trusted advisor who understands what self-directed retirement accounts are all about because although it is a common product, well-known and an item that has been around for a long time. Believe it or not, there are a lot of advisors that don’t have a lot of experience or knowledge in this area. They know what they know and they work with the tools that they have, but it’s not something that they’re overly familiar with. In this episode, I’m going to bring on one of my friends and acquaintances who is deep into the IRA and self-directed space. We’re going to talk a little bit about diversification and dig into the whole self-directed concept.
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Why NOW Is The Time To Diversify With Self-Directed IRAs
It’s my pleasure to welcome Amanda Holbrook, the Vice President of Specialized IRA Services to the show. She has been a passionate driving force in the world of self-directed IRAs for several years running. I’ve known Amanda for many years. We’ve worked together for a long time. Her experience in the self-directed and real estate investing world allows her to add great value to all the families and businesses that she works with. She has the uncanny ability to connect and simplify the self-directed concepts so that anyone can apply it in their lives. Amanda is also the proud mother of two, a loving wife, a self-directed IRA ninja and an active real estate investor. Amanda, welcome to the show.
Thank you, Marco. I’m glad to be here.
It’s great having you on. We haven’t had you or someone like you on for a while and it’s a good time to revisit the subject. What I’d like to try to do now is marry the two concepts. The untapped potential a lot of people still don’t realize they have with the funds they have in their self-directed or not even self-directed yet retirement accounts, whether that’s an IRA, a 401(k) or whatever it may be. Let’s talk a little bit about diversification and marry those two concepts together if we can. A lot of people don’t realize that they can expand their investing and their portfolio or diversify with what they have but don’t realize that they can do it and maybe don’t think they can. Let’s explore all this together.
What we’re going to do is take it from a high level to the macro to the micro and anyone can self-direct. It’s so simple a child could do it quite literally.
I’d like to start off with basics. Let’s first off start with the concept of self-direction. What does that mean? There are a lot of people that aren’t clear on what self-direction means. There are a lot of people I know that don’t even know and realize that they can self-direct retirement accounts.
Here are the ABCs and 123s of self-direction. You can self-direct an IRA, a 401(k) or a health savings account. These are all types of self-directed accounts. What does that mean? Anyone in our audience that has saved for their own retirement, saved it either in an IRA typically or a 401(k) and you are on a platform under one of the big banks of the world. You are limited to stocks, bonds and mutual funds. You’re given this little box to invest in and you log on to your screen and you say, “Pick it yourself.” That is not self-direction. That’s not the self-direction that we’re talking about. True self-direction is when you can take those same funds, the same type of account but you invest them into nontraditional assets, meaning ones that you decide. Examples would be real estate, private notes or promissory notes or syndications. You can invest in oil and gas, precious metals, tax liens, just to name a few entities. You can get creative. The whole spirit of self-direction is being able to take control of your own financial future. Not having someone else calling the shots, but you’re in the driver’s seat and investing in what you know. It’s that simple.
For those that are unfamiliar with self-directed accounts, what are the benefits of a self-directed plan like a self-directed IRA? What can you invest in? What are the overall benefits of doing that?
Any IRA, self-directed, traditional, Roth, there’s the immediate benefit if you get the tax write-offs or deductions if you’re putting into a tax-deferred account. That’s the instant gratification of saving for your own retirement. There’s the beautiful Roth IRA where it grows tax-free forever, but the beauty of not only one tax diversification but also asset diversification. I’m sure you’ve heard the cliché and you’ve talked to a financial advisor at some point in your life and it’s, “Don’t put all your eggs in one basket.” That’s what we mean by diversification. In our world, we’re not talking diversifying from this stock to that stock to this bond, etc. We are talking, “Are you investing in real estate in some way, shape or form? Are you investing in doing any type of private equities?” It’s a bit more passive where you are being a private money lender. You’re playing the bank. That’s another one that we see a lot of.
