Solo 401k & SEP IRA Strategies for Note Investors & Creators | Real Estate Notes Show

Episode: Solo 401k/SEP Mega IRA Strategies for Note Investors & Note Creators w/ Nate Hare Dave's Goals and Plans: - Been a note buyer for 15 years - Focuses on creating valuable notes (7010, 702010, rural and mobile home notes) - Raised capital primarily from retirement funds (80-90% of capital comes from retirement income) - Organizes DME conference and actively incorporates feedback into future planning Nathan's Goals and Plans: - Had 17 rental properties at one point - Worked in mortgage industry since 2004 - Recruited by self-directed IRA company in 2012 to educate people on buying real estate in retirement accounts - Learned exponentially more about real estate through clients investing in notes and private lending within retirement accounts Key Recommendations: - Underwrite borrowers properly and verify ability to repay using Call the Underwriter (calltheunderwriter.com/jkkp) - Structure notes to be attractive to future buyers if planning to sell, which increases speed and profitability of exit - Tap into self-directed retirement accounts when personal capital runs out - billions available in underperforming accounts - Consider Solo 401k and SEP IRA strategies to defer income and contribute over $70,000 annually to self-directed retirement accounts Topics Discussed: - Self-directed Solo 401k and IRA strategies for note investors - How to access retirement capital for real estate note investments - Tax advantages of using retirement accounts for real estate - Note creation best practices and underwriting requirements - Capital raising through retirement accounts vs straight capital - DME conference networking and deal formation - Retirement account contribution limits and back door strategies Guest Insights: - Only 3-4% of people know they can invest retirement money in real estate instead of stock market - Most people are unaware self-directed IRAs exist despite having significant capital sitting idle - Retirement accounts can grow tax-free or tax-deferred depending on account type chosen - Vast majority of note investment capital (80-90%) comes from retirement accounts rather than personal funds - Many people view retirement accounts like 'poker chips' without understanding what's actually invested Well, welcome everybody.

Dave Puts from JKP Holdings. Alongside me, Mr. Nathan Turner. How are you, my man? Doing very well, thanks. How about you, man? Good, good. I'm glad we connect for a few minutes today and kind of see what's going on. Um, what's new in your world, man? It's finally getting warm around here. That's nice. So, spring is sprung and DME is over, which is fantastic. and and we had such a great time and now I get to just kind of relax a little bit and get back to some other things that uh were kind of put on the back burner while we were organizing the conference. So, it's good. Awesome. All good. It's good to see that things like that are happening and people are kind of get together and talking and sharing information and everything else.

Yeah, I've heard some awesome stories from people saying uh you know people they met and they're starting to do deals with and uh Gabe shared how he he met up with the click to mail people. He's been using them for years but he's never actually met them. And so in the meeting he was able to negotiate uh a discount and he said that the the discount more than paid his cost of going to the conference. So I'm like perfect. What like best success story ever that's awesome. That is so awesome. I'm I'm impressed because that kind of stuff always is talked about. We always want to hear about it, but it never really, you know, comes out, right? That's the big thing.

That's awesome. So, it's pretty cool. Awesome. So, we want to just make sure that we get a hold of everyone and make sure that if they give some feedback to the event, that is always key for us, right? Yeah. Let me know what's going on. We send out the survey. We had quite a few responses on there, but if you haven't done that, it's still open if you want to go to that Hoova app and uh and just fill out that survey. It's very useful and helpful information. Um we I mean, like I say, I read all of them. I And actually incorporate it into next year's planning. So, please do please uh let me know, you know, if there's something that you like, something you didn't like, something you thought uh hey, what if we did this? We're totally open.

I'm I'm not a professional uh you know conference organizer. This is something I do on the side. So I'm more than happy for any suggestions or feedback. Absolutely. Um so when we talk about this stuff people, you know, this is something we always want to make sure people understand, right? These conferences are held for everyone who wants to learn anything about the real estate spice. So beginners, intermediates, advanced and networking happens. So a deal happens every time we go into these things which is awesome right. So let's talk a little bit about you know what expectations people had. I talked to some people who were there and they kind of shared how they felt that it was awesome to meet and talk to anyone they knew which is yeah tremendous um speakers and everything else together.

Right. Um so feel free to reach out to us let us know what you think. uh and everything else. So, um I do see some feed issues. I gotta see maybe it's uh maybe I have to redo my router. I apologize everyone, but we'll definitely have recorded. This will go on YouTube podcast, everything else. So, yeah, with that said, um we also want to make sure people know that Call the Underwriter with, you know, Dan Deppin is an amazing tool. So, they actually sponsor a show and they have a free toolkit. So, please go to calltheonunderwriter.com/jkkp and get your free toolkit. So, if you are actually, you know, creating notes, make sure you have the borrowers underwritten and make sure they have the ability to repay.

That's a huge factor that you make sure that's going on. I think a lot of people forget it, don't realize it or whatever the reason is. Yeah. And talk to Dan because he can help you get your note, whatever you're creating is for your note. He can help you make that the best note possible. Yeah. So that if you want to keep it longterm, awesome. Then you've got it well protected. You've done all the homework you have to do. If you're looking to sell that at any point in the future and now you've constructed it in a way that is more attractive to a note buyer, so they'll pay you more. You'll be able to get that deal done quicker and and more profitable.

So talk to Dan. Call theunderwriter.com. He's he's a great guy and can help you figure out whatever you got to figure out. Yeah. Awesome. So I think for those uh who are new to the create note creation world, we're note buyers for 15 years, right? And if you're looking to create a note that's valuable, that is the key to everything we do right now. Making sure you create that note, maybe a 7010, maybe a 702010, maybe you create a note that's a rural or mobile home and you're curious what can you do to make it better. Feel free reach out to us, ask questions, right? Those are the key things that we want to make sure you guys know so that you guys can learn from what we're doing and that will help a lot.

Right. Absolutely. Yeah. So, let's dive into this thing. Right. No. Investing is a really cool animal and so is making money. Yeah. What most people don't realize is when you make this money, you need to avoid some taxes here and there, but then sometimes you get in a spot where you run out of capital. Straight capital. Right. Right. And what I think most people don't realize, and if you don't, feel free to put in the chat below when you run out of money, did you know that how much people have money in their 401k in the retirement? It's astronomical what they have. They quit their job, they roll the money out.

