Interview With Equity Trust’s John Bowens

 

Ready to revolutionize your approach to retirement investing? Tune in to this episode, where Kevin Shortle unveils the secrets of leveraging self-directed IRAs for real estate success. Joined by John Bowens of Equity Trust, with over two decades of experience in real estate and investment education, this episode is a game-changer for investors looking to take control of their financial future. From unlocking the power of self-directed IRAs to navigating the intricacies of note investments, Kevin and John deliver a masterclass in strategic wealth-building. Don’t miss out on this opportunity to transform your retirement strategy and unlock new pathways to financial freedom. Tune in now and join the revolution!

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Interview With Equity Trust’s John Bowens

Thank you as always for reading and for those five-star ratings. I do appreciate that. I was looking at that. That’s always nice to see. If you’re new to the show, take a couple of seconds, if you wouldn’t mind, and give you a five-star rating if you like to show. That does help. Also, please subscribe and that also means if you’re part of a meetup group or real estate investment club, I was at a real estate investment club weeks ago speaking there. Any club like that, general investments, let them know about the show and please subscribe.

That enables me to bring more of these to you and bring some great guests your way as well who are in and around the real estate and real estate note industry. Also, I want to thank my sponsors, Noteworthy USA. Noteworthy has the best magazine in the industry. It’s a paid subscription but well worth it. I write an article every single month for them. They bring in a lot of different authors to contribute to that. It’s everything about real estate and real estate notes with a heavy emphasis on real estate notes. You can check that out. Go to NoteworthyUSA.com.

I want to introduce you to someone that I’ve worked with in the past. I have to tell you, I’ve been in and around the self-directed IRAs and know a lot of the various folks out there involved in that space but John has always been one that stands out in my mind. Not only because of the depth of his knowledge, which is truly deep in this space but the way that he delivers it.

He’s a sharp and well-seasoned speaker. He’s taught over 70,000 investors and 400 workshops. He’s approaching numbers of mine getting out that much. Somebody who’s out there but not only just talking about this. He’s also drawing upon many years of experience in real estate as well as his own experience as a real estate investor. He’s got a lot to contribute to this and you’re going to enjoy this. If you’ve heard about self-directed IRAs before and you go, “I already know about it.” No, you don’t. I want you to hear what John has to say because he’s one of the best in the industry. Please welcome John Bowens. John, it’s great to have you.

Thanks so much for having me on. I’m excited about this.

John and I traveled together at the same conferences for a number of years. It’s been a long time since I’ve seen you, so it was great to have you, your book, and put some time over to this. I truly meant when I said in the intro because I’ve seen you live so many times. It’s a captivated audience on a topic like this. It’s a bit of a challenge but you do it so naturally.

I can’t even imagine how many case studies and testimonials you can draw from now of these success stories that you guys have done. Correct me if I’m wrong because I haven’t heard numbers. I used to rely upon you for the numbers on the industry and how many billions of dollars are in the industry and sitting in cash positions. I recall it being the two biggest areas for non-stock market or real estate and real estate notes. Is that still about where things are?

Retirement Accounts

In terms of private market investing, they give you some numbers. There’s over thirteen trillion in IRAs. When you factor in 401(k)s, pensions, and other qualified retirement accounts, it’s about $40 trillion. That’s the universe of retirement savings. In terms of private market investing and when I say private market investing, I’m talking about investments in notes, real estate, private equity, and hedge funds.

You can even add in there like physical gold and silver and cryptocurrency. You have the public markets which are your traditional stocks, bonds, and mutual funds. Most financial institutions only allow individuals to invest in those public assets. That’s why most Americans don’t recognize they can shift their retirement account into what we call a self-directed IRA and that enables them. That activates that account to be open to investing in private market investing.

Real estate, notes, and private equity are three major core areas for us as an alternative asset custodian. We spend a lot of time as you know and that’s how we met in the real estate world, whether that’s individual property investments, real estate partnership investments or note investments. We have a lot of experience with helping individuals through the process of using their retirement accounts to either buy notes or maybe they’re originating loans. Maybe they want to be a private money lender or to loan money to a house flipper.