Other categories are oil and gas, any type of foreign exchange currency into various entities. You can own a percentage of a private company in your IRA. A classic case study and I’m sure you’re familiar with PayPal. Everybody in our audience is probably familiar or has used PayPal. Peter Thiel started PayPal. He purchased shares of PayPal when it was itty bitty in his Roth IRA. What did he do with PayPal? He scaled PayPal. He sold PayPal. He now has over $100 million in his Roth IRA. That was a self-directed IRA. He was able to do that in. That’s an example of you’re seeing diversified funds at play in self-directed vehicles all around you on a day-to-day and you probably don’t even know it.
The $100 million is after-tax dollars because with a Roth IRA, when he pulls those funds out, he’s not going to be taxed on it. You ventured off onto the whole diversification thing, which is a topic in and of itself. There’s a lot of debate and I have my own theories and philosophies and comments and opinions about diversification. You take a guy like Warren Buffett. He’s one of the greatest investors alive. He refers to diversification as protection against ignorance, which is true in many ways. You look at a guy like Mark Cuban, the owner of the Dallas Mavericks and a self-made billionaire. He says diversification is for idiots. You have to take what they say in context because the reality is that when the general public thinks about diversification, it’s about putting all your eggs in one basket.
That’s usually a paper asset basket and then picking a whole bunch of different paper assets like different stocks or mutual funds and diversifying that way. The sacred cow in the industry is to invest for the long-term in a diversified portfolio, but the sacred cow needs to be shot because it’s bad investing advice. It hurts millions of people because when you’re all in the stock market, you’re living and dying by the stock market. That’s not true diversification. To me, true diversification is investing in ideally all four asset classes, meaning business, real estate, paper assets and commodities. That to me is real diversification. If you’re in all four of those and you specialize in one or two, ideally real estate, but one or two of those, that’s the time when you are going to do well and do your best. My question to you is what does it mean to diversify in your world and with self-directed accounts?
The meaning of diversification is exactly you did a good job as far as laying that out, the four different asset classes. If you hold all of those in a taxable account, you are also taking down your returns because we all pay taxes if you’re doing it in a taxable environment. That’s key number one is there’s one part of the equation is how do you earn it? The second part is how do you keep it? The way to think of a self-directed IRA custodian like Specialized is we’re Team Keep It. We’re the ones that’s going to set up the tax-sheltered account to allow you to invest in such things as commodities, entities, real estate but also to keep more profit into your pocket. The other big thing too about diversification outside of paper assets is control. The definition and the thing that we’re all working here for has almost become a buzzword at this point is financial freedom. What is financial freedom? What does that mean? It’s freedom of time is what that comes down to. In order to have freedom of your time to sustain your lifestyle, you need consistent, predictable income.
The key for diversification is finding those assets that are going to provide you consistent, predictable income that you have more control over, less risk and that are going to allow you to achieve your goal in a timeline that you would like to. Keeping everything in the stock market, for instance, that to your point that’s not true diversification. If you sit down with a broker who that’s all they have to offer you, then I have a feeling they’re going to tell you something different. No offense to any financial professionals listening, but I get it. Everyone has to feed their family, we understand. That’s the true diversification is getting into those different asset classes, minimizing your risks, preserving some of your capital, doing it in the tax advantageous account and making sure that you are diversified. You’re not heavy one way or the other. That to your point is the definition of diversification and need is going to change over time. The closer we get to retirement, the less risk tolerance that we have.
I almost want to ask you when the best time is to start, but that’s a loaded question and the best time was many years ago. The next best time is now. Do you feel that there’s some level of urgency for diversifying? You want to get started as soon as you can, but is there a level of urgency? What factors do you look at in terms of making decisions as to when to diversify and where to diversify?
Typically as far as urgency, you answered that perfectly. That’s the number one whether we’re in person or over the phone, the number one piece of feedback I always get, “I wish I would have heard about this several years ago.” When and how do you diversify? Let’s look at where we’re at now. As far as where the market’s been, it’s been a bit more volatile this past couple of quarters than it has been in the past couple of years. A pure market indicator even from the self-directed side is we’re seeing our account volumes increase with no additional marketing efforts, no additional events, etc.