There's literally billions of dollars sitting out there. And for the most part, they're with they're underperforming. They're with some kind of company or they're not doing anything at all. and they're just it's money sitting there underperforming at best uh for most cases. And we've got Nate here coming on today and he's going to tell us a little bit more about that and how we can because notes is a cash business. You've got to have cash. So once you run out of your own um there are ways to tap into this you know like we say billions of dollars that are out there uh that are available for this kind of investment.

Yeah it's amazing you know that people say well I have no way to raise capital. You just walk around talk to people and people have money sitting in their 401k and they left and they're like well I'm in the market and I don't know if I trust the market but they don't realize that they could tap into the real estate market with their money very easily and make the return put that thing self-directed. So for those who are not familiar with it we're going to dive into that. Um, the other facet is this idea of, and we're going to get into it, there's a limit on how much money you can put into these things a year.

I mean, I was putting in 5,000 Roth IRA and I didn't realize I could do a whole lot more. So, for those who are making good amount of money in the company and they're looking to crazy back doors, this shows for you. For those who are looking to raise capital, maybe there's a way you can raise your own capital by deferring it or doing your own IRA and avoiding some taxes, right? So, Nathan, you raised money as well. What do you think you What do you think percentage-wise and we we all both can do better at this. Is it retirement money versus straight capital? Oh, that's a great question. And I'd have to go back and look, but I like the vast majority like you know 80 90% is is retirement income that we're working with.

So it's it's very very common. Very very common and it's a great use of your IRA capital because it's it's sitting there. You can put it into some kind of investment. It grows taxfree. I mean that's that's a pretty good deal. And then depending on which one you choose, it's taxed as it goes in or taxed as it comes out or whatever. And Nate will get into all the details on that, but uh but it's a great great vehicle or you can sit let it sit there and compound like there's so many different options that you can have that growing and have your money working for you and growing that retirement income.

I can't say it's amazing when you hear people say, "Well, I can't raise capital." Like just mention retirement money and people will be astonished. I think the numbers, I'm sure Nate will know, is 3 to 4% of people know about this idea of instead of investing in the stock market, you can put money into real estate. Now, for those who know we're talking about and heard this spiel before, this show is more about how can you juice that up? How can you not put 5,000 or 7,000 or or 21,000? We're talking about doing over $70,000 a year put away into a retirement account that you can self-direct. That is amazing and will change your whole scenario.

Right. So, without further ado, let's bring on our friend Nate Hair. How are you doing, Nate? Uh, I am doing great. Just love and listen to you guys. Um, you guys are speaking my language, so I'm excited to be here. Good stuff. We've both known Nate for a long time and yeah, great guy. Uh if you've got questions about IRA and how it works and and what are some of the different possibilities, what can I do, what can't I do, Nate's a fantastic resource. So, we're really glad to have him on the show today. So, let's start off, right, Nate? Tell us your background. How did you get involved in this? So, I I got involved in this purely by accident.

Uh I at college, I was, you know, always keen to real estate. I didn't know what what about real estate, but even growing up watching infomercials and you know all that stuff about the successful real estate investor. I kind of always wanted to be that that person. And right out of college, I went to real estate school thinking that's where I started. I realized they were kind of teaching me and, you know, molding me to be a real estate agent, which is great, but that wasn't for me. I was more of a numbers guy. So, I kind of fell into the mortgage industry back in 2004. uh really got a good taste of finance on from the mortgage side, buying and selling my own real estate.

I had 17 rentals at one point. Um kind of felt like a landlord, but I love the lending part. I was always keen with with lending. I like that finance side of it. And then in 2012, I was recruited by a self-directed IRA company out of Houston, Texas. Now, I did not know what a self-directed IRA was. I knew what an IRA was, but I didn't know what a self-directed IRA was. and they told me they wanted me to teach, you know, people how to buy real estate inside of a retirement account. Now, when I heard that, the first thing I thought is, is that even legal? I I I haven't even heard that. I've been in real estate for eight years and asked my friends and nobody knew you can put real estate or other assets besides stocks and bonds in a retirement account.

Really? Wow. So, I kind of went down the rabbit hole and started looking into it. And gosh, I was just amazed at what I didn't know, uh, you know, about just taxes, tax savings, um, you know, how IRA and 401ks work. And when I jumped ship into this industry, I started learning more about real estate from clients of mine that were buying real estate and and notes and private lending and doing all these things inside of a retirement account. And I saw the exponential growth in these retirement accounts based on what these people understood. And that was the same things I understood. Yet I had a account at Northwestern Mutual that had a bunch of mutual funds and I had no idea what was in it.

I just got a statement and I saw if it went up or down. If it went down, I put it in the shredder. If it went up, I framed it and tried to remember it. You know, that's how people invest their retirement. And I had one client actually tell me, you know, your retirement sometimes feels like poker chips. It's not it's not real, you know, so you just kind of throw it here, you throw it there. But if you ask the average American, do you understand real estate better than the stock market? Most people say yes. And what I've come to find out is that if you're going to invest with any bucket of money, your money, your IRA's money, your old 401k's money, you're going to make your yourself better returns in the long run, investing in what you know and understand better.

It doesn't mean that real estate's not risky, but you're going to stub your toe a lot less investing in things that you're knowledgeable about. And when we talk about note investing, I mean, what are we talking about? We're talking about real estate back notes with borrowers that have a have a vested interest to pay, right? And the biggest players in that market have always been banks and and banks make a ton of money. And when I think about note investing in an IRA, all you're doing is you're you're putting your IRA or 401k in the position of a bank backed by real property. And it's something that's not going anywhere.

It's not an industry that's going to disappear on us tomorrow. So, if you can understand how to put incomeroucing assets like real estate or notes inside of a tax-free account, that's really how the rich get wealthy and that's really how I think most people can get to retirement easier than just banking on the stock market performing, you know, when it needs to perform. So, just so we cover the basis here for legality, what are some of the things we can't invest in with our self-directed IRA? Great question. So, and this is not something we're taught in school. So if you if you're a listener and you don't understand this, don't worry.