A lot of people are not aware of the fact they can own those types of assets in their retirement savings accounts. Now, as far as the numbers, it’s about $150 billion. That’s as accurate as we can get. We’ve been doing this now for many years. We’re fortunate enough to have just over $45 billion in assets under custody and administration.

I’ve been privileged to be able to see a lot of various real estate and no transactions within self-directed IRAs then put those into case studies and examples and share with people how they can potentially look at using their IRA or 401(k) or rollover or other retirement account to invest in these private market instruments.

What we don’t do as a custodian is provide any type of investment advice or sell investments. Which is one of the reasons why a lot of people like to come to a custodian, an alternative asset custodian. We refer to ourselves as directed IRA custodians because they no longer want to rely on someone to manage their wealth for them. They want to manage wealth on their own. They want to take full control of their retirement account and make decisions on where they want to invest and how they want to invest. They don’t want someone trying to coerce them into investing in something that maybe isn’t the best fit for them.

I wanted to start with that question, by the way, to show the magnitude of how big this industry is and for people who don’t have retirement accounts set up. That is one of the big decisions that you mentioned. You put that beautifully where you want to be in the public sector and essentially turn your money or your money management, you could say, over to somebody who’s going to be buying stocks and bonds and companies that you probably haven’t heard of, and have no idea what they do. You’ve never researched in your life. You have no idea in today’s world if the CEO is going to blow up on social media.

There are so many different things that can affect the stock market. You have no control over that. It’s a place where historically, you can invest in diversify and do very well. The mindset especially from entrepreneurs that are in real estate and our notes that are turning things around and opening up an IRA or 401(k) with a company like Equity Trust. You’re in charge of all the education over there and the investor’s success, if you will.

That’s a big part of it, too. Not only get into those other investments but do a knowledgeably so they don’t get themselves into any trouble. Having that guidance is important. What we’re talking about for those who don’t understand IRAs. I made the assumption and most of my readers do. I wanted to give you that big number to go like, “This is a big industry.” Break it down simply for those who don’t know just very briefly. I know you did that but let’s emphasize it a little bit more about what it is and what’s the difference of investing on your own and with a self-directed IRA. Possibly put in there for us how difficult it might be to set one of those IRAs up.

Self-Directed IRAs

The first thing to understand is, when you hear the term self-directed that’s just an industry term. It indicates to the individual that they have the ability to take control. If someone has an IRA at a traditional financial institution only allowing them and restricting them to only invest in the public markets. What they simply do is transfer that money into a self-directed IRA.

Let’s say they open an Equity Trust self-directed IRA. They have an IRA now. They transfer that into the self-directed IRA. There are no taxes or penalties to move the money over from point A to point B, as long as they’re doing it in the appropriate way. That’s one of the functions that we do is to help them through the process of rolling over and transferring their funds. Once it’s in the account, the individual then would direct the funds out for the investment.

 

I break it down into three steps. The first step is to open and fund the self-directed account. Open the account, and direct money from the existing retirement account into the self-direct IRA. Step two is to direct the money out for an investment. Let’s say someone is buying a note. Their IRA is funded. They would submit the documentation associated with that note investment, which is generally going to be a copy of the promissory note and a copy of the deed of trust or mortgage. If they’re buying a note, it’s going to be the mortgage/note purchase and sale agreement.

They submit those documents to Equity Trust then we will wire transfer the funds out for the closing. Now, instead of cash in the account, they have an asset and a note secured by real estate rights. Maybe they have some cash left over as cash comes back in. As interest and principal payments are made, those payments come from probably the loan servicing company. The loan servicing company sends the money back into the Equity Trust IRA deposited.

As the client builds up cash, they can invest in other assets. They can even be on note investments. If they wanted to still invest in the public markets, they could do that. We have what we have called a Universal IRA. You heard the term self-directed IRA. They add another term in there. You hear the term Universal IRA. We like to call the Universal IRA because it’s signified to our clients that they have the ability with their self-directed IRA to invest in assets like notes and real estate.