New relationships, that’s how we grow our business. That is a true market indicator that folks are moving from the traditional realm over to self-direction. That’s purely market-driven because they’re taking more control. You’ve got more of ability and less control over here. We’re seeing indicators in all markets, not just the stock market, we see it in the real estate market to where moving some of those funds into a self-directed platform where you’re calling the shots. You’re not so much at the mercy of all outside factors that you can’t control is going to put you and your family in a better financial position at the end of the day. That’s the answer to one of those questions as far as the time is always now. One of the big fallacies that I hear is you have to have a large sum to start self-direction. That’s not true. We have children that self-direct, I kid you not. There are ways that kids can have Roth IRAs and Coverdell Education Savings Accounts where you’re putting anywhere between $2,000 to $6,000 in.
What can I invest in with $2,000 to $6,000? There are various different strategies. That’s what we specialize here at Specialized IRA Services is showing how you can get not only your accounts but your family of accounts working together in the asset class that you’re interested in. I’m sure you know the fund disclaimer, Marco. We’re a passive custodian. We don’t recommend or endorse any specific investment or investment sponsor. We’re never going to have that goal conversation and be steering one way or the other for our own self-fulfilling prophecies. It’s been a negative connotation that financial professionals in the world have gotten over the years.
I would think that a great way to build a self-directed retirement account for your children would be to pay them an allowance but not give it to them in the form of cash or in a debit card, which is something that I was looking into. Pay them on a monthly or annual basis and put that into a Roth IRA or some self-directed retirement account. I’m not saying give them free money, they should probably earn it. Whatever you do pay them, put it in an account that they can self-direct and learn how to invest. They get an education along with those funds that you’re giving them. They have this account. They know what’s in it. They know that they can self-direct it. They know what they’re investing in whether it is stocks in the stock market or notes or a piece of real estate or whatever the case is. That’s a great way to not only build a retirement account for your children but educate them along the way. That’s an option a lot of parents should look into and many don’t.
That’s one of the pillars here that we stand on and we believe in strongly and passionately at Specialized. When you’re first starting, you don’t know what you don’t know. Now, you’ve learned about the tools, you’ve gotten off your butt and you’ve self-educated. Now, you know what tools are out there. You took every excuse away from yourself. You know it exists. Number two is the more you know, the more you grow. What we mean by that is the more you know how to use self-direction like partnering with children accounts, health savings accounts, in addition to Roth Solo 401(k)s. What that means tax-wise for you and how to grow them together to create a family legacy, generational wealth is very key and paramount to your success.
You hear those almost like buzzwords or chapters you read in a book. No one lays out a blueprint of, “How do I get there?” That’s something that we’ve created and we call it specialized platinum internally but it’s like a family plan. It’s where we look at all of the components. It has educational components on a monthly basis, on an on-demand basis that’s great for children. If we don’t arm our kids with how to do what we’re learning to do that we wish we would have. The first comment we already touched on, “I wish I had known about this many years ago.” It’s been around since the ‘70s. This isn’t something that’s cooked up in 2000. This has been around a long time. Why haven’t we heard about it? All the big bucks are behind Wall Street, not Main Street.
I don’t know if this is more of a personal opinion or if you base the answer to this question on something you see going on in the market or in the economy. Do you think now is the most important or best time to be diversifying? If you feel that there is some urgency to be diversifying because of the direction we’re going or what you feel may happen in the next couple of years? We’re on one of the longest economic expansions in US history. In fact, we’re closing in on the second largest. I believe soon we’re going to be on the longest economic expansion ever. We are overdue for a breather, a correction. Call it a recession or whatever it may be.
A lot of think tanks seem to think that we’re going to be in a recession by 2020. I don’t have a crystal ball but I know it’s not a matter of if we’re going to be in a recession, but when. The time to be thinking about this is now. That probably leads to some level of urgency. Then the question becomes, “How do I rebalance my portfolio or take my liquid capital and decide what to do with it? That may be sitting cash whether it’s in or outside a self-directed IRA, but that also could mean, “Should I put it into some asset? What kind of asset? Maybe hard assets. Hard assets or real estate? Hard assets or precious metals? What’s your stance and feeling about this?” Talk about it openly, where you think we’re headed, what you would do now. I know you can’t give financial advice to everybody, but what do you think?