Most people don't because we're not taught this and our financial advisors have a vested interest to not tell us what we can invest in. Right. Right. So when you look at the tax code when it comes to assets that can be owned inside of a retirement account, ever since the mid70s, you've been able to own anything inside of a retirement account except two things: life insurance contracts and collectibles. That's it. Those are the only two investments the IRS says you can't have those in a retirement account. So outside of life insurance contracts and collectibles. It's fair game, right? There's really two categories that we talk about in our industry when it comes to asset classes.

One are your traditional investments, which are stocks, bonds, mutual funds, publicly traded investments, usually that you'll find at a Fidelity or Charles Schwab. you know, not knocking those investments, but that's what 97% of people with a retirement account invest in because they that's their only option. That's the only thing they think they can invest in. Sure. On the other side, the side that we deal in that we allow our clients to invest their retirement in is called the alternative investment world. Alternative investments are everything outside of stocks, bonds, and mutual funds. So when you think alternative investments, think things like real estate, rental properties.

Has to be an investment property, three-bedroom, two- bath rental, right? Small multifamily, a duplex, uh an investment into a syndication or commercial property, or very commonly, one of the most common investments that we see with our self-direct clients are notes, right? a more passive way to invest in real estate where you're getting, you know, above average return backed by real estate and that's owned inside of a retirement account. And really, at the end of the day, what we're owning is just a different type of asset. If you own a stock at Fidelity, it's really a stock certificate that you own, right? When you own a a a note, it in in your IRA here, it's the promisary note.

It's the note. That's the actual investment. And all the income generated from that note go back to your IRA like a dividend would be paid in the traditional world. But it's income to your retirement account. And here's the beautiful part. It's not taxed. It's either tax deferred or tax-free depending on the type of IRA you use. But at the end of the day, it's tax exempt. So you can roll that money into a next investment. Nathan mentioned compounding interest. I mean, gosh, when you talk about tax-free interest payments and the ability to compound, I mean, it's a wonderful thing and most people just don't know that it's even an option to them.

So, I get I'm I'm still passionate today just teaching people because I still get these wide eyes like you could really do that. Yeah. You you've been able to do it since the 70s. So, let me ask you this. So, we talk about self-directed versus regular IAS, which most people are familiar with. So, your Charles Schwab and your Fidelity. Let's say I've got my money over in Fidelity. Um, and I go and talk to them and say, "Hey, I just learned about the self-directing thing. Can I can I take some of my income, you know, my my IRA income and throw that into an investment over here?" Yes. The answer is yes.

And and here's the thing. Fidelity will be like, "Yeah, go for it." No. You want the real story? Here's what they'll tell you. And and again, I'm not I'm telling you what clients tell me, and this is a real story. They'll usually tell you if you say, "Hey, I heard this crazy guy Nate and these note guys talk about investing in in real estate with my IRA. I want to do that." They'll say, "Oh, no, no, you don't want to do that. That's too risky." Right? Without even knowing the investment, they'll tell you it's too risky. Then when you say, "No, no, no. I I really want to move some money over to this directed IRA company.

They've got an IRA set up for me there. I want to do that." Well, you know, it's a long process. It's going to take weeks to get the money moved, you know, and this is a real story from a client of mine. She said, "Just give me the paperwork and let me fill it out and I'll make my own decision." So, she fills out the paperwork, sends it back to her Fidelity guy, picks up the phone, calls him back, and says, "Okay, you said it was a long process. What else do I need to do?" And he says, "Oh, that's all you needed to do." So, literally, he tried to stop her from investing in what she knew best. And here's the thing, at the at the end of the day, you're allowed to have as many IAS as you want.

I have a client that has 35 IAS with different assets parked all over the place. You are limited on how much you're allowed to contribute, right, to all of them, but you can have as many as you want. So, most of my clients have an IRA at Fidelity, but they also have an IRA here at Directed IRA. They're the same. Self-directed is just a marketing term, but an IRA there is the same as an IRA here. The only difference is we don't have investments to sell our clients. Our clients tell us what they want in the IRA. And as long as it's not life insurance contract or a collectible, we'll go out and we'll buy it in the name of the IRA.

And that can be anything from real estate to notes to cryptocurrency to heads of cattle. I had a client own a thoroughbred in an IRA. I mean, it can get it can get wild and crazy, but you as a IRA owner have the ability to move money back and forth between an IRA that holds traditional investments and an IRA that holds alternative investments. And I do want to share a fun fact because this blew my mind. I read an article, Forbes, March 2020. I still remember the date, March 2020. And the I it was an article about the IRS doing an audit on 27,000 IAS at the time. And they wanted to get a little bit more of an idea of, you know, who are these self-directed IRA investors and what are they investing in? Mhm.

And out of the 27,000 IAS that they audited, they found that only 3% of all of those IAS held an alternative asset of any kind. So 97% of those 27,000 all just had 100% traditional investments. Wow. So when you took those those accounts though and you actually took just the IAS valued above $5 million, the percentage of alternative assets in those accounts 25%. Wow. So the rich and the wealthy have understood for a long time that alternative investments, if you do it right, can pay larger yields and be maybe a more safer investment than your traditional stocks and bonds. It's just most people don't know what they don't know, so they just do the oldfashioned way.

But the numbers don't lie. People with large IAS often times have a considerable amount of alternative assets in their retirement accounts. So yeah, one of the question came up was, you know, from Aiden is how do you combat a financial advisor strongly disapproving investing as a stock market? I would tell you, listen, if you I don't know the stock market. I don't understand the stock market. I know it was up and down. I know real estate. Why don't I just stay in the market that I understand and realize that I'm smarter in the area that I know versus hoping and praying the market does what it does? Yeah.

And you just got to let that cop those comments go in one ear and out the other. Because if you're knowledgeable about an investment, and I will tell you from experience, if you invest in the things you're knowledgeable about, you're going to make yourself better returns in the long run. You're also going to be able to sleep at night because if I'll tell you I have a little bit in a Charles Schwab account just to kind of track the market just so it makes me look and I have not made money in that account. Now I'm I'm not a stock broker. I'm not knowledgeable about that but I keep some and it really just doesn't move.

It's almost like play money to me. But the majority of my retirement is in a either a Roth IRA or I use an HSA and I do I create notes. So, I I make loans to, you know, real estate um entrepreneurs, flippers, and and things like that. And I, as a understanding lending, coming from the mortgage business, I understand how to structure a note. Um I also understand the need for real estate investors to have some private capital, and I've got some capital in my retirement account. That's where most people's capital is is in their retirement accounts. Mhm. And I'm able to structure with the borrower a a deal where it's the terms are in a promisary note.

