Phase 2 - Real Estate 101 (How to or one big idea)

Don't Overlook These Items When Using Your Self-Directed IRA

Tyler Stewert
August 24, 2021
Don't Overlook These Items When Using Your Self-Directed IRA

Adam Hooper: Is there anything else that as an investor, looking into some of these deals, if they're going to place qualified money, retirement money into some of these deals. Is there anything else in the documentation or in the setup or any conversation that they should be having with a manager of making sure that they're all on the same page with what that might take going for?

Mat Sorensen: Yeah, it depends on everyone's situation, but the first one would be the debt that we've talked about. Is there debt in the deal or not, and actually 401ks solo 401ks, which many of those get self-directed too? Those are exempt from that debt, actually the UDFI tax on debt. So IRAs are subjected to it 401 K's or employer-based plans are actually exempt from that tax.

So just a little side note if someone's a little older, sometimes, I, we do have many accounts people in their sixties and seventies and if they have a traditional account, they may need to start taking required minimum distributions when they hit 72. So if someone, a little older that has a traditional account Roth accounts are exempt from our, these required minimum distributions, but they may need to make sure they're getting some income from the fund or have other retirement account money to satisfy their required minimum distribution.

When you're like, when you hit 72 and you have a traditional IRA, let's say it's a million bucks, or a hundred thousand, it doesn't matter. You're going to have to take out 3% of that out as a distribution. When you hit 72 and then it starts going up over time to hear maybe taking six or 7% out.

But so if I have a hundred thousand dollar account, I need to get 3000 out that year as a distribution. So if the fund is not distributing profits and I invested every penny of my account into that deal, I could have a problem from a requirement of distribution standpoint. So that's one thing an investor should be thinking about if they're older using traditional funds, cause Roths are exempt from RMD.

Otherwise it's just the typical due diligence, from the investor standpoint is look at the deal. Look at the returns that are being discussed, do your own numbers and make your own analysis as to it. Don't just trust the fund sponsor blindly, but look at it and come to your own conclusions.

And then if it's better than the next best thing, your retirement account can invest it into or what it's already in. Then. You should be investing, right? Why wouldn't you not? The thing I'd say though, for a fund sponsor, if I could mention for them back on their consideration is, we had a it was a hedge fund, not real estate, but they basically are a hedge fund that invest in index.

Different index funds in and out and have their own little proprietary trading strategy. They'd had individual investors for years and done pretty well at it. They had a good track record, had a thousand plus investors and they'd been at it for five to 10 years. They've been shy about using retirement accounts and they ended up opening up their next fund to retirement accounts.

And all's they did was went to their existing database of people, had already invested with them and said, Hey, you can invest in this one. And by the way, the next fund we're doing, if you want to use an IRA, you can almost half their dollars came in from retirement account. And they were so shocked because this was just their existing database of people.

And, w we ended up working with them and setting up hundreds of accounts for people investing into their funds. So I think for a lot of people that raise money, it's Don't think about going to someone else necessarily it's your existing database of investors or perspective people that have looked at you and considered or invested with you to say, and did you know you could use your retirement account in this offering?

And because there's just so much money stocked away there that frankly, a lot of people are frustrated with the returns they've got. I can't tell you how many people I talk to that are like the market's up, but why isn't my account? Like what the hell or it's I hear the market's up, 15% this last year, but my account's up five, it's when you peel away the onion and all the fees and everyone else, you got involved in that account because you want it to just be set it and forget it. That's what happens. Yeah.

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