If you were to ask my personal opinion and for everyone in our audience, I’ve been in this industry through the last recession as well as in the real estate space. I’m seeing the same market indicators. I’m reading the same articles. I’ve been seeing it as we work with clients all over the country. Different markets are in different stages. It is a matter of not if, but when. Getting yourself in more of a liquid cash position on a self-directed platform and even in your own name personally depending on how you’re diversified would be a smart move, in my personal opinion. When the market corrects, what happens? Take real estate for example. You’re going to see somewhat of a credit crunch. We’ve seen it loosen up. We’re going to see more of a crunch where you’re going to see more inventories coming out. You can speak to this as far as inventory and markets. It’s competitive out there.
We’re going to see an influx of inventory. What is king? Cash is king. When you have funds in a self-directed account, that’s as good as cash is king in my position. If that is the hard asset that you’re looking to escalate with which most are because it’s one of the three basic God-given needs. Warren Buffett said back in 2012 or ’13 that he can buy up X amount of single-family homes if he would. He also went in the same interview of everyone should have a Roth IRA. That’s someone I’m going to listen to. He’s figured it out. He’s a mentor I would follow. In my personal opinion, diversifying now there is a lot of urgencies there. I’m hearing it from the day-to-day clients that I’m talking to. They are making those moves now.
I’m sharing what we’re seeing from the self-directed portion too, but from various spaces too. I’m not just talking from the real estate space. I’ve heard it from several. I don’t think you can put yourself in a bad position, seeing where the correction is going. That means for some that have taken a bit of a hit in the past couple of months, I’m going to touch on this because I hear this all the time. It’s like ripping off the Band-Aid like, “I’m down $10,000 or $15,000. This stock took a hit. I’m going to hold and hope. I’m going to say a prayer and hope that it comes back.” It’s like, “When does that stop? How deep does that hole have to go before you take action?” We saw that happen in the last recession. Learn from the past and make your best-educated decision based on past indicators and the information that’s provided for you. That’s how we all operate.
With retirement accounts, particularly self-directed retirement accounts, we can invest in most everything. There is some exclusion like art, collectibles and whatnot. Certainly, real estate is open territory. How does an investor purchase real estate in their self-directed retirement plan? Most of the people in our audience are real estate investors or new real estate investors getting into it. How do we purchase in a self-directed retirement plan?
It’s simple and I won’t get too technical. I’m going to keep it high level here, but there are basically three-and-a-half ways to purchase real estate in an IRA. What I mean by that is you can purchase it outright. Your IRA owns that asset on title, deed, etc., 100%. All the cashflow goes back to the IRA. Number two would be partnering. Marco, say there was an opportunity and you and I wanted to go 50/50 on it with our retirement accounts or you wanted to use your company and I wanted to use my Roth IRA. You can do that. The third way is you can leverage with a non-recourse loan inside of your retirement account. That’s the number one question I get all the time like, “Can I leverage in my retirement account?” Yes, it has to be a non-recourse loan. There’s a certain type of account called a 401(k) that you want to do that within a Solo 401(k), it’s a Roth. It’s the one that you want to do if you’re exercising that particular strategy because there’s a nasty tax.
My half is what we see a lot of these days are private lending, which for those of you if you’re new to real estate or if you’ve read about it or you’re doing deals. You know about the term OPM, other people’s money. We call it OPI, other people’s IRAs in our industry. It’s private lending where you’re being the bank. We’ve seen it where you’re doing the gap funding for someone that is doing a flip, for all those HGTV audiences out there. We also see it to where folks who are using other people’s IRAs for the acquisition and the rehab and then doing a refinance out and paying back their investor. That’s another popular strategy that we see. Pretty much everything you can do in real estate and IRA can play in the same arena. It’s a big mystery like, “How can I do that, Amanda? Own the titling?” Open the account, title it correctly. Done.
It’s not complicated?
It’s not. It’s easy. We have a team to help you with that. It’s like the analogy I always use, especially being a female, don’t judge me. I am a good driver, but it’s like learning to parallel park. You might nip the curb or hit a bumper in the first one or two times that you do it because you’re not used to it. By the third, fourth, fifth time it’s muscle memory. It’s just a process and procedure.
Some people own real estate and they’re thinking, “It may be in my best interest to transfer one or more of my properties into their self-directed retirement account,” be it an IRA, Solo 401(k), whatever it may be. Is this a good idea? When does it make sense? Can it even be done?