I get above average interest secured by real estate. The terms of the note dictate when a payment supposed to be made. So I know at the first between the first and the fifth I should have money coming into my retirement account. And I even structure it in a way where I do six to 18month loans so I can get paid back whether they refinance or sell the house. And then I can redeploy the funds even to the same person, but I get to compound my interest. You lost money on a deal. You put insurance on property, right? And that property can never go to zero, right? Yeah. Exactly. It's a tangible asset, right? Real estate is a tangible asset.

You can drive by it, you can touch it, you can feel it. When's the last time you you held your stock certificate or you held your mutual fund, right? You just see it online. And that stock can go to zero, guys. It can go to zero. And it can go to zero, right? Real estate is really hard to go to zero. You got to really mess up really bad to make that thing go to zero. But, you know, just think about it from a bank's perspective. Banks are in the business to loan. They don't want to own property. They just want a loan. They want interest payments coming in. You can utilize your IRA in the same fashion.

You just got to, you know, identify which borrowers that are that are, you know, that you want to be secured with and those types of things. But if you're a note investor, a real estate investor, that's just second nature for you. So apply that knowledge to a retirement account and I guarantee you you'll find better better returns in the long run. Quick nugget and then we're going to get to the bigger stuff here. Right? So I've seen people take a contract and do a a signed contract where they got into a deal for a dollar and then they assign it for $5,000 and they bought it with a Roth a dollar and now all of a sudden they have $5,000 or $499 of profit taxree.

Right? So let's get into the big things. Right? For years, I've been in that Roth world where I can contribute up to $7,000 max. And then I found out about this world that we can do not seven but over $70,000 into an account a year. Tell us a difference between that $7,000 and the options of the, you know, what does it have to mean? What's different between the two to start off with? what are the two is and what's the maxes each one could do and ages and things like that. Sure. And that's a good question. So if you look at the accounts that we have at directed IRA, I'll just keep it in that lane.

We've got three categories of tax exempt accounts. We've got individual accounts, which are your individual IAS. That's your traditional IRA and your Roth IRA. Those accounts, anybody with earned income can make a contribution. I have a 9-year-old with a $75,000 Roth IRA. All you got to do is you got to show that you make money, either W2 or schedule C, whatever, and you can make a contribution to an individual IRA. Now, those are capped, right? If you're under the age of 50, you're only allowed to put in $7,000 a year. And if you're over the age of 50, you're allowed to put in $8,000 a year. Now, I want to make a clarification.

Contribution is not the same as profit. Okay? Contribution is what you take out of your pocket and put in each year. what the investment does and profit like you mentioned that that assignment fee that $49.99 that would be considered profit right you're the profit is unlimited so that's the cool thing that I like especially about a Roth IRA if you think about the difference between a traditional and a Roth how they grow you know traditional you put money in you get a tax deduction on what you put in but you're taxed on what it grows to a Roth IRA you don't get a deduction on what you put in but the trade-off is the growth is completely tax-free.

So if you're somebody that can take a small amount of money and make it larger, well, what size bucket do you want to pay the taxes on? Do you want to pay it on the small bucket or the large bucket? I say the small bucket. So that's just your individual IAS. Anybody with earned income can have that. The next category would be your employer plans. Now, this is strictly for people who are self-employed. Now, some people have W2 jobs and they have a side hustle, right? But it's anybody that has some schedule C income or 1099 income. Now, on these plans, we throw in the SE IRA and the solo 401k. Now, on these plans, you can make larger contributions than the individual plan.

You can still contribute to both, but if you've got that self-employment income, you've got another page on the menu. And those contributions can go up to 70,000 and even 70,000 plus if you're using a solo 401k, which we can kind of talk about the talk about the minutia of that account, but that's probably the solo 401k to me probably outpaces the SE IRA in most cases. Most investors, if you're a self-employed individual with no common law employees, that means you don't have full-time W2 employees. it's just you, maybe it's you and your spouse that run the business. Uh that 401k, not only can you make contributions up to $70,000, but they allow for catchup contributions on a solo 401k, which they don't on a SE, so no catchup contributions on a SE, catchup contributions on a solo K.

The solo K catchup, if you're over 50, you could throw an extra 7,500 in. So now we're up to 775. And just this year, they added what's called the super catch-up contribution. So if you're if you're late in life trying to get more money into these tax exempt accounts and you're between the age of 60 and 63. I don't know how they just came up with that random number. 60 and 63, you could throw an additional 11,250 on top of the 70. And here's the catch. It can all be Roth. Okay? I don't I want to don't want to get into details of how you do it, but there's different mechanisms of how you do it.

But if you've ever heard the term mega backdoor Roth, it's a real strategy. It's not it's not hocus pocus. It's not bending the rules. You're working within the rules, but you are able to get in a 401k, let's call it 82,000 81,5 250 all in Roth dollars. So let's break this down. The big difference between the SE and the 401k is that employee, right? Yeah. Can you break that down? except it you know 401k solo 401k you can't have employees the se you can what happens if you do have an employee and you can't do that solo 401k so if you have if you have a solo 401k they say no common law employees which really just means no full-time employees there are some exceptions though if you have some part-time employees so let's say you've got a part-time employee to your business and they work less than a th000 hours a year you can actually still have your solo 401k without messing up all the rules as long as part-time and work less than a,000 hours a year.

We see this often with people that might have family businesses. You could be a you can be a note investing business and and maybe you have your kids do some work on the side and you pay them a little bit, but as long as they're working less than a,000 hours a year, you could still maintain a solo 401k. As soon as you go to a company that you've got full-time employees, some of us just have to go that route. You don't qualify for a solo 401k. You can either pay more and work with other companies to have a more robust 401k which are a little more expensive but they do allow you to have employees or you can have a SE IRA.

SE IAS allow you to have employees. But there is a catch to it though. If, let's say, I have a business and I've got two full-time employees. Um, if I max out my contribution to my SE, which is usually the max at 70,000, but it's also the lesser of 70,000 or 25% of what I pay myself. So, let's say I pay myself $100,000 salary from my business. I can max out my SE at 25,000. If I max out at 25%, I also have to contribute to my employee SE IAS at 25%. So, it's not a uh it's not a cure all. You're still looking at people that have usually family businesses that that maybe they're okay making contributions to their son or their daughter's SE IRA that work for the business and they work full-time.