If they still want some diversification into the public markets, they have the ability to do that. The idea is that this self-directed IRA or Universal IRA puts someone in a position where they get to construct and manage their own portfolio. They get to decide how much allocation they want to note, real estate, and stock spots mutual funds. If they wanted to dabble in cryptocurrency and physical gold and silver, they could do that as well.

The third step of the process is simply monitoring and managing their investment. The best way to think about it, cash goes out for the investment. We use the example of note investment. Cash goes out in return is a note. There’s no taxes or penalties because that’s an investment. You’re not borrowing against the account. You’re not taking a distribution and triggering any type of taxes or penalties. It’s just money going out for an investment.

All of the proceeds from the sale, even if you were to do partials. If you’re going to sell a partial, all the proceeds would go back into the self-directed IRA and that leads us to the other advantage. Not just control but tax advantages. When you have an IRA, you’re in a unique tax advantage environment. If you’re in a pre-tax IRA, it’s going to grow tax-deferred. You eliminate the variable of taxation. They don’t pay taxes until you take the money out.

We can get into more details of this, but with the Roth IRA, you get the taxes out of the way in the smaller seed. All of your growth is 100% tax-free. You take the money out and you pay 0% tax. I’ll conclude that by mentioning a real-world example. I have two clients, Kevin and Cynthia. They’re in St. Louis, Missouri. In 2011 and 2012, they had 401(k)s from previous employers. They referred to themselves as stock market refugees.

A lot of people at that time had to live through the great financial crisis like all of us. They suffered losses. Their 401(k)s rebounded a bit and at that point, they pulled the ripcord and said, “We’re going to roll all this money over into a self-directed IRA.” They’re 401(k) money at that time was all that’s called pre-tax. As they’re putting money in, they’re getting tax deductions for it. Eventually, they’ll have to pay taxes. They said, “Why don’t we take this money and move it over into a self-directed IRA then convert it into a Roth IRA?”

They converted about $117,000 between their two accounts into Roth IRAs. They paid at that time, by the way, about $30,000 to $35,000 in taxes. Since 2011 and 2012, they have done over 30 real estate transactions. They buy properties and sell on owner financing. They buy and sell on lease options to purchase. They’re also private money lenders. They lend money secured by real estate to other investors to flip houses or do the same types of transactions that they’re doing.

They know the industry. They know the players in the industry, so why not, as a community would, invest with the community and in the community? That’s exactly what they do. Since 2011 and 2012, they’ve grown those Roth IRAs from about $117,000 to over $2 million in properties. They’re generating over $214,000 in net tax-free cashflow on an annual basis.

Now, they’re over the age of 59 and a half. What that means is they can distribute every year 214,000 and they pay 0% tax. They paid taxes on the seat so they didn’t have to pay it on the much larger crop. Ultimately, the lesson there is all of the growth is tax-free. There’s no long-term capital gains tax when they sell properties. There’s no recapture depreciation on their note investments.

 

Note interesting income is subject to ordinary income tax rates, but because they’re doing this in their self-directed Roth IRA, they pay 0% tax. Instead of paying $0.25 to $0.30 on every dollar in the interest income that they bring in, it’s going into their Roth IRAs and it’s tax-free. This is what you’ll hear me routinely talk about in the industry as compounding interest in the absence of taxation. That can have a profound effect. I know you always do a great job in your programs of showing people time, value, and money and using financial calculators. When you eliminate that variable of taxation, it has very profound effects over long periods of time.

No doubt and no question about it. I do want to eventually get to the deadline because some people might hear me say, “Why aren’t I doing that? I’ve got cash sitting here. I’ve got the ability to put X number of dollars in there.” Some probably have 401(k)s with their own businesses that they can fund and some people might want to open an account, so we’ll have to get to that. Before I do, I want to point out something, everybody, in case you missed it.