The answer is no.
If you already own it, you can’t transfer it?
Correct. This violates rule number one and it’s the Internal Revenue Code 4975 where all of these prohibited transactions are listed, but it’s self-dealing is exactly the rule that it violates. If you’re benefiting outside of the account anyone in the here and now and not in retirement, the spirit that the IRS intended you to benefit, then you shouldn’t be doing that in your IRA. A prime example is, “I have a cash cow of a duplex in Indianapolis. Can I buy that from myself and put my Roth IRA so it’s all tax-free?” The answer is no. The same thing if anyone above you or below you on your family tree or a CPA that has a fiduciary responsibility own that property, you couldn’t do deals with them in your self-directed account either. Other than that, everyone’s free game. Family members to the left or right are okay. I would get that question. It’s a weird one. I’m the messenger. If they’re to the right or left of your family tree, you could do business with them such as brothers, sisters, aunts, uncles, cousins, nieces and nephews. It’s the lateral up and down.
It sounds like you have to keep everything arm’s length when you’re dealing with your retirement accounts. It means you can’t take any personal benefits or you can’t personally use the assets within that IRA. A lot of people aren’t completely clear on the concept of not being able to take cashflow. You could talk about the management piece. Some people think they can manage their properties, but you can’t. Explain that.
These are questions that we get all the time. The key here is you want to make it an arm’s length. Meaning that in the worst-case scenario if you were to ever get audited, you can show the paper trail like, “I’m not the one swinging the hammer. I’m not the one adding $20,000 equity. I paid this contractor to do it. I’m not the one managing the property and paying myself a property management fee. You’re paying a third-party management company. For those professionals, we hear that a lot with the management piece, especially real estate agents, “I sold this property. I’m a licensed agent. Can I take a commission on it?” If your IRA’s involved, the answer is no. You want to make sure that it is an arm’s length. That’s where the turnkey model works hand-in-hand with self-directed accounts because you’re purchasing it from a qualified third party. You have a third-party management company.
If you’re purchasing that property 100%, for example in your Roth IRA, all of the proceeds go right back into your Roth IRA. You can’t dip in there and put some in your pocket. They have to stay in the tax-sheltered account to remain tax-free. The same thing with the profit, let’s go to the exit strategy since we’re talking real estate. When you sell that property, what do you get hit with at the end of that sale? Capital gains tax. In a tax-sheltered account, think of it as a bubble. The bubble’s protecting you from taxes. The funds that come back are 100% tax-free in a Roth IRA. No capital gains tax is applied. That’s where there’s a big benefit to the exit strategy of holding, for your example, a turnkey real estate or rental property in IRA.
I finished an interview with someone and we went deep into the whole thing about taxes. Tax season is basically here. We all try to reduce the amount of tax we pay, deferred shelter, remove it, whatever. What are some of the recommended tax strategies, if there are any, which people use with self-directed accounts? I’m not sure if there are many tax strategies because when you have assets, they’re sheltered or tax-deferred for a period of time. Explain the tax benefits and what the tax strategies would be in a self-directed account.
The tax benefit when you’re talking about self-directed accounts, first off, is the contributions that you can put in. For example, I’m going to talk about a Roth Solo 401(k) because the majority of the audience probably has an entity of some shape or form, whether it’s an LLC or a C Corp that they’re doing some investing within. They’re generating income. If they don’t have W2 employees, they qualify for this plan. You could either take a good old personal account. For 2019, you’re looking at $6,000 under 50, $7,000 over 50 if you put in a traditional IRA. In this Roth Solo 401(k), the tax-deferred side of it you can put up to 25% of your adjusted gross income, but up to $37,000. This is a personal account. You can do that in addition to that traditional IRA because you’re a business and a person.
The other beautiful piece of that is diversification. In this Roth Solo 401(k), it has a Roth component. This Roth component will allow you to put salary deferrals, which means after-tax money up to the tune of $19,000 a year. If you’re over 50, it’s $25,000. That’s the big diversification piece that we see and we talk about CPAs with CPA firms, etc. The Roth IRA’s only been around since ’97. Majority of folks are not diversified in a tax-free environment. If you had a couple that was over 50, I gave you a way to put away $50,000 a year in a tax-free account in addition to the tax-deferred. Since you’re on the CPA note, we’re looking at turnkey real estate, etc. Depreciating assets give you a decent amount of write-off. When you have a lot of write-offs that could also play in closely hand-in-hand for someone that has their entire portfolio in a tax-deferred bucket. They would like to get more of it over into a Roth environment, a tax-free environment.