Um, but usually if you yeah, if you don't qualify for the SE or sorry, the solo and you still want to put those large contributions in, the SE might be the the alternative route to go. But I think there's a lot of bells and whistles to the 401k that you get that you don't get with the SE. For instance, you can have participant loans from your solo 401k. Meaning in a crunch, if you need to take some money out for yourself, just like any other 401k, you can take up to $50,000 out of your 401k up to 50% of the value. So I've seen a lot of clients use that as a, you know, I got to close on this house in my name.

Yeah. I need to take $50,000 out. pay and then I you just pay back your 401k with interest which is like paying back yourself. Um there's also, you know, one of the most powerful things if we're talking to a real estate crowd, this isn't necessarily for note investors, but you know, investing with a retirement account in real estate also allows you to use leverage. There's there's banks out there. Wait, you you're telling me you can literally buy a property for a little bit of money and then borrow the rest of it from a bank? Yes. Or somebody else? Yeah, there's there's banks out there. We've got a list of them on our website.

If you go to directra.com, we've got a resource page that names a bunch of them. And really, what these banks are doing when they're loaning to a retirement account because it's not really a person. They're qualifying it like a DSCR loan, right? They're not looking at a FICO score. They're not looking at tax returns because the IRA doesn't have any of that. But they'll look at the property. They'll say, "Show us the property you want owned in your retirement account, and we'll tell you how much we want down from the retirement account so that the rents in the area are above what the mortgage payment is." Now, you can have you can have your IRA borrow money, you can have your SE IRA borrow money, you can have your 401k borrow money.

They can be both good in both situations. The difference is when an IRA or or SEP borrows money, it has to pay tax on the money it borrows. No big deal. You're still leveraging other people's monies. I often see people get better cash on cash returns just having their retirement account put a down payment down and leveraging some bank financing. So an IRA, even a SE IRA has to pay tax on the money it borrows. A 401k doesn't have to pay tax on money it borrows. Wow. Oh, so if you're going to buy property with financing, if you're going to do some seller finance deals, if you're going to do some sub two deals and you're going to use your retirement account to do it, if you qualify for the solo K, do all those deals in a solo K because you make taxfree dollars on the money it puts in and you make taxfree dollars on the money it borrows.

It's like a win-win. That's amazing. So, so backing up on that SEAP in the 401k, I know one of the things too is that um you have to file the 5500 on the solo 401k. Do you have to do that with the SE as well? Not with the SE. Just so just the 401k, you've got the filing requirements if the value of the 401k goes above $250,000. That's just paperwork. Gotcha. And then let's just clarify. So the solo 401k, which is a powerful tool, you can contribute to what is the 2100 21,000 limit typical of a 401k? Correct. So let's break the numbers there. Yeah. So with a 401k, if you think about it, most people are familiar with their company sponsored 401k, right? Even with a company sponsored 401k, you've got two people that make contributions or that can make contributions.

You as the employee and then your employer can can throw some contributions in there or that matching or you know salary deferral, whatever or profit sharing. With a solo K, you are the employee and the employer. So you can make contributions from both sides. So, when you're talking about it, it's actually $23,000. $23,000 is the max contribution you can make as the employee, right? I got my business, my employee hat goes on. That's the first contribution I'm usually going to make is that $23,000 employee. Be Roth, completely wrong. All be Roth, right? You could choose traditional or Roth. I like Roth.

The cool thing about that contribution is it's dollar for dollar. So, you you you can show you made 23,000 and you can contribute 23,000. So it's not a percentage like in the SE you can only make a contribution of 25% of your income. With the 401k the employee side you can make it dollar for dollar up to 23,000. So let's break this down a little bit more. If your company only made 25,000 for the whole year you can take 23,000 of it and put into a 401k Roth 401k and you're not gonna be able to claiming your taxes. You have to pay taxes on that. But if you made 25,000, paid tax on 23, that's now Roth moving forward forever.

Yeah. Yeah. And I know how you business owners work. You made more than that. You just you just whittle it down with all the deductions. So there's more money sitting there. But all you got to do is show that that 23,000 is modified adjusted gross income and you're allowed to throw 23,000 into the 401k. Now also you add the catchup contributions to that. So again, 7,500 more if you're above 50 and 11,250 more if you're between 60 and 63. So that's where you really want to start. Now, if you want to go above that and you have the ability to go above that, that's when you start making contributions from the employer side.

Now, you put your employer hat on. Those contributions work similar to how the SEP works. they go in roughly 25% of your income can go in and then the total between the two can't exceed that that top number of let's say 70,000 or if you're adding the catch-ups you know 81 250 now again I don't want to lose people too much on this there's even a third bucket that we have in our 401k docs that not all 401k docs allow you to have which is called a aftert tax employer contribution the after tax employer your contribution allows you to go again dollar for dollar in to get you to that 70,000. So, I'll just make it simple.

It's a lot easier than it sounds to get $70,000 in a 401k. And it's much easier to hit that $70,000 mark with less income than it is the SE. So, again, the the 401k is going to win there. Honestly, the SE is usually for the people that just don't qualify for the solo K in my opinion. And what would make you not qualify? having full-time employees. Okay. So, if you have a SEAP, you can do 20% of your income. Is that correct? It's what depends on how you pay yourself. If you're paying yourself a salary, it's 25% of your salary. If you're not paying yourself a salary, it's roughly 20% of your income.

Okay? And then with the solo 401k, you're doing 25% of your income can go towards it. So if you're only making 30, right, you can put the 23,000 in and then the remainder of that income 7,000 can go 25% of that seven grand is can be contributed to traditional or Roth, whatever you prefer to be. Correct. Or Yeah. Or again, if you're over 50, just throw it all in with the catchup and don't even worry about the employer side. Yep. And is there any benefit of the employer side versus the employee side? Really just if you're trying to get over your maximum on the employee side. So, it's always easier to start with the employee side because you can put a, you know, you can put a very low dollar amount on your modified adjusted gross income and get a large amount in there.