You never once heard John say, “We look at your note investment and we qualified. We let you know if this is a good price or not.” That’s my job to help you folks. You didn’t hear him say that because that’s not their job. You pick the investment. They just make sure that it’s qualified. They handle the paperwork and the processing from their end that they need to fund it and to make sure it’s a proper investment or allowable, which most things are. That’s all it takes.

Equity Trust And Notes

That leads into, there’s other companies. Notes is not something that every company is as familiar with, which Most people specialize in. I don’t hear many people from self-directed IRAs even mention partials, which my readers should understand. One of the things is what makes Equity Trust different and specifically more into the notes pace that stands out in your mind.

From a note perspective, we have seen thousands upon thousands of note transactions. Why that’s helpful for us as a custodian because it’s enabled us to become more skilled in processing these transactions. I appreciate you mentioning that. You’re right, we don’t look at Investments for merit or risks. We don’t look at an investment and say, “You shouldn’t do that.” We’re here to process the transaction and make sure that it’s what we call Administratively Feasible.

One of the first components of this is, when you’re engaging in a note investment with your self-directed IRA. Let’s say, you have a 401(k) and you want to get it out of the market and invest in notes. You roll over that 401(k) from a previous employer into a self-directed IRA. Let’s just say it’s $100,000 that you have to start with and let’s say you want to buy a note for $50,000.

As you were going to engage in any other note purchase, you’re going to file the same steps. Instead of using your name or maybe the name of an LLC, you’re going to use your Equity Trust IRA. In the exact format that you use is Equity Trust, company custodian, FBO as in for benefit of, your name, and IRA. For anonymity purposes, you can use your account number, because a mortgage is going to be a recorded document or recorded instrument. People use their account number instead so it gives you privacy.

The long and short of it, that’s the real only difference. You’re titling in the name of your IRA and the money is coming from your Equity Trust IRA. Monies are going back into the IRA from your principal and interest payments. Over the years, processing thousands upon thousands of transactions from note purchases where the individual wants to sell a partial or they’re buying a partial or an equity participation loan or a loan that has automatic modification or draw loans.

We process from a real estate secured loan perspective. We processed thousands of transactions and we’ve seen so many different transactions. We know how to bucket those transactions. At the end of the day, as a custodian, a note is a note. It’s a private debt instrument. It’s the way we look at it as a custodian. In terms of how to get that into the account and how to document it from a custody perspective, it’s no different than what you’re accustomed to now. We ask for the same documents that you would need to have as an investor. We ask for copies of those documents then we execute the funds being sent out for the investment.

At the end of the day as a custodian, a note is a note. It's a private debt instrument. Click To Tweet

That’s important, everybody. I’ll tell you, there’s a lot less to a real estate no closing than a traditional real estate closing. There is that last-minute dance. Nothing’s worse and you’re ready to go. The seller’s ready to be funded. You’ve got agreements on deadlines. You’re working with the servicing company to get the loan boarded then you’ve got the money being held up by a less familiar custodian on how these things work. That can cause deals to fall through. It is important to have some experience in there.

IRAs For Children

You folks have been there from the beginning and in this space. I do appreciate that because it helps out investors who are looking to fund these deals with their IRAs. The other thing that might be of extension for this and I’ve got a number of clients who not only have IRAs and 401(k)s themselves but for their children. Can you tell us a little bit, maybe somebody in the no business. What might they be able to do to get an IRA for their child? What would be the qualifications for that? What could they do with that?

As far as children, I always start with adult children. That’s pretty straightforward. If you have adult children, maybe they’re working for your business already. Maybe they have their own jobs. As long as they have earned income they can open and fund in an IRA. It’s very easy to do. There’s what’s called a traditional IRA and a Roth IRA. There are not hundreds of different accounts.