Those extra write-offs are going to be offset. It’s called conversion in our space. Some of the converting and the changing over to a Roth environment, giving you that tax diversification while leveraging the tax write-off on the depreciative assets you have outside of the retirement account. That’s where it all comes around full circle. You have to look at the big picture. You and I talk about all the time inside the IRA, outside the IRA. I get that question, “How do I know what to do with it? Do I do the deal inside my account or outside my account?” The question always goes right back to you is where do you need the cashflow? Do you need write-offs right now or do you need the cashflow right now? Are we building retirement? Are we going a legacy plan? Are we trying to cut the corporate puppet strings? I hear that one a lot too.
It’s also where do you want the equity growth? The cashflow’s one thing but if you are going to hold an asset for five, ten, twenty years and it may double in value, do you want that in a retirement account? When you sell that asset and it becomes something you could draw from, do you want it to come out tax-free at that time? This is where the whole tax strategy question comes in and a lot of it is math, penciling out the numbers and looking at where you are and projecting where you’re going to be. Figuring out where’s the biggest bang for my buck?
My quick answer to the question of, “Should I invest in or out of my self-directed retirement accounts?” generally comes down to this. I know this is an oversimplification. If you have investible cash outside your IRA, start with that because then you can take advantage of the depreciation. Assuming you need it and most people need it and want it. You can’t take advantage of the depreciation of real estate within a retirement account. You can’t take any personal benefits from that real estate. Therefore, you essentially trap that depreciation and what you could write-off against it within the retirement account. If I’m off-base here on anything or wrong about anything, correct me. That’s my quick rule of thumb before digging into the running scenarios a little more deeply.
There are two little piggybacks to that too. One, if you’re leveraging with non-recourse in that scenario, there are some depreciation items that you can take even in doing into a qualified plan, which is the type of plan you would do that strategy in and twofold too. You have to look at it as if you have investible cash. I love write-offs. Pay yourself first, not Uncle Sam. That’s the whole spirit over here. You also have to look into their retirement account as well. If they’re all heavy paper assets and high risk and they’re three to ten years from retirement and have no diversification outside of paper assets, they should be doing both in tandems. They should be doing outside their retirement account as well as in, and not waiting. If they take that hit there and also if it’s all tax-deferred, they’re not going to hit their cashflow goal in the time that they want. That means they’re going to be working longer. They’re going to be in a higher tax bracket. They’re going to that nest egg. When they pull it out, they’re going to pay more taxes on it than they originally planned. That is when looking at all of the factors is huge.
I love what you said about the penciling out the appreciation piece of it. I had a call from an old client of mine and we were talking about how his portfolio is doing. I’ve worked with him in a past life. He’s an analytical fellow, very strong and opinionated like, “I know what I want to do and how I want to do it, Amanda.” We were looking at a couple of different markets. I was adamant about the markets that he selected for his IRA and it happened to be in the state of Texas. That’s where I would do everything in your IRA in those markets because they’re poised for greater appreciation looking at historical data. You buy on cashflow, you don’t buy on appreciation. Looking at long-term pray because you don’t pay capital gains tax. I was glad to hear that his portfolio that he did in Texas pretty much doubled in value and it has been consistently and graciously cashflowing and over-performing for years. That’s huge. Those are things that you take into account too. Where are you going to see real estate? What’s the whole acronym, Marco? It’s a smart asset because it cashflows and appreciates.
Let’s start landing the plane as I sometimes say. You mentioned the family plan. Let’s simplify the process of setting up a self-directed account. Any account, both for an individual and a family. There are people in our audience that are thinking, “I already have a self-directed account or I don’t and I have an account. I need to convert it to a self-directed account, but I also have two kids and a wife. We can build something now that will benefit my kids down the road. Maybe the family plan makes sense.” Walk us through high-level what’s involved in setting up any retirement account, both individually and family-wise.