So, I I think you always start with that. It also can all go in Roth. So, that's easy, less paperwork. If you want um the employer money to go in as Roth, what usually happens is you've got to make a contribution and those usually go in as pre-tax, like a traditional contribution, but the 401k allows you to convert that within the plan. So, it's kind of a you got to hop, skip, and jump to get that employer money over to the Roth dollar. So just to keep it simple, if you if you're contributing maybe 30,000 or less and you're over 50, just throw it all in as Roth in the employee side and we'll worry about the employ.

So for those who are what is this backdoor thing, right? Real quick, if you make a certain income, we'll get to in a second. You do this process that you convert it from traditional to Roth. Just do it quicker so it doesn't make any profit, right? And just do it the next day and convert over. I do it every year. I convert over my Roth in the beginning of the year. I take my seven, convert it over and make it a, you know, Roth account right away. What are the limitations on because some people here don't make a ton of money, right? And they could do a Roth. Where is that limitation where you can't do a Roth anymore currently? So on the Roth IRA, there's a phase out range.

So roughly it's around $200,000. If you make above $200,000, they're going to phase you out as being able to make a contribution to a Roth. Now, you know, back in the day, they also had another income limit that really prevented six-figure income earners from having a Roth, and that was on what you mentioned, Dave, is the conversions. Conversions are a little different. That's when you have money in a pre-tax account, and you just say, "I want to pay taxes on that and just move it to a Roth." That's that's a conversion. In 2010, they also had an income limit on conversions of $100,000. So from 2010 and before, it was impossible for six-figure income earners to have a Roth IRA.

In 2010, they took the income limit off conversions. So nowadays, it doesn't matter how much you make, even if you're above the income limit to make a direct Roth contribution. You just do the Texas two-step, right? You make a contribution to a traditional because there's no income limit to do that. And then you just convert that contribution to a Roth because there's no income limit to do that. So that's what they call the backdoor Roth. The mega backdoor Roth comes into conversation when we talk about the solo K. Now it's a little bit different because there are no Roth income limits on a solo K.

So it doesn't matter how much you make. You can make a you can max out your contribution to Roth making a million dollars a year. There's no income limit for Roth contributions. But if you want to get those employer contributions converted over to a Roth, that's done within the plan. And that's where we come up with the the term mega backdoor Roth. It's really just a strategy in how to get $70,000 plus in Roth dollars in one year's contribution through our income as a self-employed entrepreneur and doing it through a solo 401k. Making both sides contributions and converting your employer side over.

That's awesome. So, what I'm taking from all this is have a conversation with Nate and your CPA CPA, your tag tax advisor should also be involved in that conversation. But, get on the call. Y just get on a call. There's options. There's different things you can do and depending on your situation and where you're at and what you're doing and what your goals are, all that's going to matter. So, you know, there are there those blanket rules, this and that, but then when you get down to it, what's going to be the best plan, the best approach, that's going to be something you're going to figure out one-on-one.

So, get on the call. So, the other thing is that sometimes you want to play with your CPA of maybe you're paying too much taxes, you want to do traditional, just lower your tax rep. Some people say, "Screw it. I'll pay the taxes now and do Roth this way." You, it's either or. Uh, we do have a question. Do I need to wait for the new employer for my solo 401k to be eligible for self-directing? Repeat that question. I didn't c quite catch. Do I need uh do I need to wait for a new employer for my solo 401k to be eligible for self-directing? I think you're confusing because you need to be if you're going to do a solo 41k and you work for a company, they have to manage it and they have to accept, right? If you own the company, you can set up the solo 401k, right? And you can have both.

It kind it kind of sound like she was talking about an employer sponsored 401k, which this is very this is more common. You work at a company, you've got a 401k with that company. Can you move that out and self-direct? We get that question all the time. It's really up to the company that set that plan up whether they'll allow you to move money out. M usually they won't while you're still an employee of that company and a participant of the 401k they don't want you moving money out to another plan. Now they do allow inservice rollovers or uh individuals that maybe have worked there for x amount of years.

You're fully vested and you're above a certain age. Sometimes the plan documents on your employer will allow you to move their contributions out. You just got to ask them. That's not for us to decide. If you're self-employed, that's where the solo 401k comes in. If you're an entrepreneur and have your own business, that allows you to make contributions to a 401k. And we do have people that have both. Some people have a W2 job and they max out their contributions there. They get their matching, but whatever's left, they make contributions to their solo 401k because they've got some income from their side hustle or their investing business.

Yeah. Awesome. So then we have another leverage here that most people don't know about and I've always been a little leerary about it because IRA is such a big world, right? Let's back up for a second. Why is self-directing an IRA legal to do? Does the IRS allow you to do this? Oh, yeah. Yeah. I mean, it's again, like I said, in the tax code, the IRS doesn't really care what we own, right? Outside of the life insurance contracts and the collectibles, life insurance contracts, they just don't like us to have a vested interest to see somebody die to get paid because that person will probably die tomorrow, right? I call Nathan, ask for meals in that area and then, you know, I'll get paid out.

So, they don't like investments. And then collectibles are just too hard to value, right? It's it's like what somebody would pay for that. So, they don't like classic cars, paintings, alcoholic beverage collections, you know, those types of things in an IRA. Outside of that, it's fair game. If you drop a purchase contract to buy something, your IRA can buy it. Now, the bigger thing that IRS doesn't want is who the IRA or who the retirement account transacts with. That's what they're more concerned with. They don't want, for instance, me as the IRA's fiduciary. Let's talk about my Roth IRA, for example.

I can't tell my Roth IRA to loan to me. It's it's a conflict of interest, right? I'm the fiduciary to my IRA. I'm supposed to make decisions that benefit the IRA, not me directly. And then I get my benefit from the distributions. So there's a list of people the IRS says you cannot have your IRA transact with these people, which would be the IRA owner, their spouse, their parents or lineal ascendants all the way up, parents, grandparents, and then lineal descendants, which are your kids, your grandkids, and their spouses. So it's me, spouse, up the line, down the line. It does not include family to the side, but the reason they disqualify these people is when you die, those are usually the people that get your IRA as an inherited IRA upon your death.

So, they're also considered fiduciaries. So, the IRS is more concerned with having not having the IRA buy a house that I own or loan money to my son. Now, my IRA can loan money to David or Nathan because they're not disqualified to me. So, that's the bigger thing when it comes to the IRA rules. And these are the same at Fidelity, by the way. They just don't ever have to discuss these rules because you're never you don't even have the opportunity to invest with those people because everything is bought from Wall Street. So, one caveat, though, and I learned this a couple years ago, is that if I'm in a partnership privately with Nathan, we're 50/50 in that deal.