It’s pretty simple, you have a traditional IRA and a Roth IRA. There are some other accounts like a solo 401(k) and an HAS, health savings account. SEP IRA, a simple IRA, but for the most part for most people, it’s a traditional IRA and/or Roth IRA. Most people gravitate to the Roth IRA because you fund it with after-tax money. It grows tax-free like the Kevin and Cynthia example. You take the money out and you don’t pay any taxes.

For adult children, let’s say somebody that’s in their 20s or early 30s. They might have too high of income to contribute to a Roth IRA. In many cases, they’re under what’s called modified adjusted gross income limits, where they can still contribute to a Roth IRA. If they happen to be over those limits, you can do what’s called the backdoor contribution, which is simply contributing to a traditional IRA and then converting to a Roth IRA.

To get back on track on the adult children, let’s assume you have adult children and they have earned income. They open a Roth IRA. They fund the Roth IRA. Now, how much can you contribute to a Roth IRA? In 2024, the contribution limit to a Roth IRA is $7,000 for an individual under the age of 50. Once you get to fifteen 50 and over, you can contribute up to $8,000. Staying on the topic of adult children, they’re going to be able to get $7,000 into that Roth IRA.

Moving to, let’s say, minor children. If you have children under the age of eighteen, but they are of age to do work for your business in that instance. Think of your teenagers. They can start doing work for your business. Now, you can work with your CPA. We don’t advise on the tax structure of this but someone would work with their CPA and pay their children. Put your children on payroll, if you will. Now they have earned income and can put money into a Roth IRA.

If you have children that are too young to be doing work, there are ways in which you can pay them a modeling fee. If you have their pictures and their materials, let’s say you’re marketing materials. You may have the ability to be able to pay them a modeling fee then they contribute to a Roth IRA. Here’s what’s interesting about Roth IRAs for children and one example. I have a client whose name is Jan and her daughter’s name is Brittany.

At fifteen years old, they started paying Brittany from their real estate business because they were going out and marketing, call it off-market real estate deals. They’re marketing for off-market real estate deals. What they did was they paid their daughter to hand address envelopes and lick stamps so they had a direct mail campaign. That’s how they would find sellers. They would bring their daughter with them, Brittany, out to make offers on these houses.

They were able to pay her and she was able to have a Roth IRA. What they did is they partnered her Roth IRA with the parents’ Roth IRAs to do real estate transactions. What a lot of people don’t recognize is that there are ways. You have to follow the rules, but there are ways in which you can partner one Roth IRA with another IRA to conduct a transaction.

What a lot of people don't recognize is that there are ways in which you can partner one Roth IRA with another IRA to conduct a transaction. Click To Tweet

To give you an example, I made a loan on a house. It was a $100,000 loan. It was to a house flipper. I partnered my Roth and my traditional together. I partnered my Roth at 65%, which is $65,000 of the $100,000. My traditional account, my pre-tax account at 35%, which is $35,000. It’s a 65% and 35% split. When the loan paid off and I got my interest in principal at closing. That went back into each respective account.

I’ve even seen clients where they buy notes or make private money loans where they have multiple family members all partnered together on one individual transaction. The reason why I bring that up is because some people will say, “If I can only put $7,000 in a Roth IRA for myself or a child or an adult child, how far is that going to get me?” Maybe it’s the strategy of making contributions religiously every single year until you build up the balance or maybe it’s getting creative and utilizing these accounts in some partnership arrangement.

I was hoping you would go there because I’ve got plenty of clients that’s why they have their kids in their business involved at some level doing something that they’re capable of doing and then partnering with them on notes. You could literally set them up for life. You can start doing that early enough because remember, these notes could be 20 to 30 years and paybacks and such. It’s a great way to go.

Solo 401k

You also mentioned something that I want to get your thoughts on here. I’ve always advocated that 401(k)s are much better than an IRA. The emphasis is always on IRA and that’s maybe out of default position in people’s minds. It’s easier to understand, but if you’re in a position where you can do a 401(k), you can contribute more.