A retirement account, we boil it down to the three Ds here at Specialized. You decide. You deposit. You direct. You do an application and transfer form. We handle all of that paperwork. You deposit the funds. Our team in Albuquerque is phenomenal. Our team gets that funded. Within two weeks, some of you that are moving old TFPs, we appreciate your service. The government accounts take the longest, two to four weeks. Once your cash is there, you pick an investment. It’s literally that simple. It’s the same thing for a family plan. We simply fill out how we have it written out for the family plan. It’s a contract. Your whole household of accounts at a flat-fixed fee for year one, and then it renews at a fixed-fee for year two and forever for a lifetime. If you scale up your accounts to million-dollar accounts, it’s still going to be that low flat fee for the whole family, everyone that’s underneath that roof. That’s as simple as literally a form and we take care of getting all the accounts essentially moved over. We walk through a blueprint worksheet exercise, take inventory, realign, look high-level, get low-level and figure out a compass so you know the direction that you’re going in. Prepare you and support you as service and education. That’s it. It is that simple.
One question I get asked from time to time is people who have a 401(k) plan with their employer and they’re still employed. They would like to convert that to a self-directed retirement plan of some kind, maybe a self-directed 401(k). Is this possible? If it is, how often is it possible? How do you find out whether that is doable? Is that a matter of asking your HR department if that can be done? How does that work?
I’m going to give you a ninja tip. This is a particular phrase you will want to email in writing. In moving an old employer’s 401(k) not working there anymore, thumbs up all day long you can move those funds. If you are still employed there and you are 59-and-a-half or older, thumbs up you can move those funds. If you are under 59-and-a-half and still employed and want to move current employer’s 401(k), probably 50/50 chance. The term that you want to ask your benefits director is called an in-service rollover. It became popular right around the last crisis. Your benefits are in the stock market. The stock market is in the toilet. If you feel you can do better, take 50% of your best balance and good luck to you. The reason why you email them that phrase is because of the majority of your benefits directors and HR personnel, they don’t know what that means. If you tell him, “I want to go buy a house in my retirement account,” they’re going to tell you no. Email that term. 50/50 chance from the larger companies, they do allow for in-service rollovers and even small, medium companies we’ve seen. The worst they can do is say no.
The HR person or whoever’s in charge of those plans may not even be aware that an in-service rollover is even possible. This is the verbiage you need to give them because if they’re going to look into it, that’s what they’re looking into, is whether an in-service rollover is possible.
The document is called your plan adoption agreement. That’s where they will find out if your 401(k) allows for that. If they’re even unsure of where to look for that, the document that you want to reference is the 401(k) plan adoption agreement.
Is there anything else you want to share with our audience that I haven’t asked you?
Last parting words are don’t be passive about your retirement or your financial freedom. Hop on, take control. The resources are all around you. Marco and I have known each other for many years. Good people work with good people and it’s a win-win environment. Reach out, ask the questions and then make the best decision from there. We’re all here in the spirit of success and helping. We’re not going to run out of opportunities out there. We’re not going to run out of IRAs. It’s everybody helping everybody. Once you know, that’s how we grow. Majority of the accounts that we open on a monthly basis are friends and family referrals. That says a lot because we’re not just helping one individual or you’re not just an account. It’s a lifestyle. One of the mission statements here is you deserve to live a life that you love. I fully believe that with my heart of hearts. It’s a message for my family. It’s a message for our company and our team members. Would you create financial freedom makes it that much easier?
Tell our audience how they can find you and get more information please.
You can email me at AHolbrook@SpecializedIRAServices.com. I’m always available and ready to hop on a phone call and say, “How can we help? What can we get started now?” At www.SpecializedIRAServices.com, if you want to check out our company, our team and what type of accounts that we have.
This has been informative. I know we can go on and on about this. It does get a little deep like a rabbit hole. If you have any questions, contact Amanda and her team. They can help you out and get further down into detail that you need for your particular situation. Amanda, thanks for coming on the show.
Thanks for having me, Marco. It’s much appreciated. I’m always happy to help and work with a team. Like we say at Specialized IRA, “Your money. Your future. Your way.”
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