My IRA cannot do a deal with Nathan because the fact we're 5050 or anything. If my IRA is 50% or higher, Nathan immediately becomes a disqualified investor. If I drop my personal down to 45, Nathan now can be a JV with my IRA. Yeah, there there's some gray area and there's some percentages where you know if a it's really comes down to disqualified people. If those disqualified people I mentioned, if they combined own more than 50% of an entity like an LLC or corporation, then the entity is also a disqualified person. Now, I think you're also getting into there's certain people that might be in our lives, you know, that we do business with that might be considered close enough to us that they're a fiduciary to our plans just because we have maybe a lot of money dealings with them.

We share bank accounts, you know, there can be different things. I'll give you an example. You know, siblings are not disqualified on on paper, but I have my brother as my beneficiary because I'm not married and no kids because of the fact that I put him on as the beneficiary of the account. He is now a disqualified person. So, there are some gray areas that that and again, you pick up the phone, you call me, or you talk to Michelle who's sitting here. I'll introduce in a sec. Call us if you've got questions. We'll answer them if if they're lowhanging fruit. We've also got a law firm that can answer more difficult questions as well.

There she is. There she is. I just want to introduce Michelle. She's kind of my right-hand person. If if you ever need anything from us, you know, you can always call. If you can't reach me, just reach out to Michelle Rodriguez. Hi, Michelle. Welcome. Fantastic. So, one of the things we didn't hit on, this is really interesting for those people who it's a pain in the butt sometimes to do the paperwork with self-directed IAS, right? We're lazy people. We want to do this nice and easy and quick. And if you get to the point where you're comfortable what you're doing, you've done enough deals with your IRA, is there another way of doing this without having to ask you guys to send the money out, is there another method there? There is.

And I I will tell you, you know, we try to make self-directing easy. That's kind of our internal motto. We want to make it easy. We want to make it as if like we would be comfortable telling our mom to come self-direct or our grandma to come self-direct. So most of our forms, you know, that you've got to fill out to get money deployed are all digital. They're all electronic electronically signed. They're right in your client portal. So we make it as easy as possible. Now, you can make it a little bit more difficult based on how many accounts that you have. I have a client that has 14 IAS with us, right? They've got a Roth, they've got a traditional, their wife has a Roth traditional, but they're maximizing their tax benefits by setting up as many tax exempt accounts as possible.

Now, when you get to that level, if you want those 14 accounts, just for example, to invest in one note or buy one house, well, there's going to be 14 forms. You got to have a form with each IRA, which we understand, we're not we're not stupid. That can be a little bit ownorous, right? If you got that many accounts. So, we do have a solution that most companies don't have, and it's really because we have a sister company, a law firm, three floors right above me called KKOS Lawyers. And what we've kind of um positioned ourselves in the industry as the experts on is what is called a checkbook IRA LLC.

Now, all that really means is we've got a law firm that will set up an LLC that can be owned by all of your IAS. Okay? Whether it's 14 or 600, whatever, they can all own all those IAS, all your plans can own a prata share of a multimemember LLC, right? We we process it as one investment, right? All we fill out a form once, we process it, we hold on our books the LLC is the investment that all these IAS own. Now, you as the fiduciary can manage the LLC. Okay? Now, with this with this management comes a lot of responsibility. You should understand what a prohibited transaction is. This doesn't allow you to take money out to yourself.

It just means that you can house all of your funds in one central location, which is the business checking account to the LLC. We've even got a bank, Titan Bank, that will set one up for you on the fly. But all of your monies can be directed right into the business checking account. Now, from there, you don't have to come to us to process another investment because all your investments going forward will be in the name of the LLC, right? You sign the documents. You sign any any purchase contracts. You sign the purchase agreements in the name of the LLC as the manager of the LLC. And you just need to make sure that all of the income from the investments go back to the LLC and they never touch your hands because that would still be prohibited.

But it does allow you to make the investment process a lot easier. It also allows you to buy investments like that where you don't have to wait 24 to 48 hours for us to deploy the funds. So if you're, you know, if you need to buy a note, you know, that's that's a hot note and you want to buy it today, you can do that as long as you've got that IRA LLC set up because you've got the checkbook. And that's where checkbook IRA LLC comes up. And there's a lot of investors that just find it a lot easier if they're wheeling and dealing and negotiating with a seller on a weekend. you know, they don't have to wait till Monday to get a check from us.

They can just give a check right to the seller right there at the table or wire, right? You can do a wire wire, right? You can send a wire, right? You can track the income coming in from the investments too without calling us. Now, I will say when you're done with this structure, all of the monies would come back to the IAS in their prata share. Sure. So, this also allows you to get some of your smaller accounts in, whether that's a, and we didn't talk about these accounts, but we have a lot of people that have maybe a $25,000, $30,000 HSA, right, from their employer, or they want to set up some educational savings accounts for their kids or their grandkids, which on those ones, the contributions are only $2,000 a year.

So, you can't really invest those on their own. But if you get all those monies into the LLC checking account, well, now they all have a prorat a share of whatever investment you're making and you can even make investment minimums because I know there's people that run syndications and funds and you know they might have a $100,000 investment minimum and maybe you got 40 in your Roth and 20 in your traditional. You got HSA. You can't do them individually, but once you put all that in an LLC, now the LLC's got 100 grand. The LLC can participate in that investment. And you can merge spousals into that, right? Could you do your husband and wife merge together where you may have 30 in each now you have 60 grand to go out and buy something or whatnot.

You can even partner personal funds. Now, I'm not a big fan of that because I see clients just mess that whole thing up. But in the event that you did need, you know, a little extra cash and maybe you've exhausted your contributions to your IAS, well, maybe you can set up a multi-member LLC that's not only owned by your IAS, but can be owned by you personally as well to its pratisha share. That's amazing. But again, make sure you understand how that works and what's okay and what's not. Spread carefully on that. Talk to me, talk to Michelle before you just run because a lot of times you don't need that, right? So, a lot of times, especially for me, I I'll just be honest, I don't need an IRA LLC.

It's not a requirement. I just create notes and I use two accounts, my Roth and my HSA. So, I've got money going out once and then all that happens is the borrower is just making payments to directed IRA. I don't need an LLC to do all that. But there are circumstances where, you know, if you got a lot of accounts, you're trying to meet an investment minimum or you're just more active. I'm lazy, right? I'm not I'm not as active as as a lot of investors are out there. So, um, it just depends. You know, you don't need it. Sometimes, you know, we don't need a Mac truck when a Volkswagen will get us there.

Yeah. Yeah. And you could JV with other people's IAS, too, guys. Right. So, this is not just your LLC's and IAS. I can my IRA can JB with Nathan's IRA, right? We got to get Canada back on the IRA train. But, uh, you know, we can partner with other people. I've done this, right? I partner with someone's private capital. I've done 20 grand Roth into a, you know, building and stuff like that. And that allows me to get into it with just a little bit of money, right? You just got a prat of a share. And for those who don't know, a prata just means a percentage of the deal you own. You own 5%, you can only make 5% of the profits back.

It's that kind of percentages. It's amazing all this stuff. I I'm not allowed to have an IRA. I'm not a US citizen. So, so we still like you. Yeah. Thanks, man. But I get to learn all about this and and so yeah, when I very first started doing investments, I was like, well, it's not for me because, you know, I can't have my own. And didn't take me very long to figure out, wait a second, but I can use somebody else's. Yeah. Well, that's one of the things Yeah. That's one of the things we haven't really dove into, which is the other side of self-direction, which is it's not just your IAS, that's for your tax-free wealth if you're an active investor.

And we kind of tal you guys talked about this at the beginning. If you need to raise more capital for notes that you're buying personally and you've exhausted bank financing or your own funds, there's and it's not billions. Uh Nathan, it's 45 trillion. Trillion with a T. There's trillions of dollars in retirement accounts. Most of those retirement accounts are in the form of an IRA, which if you're raising private money, it's easier to raise money from an IRA than if somebody says they got a 401k because then you got to ask, is it a current employer 401k? Can you even move it? Once it's IRA, you know, it's been rolled out or it's just an individual plan, that money can be used as a private capital source.

So, if you're an investor looking to raise private capital, you should just have your radar open and and open that discussion with anybody you meet, whether it's at the grocery store, your church, your, you know, your gym, whatever. Cuz 65% of Americans have some sort of retirement account. That's where most of their money is, but they don't know what they can invest in. So, if you're a knowledgeable investor and have a good opportunity to give them above average interest investing in your notes or your real estate, you share that with them. You'd be shocked at how open people are, especially with what the market's doing right now.

People are looking and running to to to different opportunities. And, you know, real estate back notes, you know, is one of the things that I think is the easiest thing to convince people on. And you the hardest person to get is the first one. So, it's just that first person. You're you're new. It's new territory for you. But once you can get that person into one of your deals and you pay them and they're happy and the deal goes good, they're going to they're going to want to invest with you again and then they're going to tell their brother and then they're going to tell you they've got some more money over here.

Um, I literally have some clients that they they don't have to go to a bank ever again. They've got enough self-directed IRA investors or lenders waiting to just give them money on their next deal because they've they've built that uh foundation up, you know, for five, six years. So, you just got to start the it's out there. It's harder to find a good deal than it is to find money. If you got a good deal, there's money out there for you, especially your retirement accounts. Well, Nate, it was awesome to sit down with you for an hour and learn some of the stuff. I'm going to be setting up my solo 401k this year.

Uh, we'll be working with you guys on doing that. I've never done it before, so it's rough with me, right? And I'm walking with you. I challenge you guys, reach out to Nate over at Directed IRA and set up your own. Again, you don't have to make 20,000. You can make 5,000. you can make 10,000 and still set that up. Get that money rolling. Get that money into an IRA tax free. So, Nathan, I'll let you uh go your finish the call up. Yeah. So, I mean, Nate, you've been around and and um I mean, not only are you an IRA master, but you're you're an active well semi-active investor as well. I'm a lazy investor.

Yeah, you could say that. But you you keep your finger on the pulse. So, what do you see coming down the pipe? What do you see um h happening in the market especially in the alternative asset sector? What are you seeing coming up? You know, it it's pretty exciting for us now. Obviously, you know, as a whole, people are kind of frozen with just what the market's doing and they're not sure what what the economy is going to do. So, yeah, every once in a while, we get this freeze mode where people just they don't want to do anything, right? Let's just see how this plays out. Um but by all the numbers and and what we've seen as far as a trend over the last five years, alternative assets is on the rise, right? Absolutely.

We're seeing a large growth. They're they're saying by 2035 it's supposed to grow to a $35 trillion industry just alternative assets. It's the largest growing asset class in all of retirement. And I think it's just because it's not because alternatives became better all of a sudden. They've been the same for a long period of time. It's because now with the internet and now with people with all the cycles we've hit and the housing crisis, people are now actively looking, okay, what are my other options? This can't be the only thing that I can invest in. So, over the last 5 years, we've seen a huge spike in interest to self-directed IAS.

It's exciting because now I go out and it's not a bunch of blank stairs. Some people are like, "Oh, yeah. I've heard about that." Or, "Oh, yeah. I've been looking at that." So, you're getting more people that are knowledgeable. And I think a lot of that has to do with just the internet and the ability to find investments, right, across state lines because you don't have to like know somebody that has an investment. You can go online and you can oftentimes find crowdfunding portals and there's all sorts of investment opportunities. Make sure you do your due diligence. But the the ability to find an investment or find investors a lot easier just because of social media and the internet.

Yeah. Yeah. This is awesome. That's awesome. Well, Nate, I'm going to disconnect from the live feed. For those who want to, there's a bitly link below. You can click that. You'll get Nate's all his information, shared information. Reach out to him. Ask questions. This is the space to ask. Get started. I There is no excuse in the next 30 days that someone doesn't take action here. and learn about it so you when you go to your local RIA meeting you can talk about it and I'm going guarantee you there's going to be someone there doesn't know anything we're talking about and goes there's no way this is illegal and you feel free to share this call or go online to directed IRA and learn all about it so Nate it was a pleasure having you on the call we appreciate hang on for after hours and we will see everyone soon we our next show will be in a couple weeks stay tuned and we'll see everyone soon thanks a lot everyone awesome thanks guys thanks for having.