There’s a lot of other benefits and I’ll let you get into that a little bit. If someone has an LLC, which most people do when they invest in the note business. They start making money in the note business. They can simply then elect to have their own 401(k) plan and start contributing to that. Some people are going to hear that and say, “I already have a 401(k) at my regular job. Can I do that with the note business as well?” Tell us a little bit about how that would work.

What you’re referring to and I’m glad you brought it up because it’s important for folks especially real estate investors to know about this. There’s an account type. It’s a type of 401(k) called a solo 401(k). Solo signifying one person. Now, there are ways. there could be more than one person, but generally, it’s one person, so your example is perfect.

If someone’s in the note business, they have an LLC. They’re doing a number of note transactions. If they are paying themselves, call it a salary. If they have an actual claimed earned income through that entity, they can open a solo 401(k). What’s interesting about a solo 401(k) is it has some very attractive features and benefits that you don’t get with an IRA. Let me mention a few of those bullet points. The first is you can contribute a lot more money to a solo 401(k) than an IRA on an annual basis.

A solo 401K has some very attractive features and benefits that you don't get with an IRA. Click To Tweet

A solo 401(k), just 401(k) in general, you can contribute for 2024 up to $69,000 when you’re under the age of 50. When you’re 50 and over, you have the potential of getting $76,500. Anytime you turn 50 in the retirement world, you can contribute more money to retirement accounts because you’re getting closer to the golden years so they let you start putting more money in if you’ve fallen behind in your earlier years. The solo 401(k) has those higher contribution limits.

Now, you do have to be paying yourself a healthy salary. Let’s use the example of somebody that’s making $200,000. If they’re making $200,000, paying payroll tax, Medicare and Social Security in $200,000. They’re paying obviously income taxes as well, then they’re going to be able to get that full contribution in there.

For somebody that is only paying themselves $10,000. If you’re only paying yourself $10,000, you’re only being able to get $10,000 into the account. Where some people get caught off guard is all of their income is passive income. None of it is earned income. In that case, they can’t even open a solo 401(k). The first qualification for opening a solo 401(k) is you have to have earned income. You have to have it. If you don’t have it, you can’t even open a solo 401(k).

Folks do need to be careful because they can go to certain companies that aren’t regulated entities. They will sell you a plan document and they do not verify whether you meet the qualifications. If you don’t have earned income, I can’t even open a solo 401(k) for you because I know if I go on the IRS website, it says you can. I rely on exactly what the IRS says and what’s on the website.

Some other bullet points to mention are along the lines of qualifications. The first is earned income. The second is that you can’t have any W-2 employees with the exception of you and the spouse, which is interesting. If you’re in the note business and you have earned income then you hire your spouse. Maybe they’re doing bookkeeping work. Maybe they’re a partner in the business with you and doing a lot of the same functions you’re doing.

Maybe you’re the bookkeeper and they’re the ones that’s pounded the pavement and doing the work. Either way, they’re an employee of the business. They don’t have to be an owner. They’re an employee and your spouse. Now, they can also participate in the solo 401(k). Back to the bullet point benefits, higher contributions. You can have a 401(k) at work and a solo 401(k). You just can’t exceed the maximum contributions.

You can have an IRA and a solo 401(k). Also, with the solo 401(k), you have what’s called the Roth bucket. All of your contributions, if you’re structured the right way, you can get all of those into the Roth bucket. It’s after-tax money. It’s going to grow tax-free and when you take the money out after 59 and a half you pay zero percent tax. You can get a lot more Roth money generated in one of these solo 401(k)s compared to contributing to a Roth IRA.

Again, you can have both. A lot of folks max out their 401(k) and their IRA now. The 401(k) is probably going to grow faster. If you have it structured right, you can get that 401(k) grown higher, but you can again do both. Last but not least with a solo 401(k), there’s an interesting provision in a solo 401(k), just 401(k) in general, that allows you to go out and do debt leverage real estate deals and be exempt from a little-known tax called UBIT, unrelated business income tax or in the context of real estate unrelated debt-financed income tax.

It’s Internal Revenue Code 511 to 514 for any readers that want the light read late at night. If you enjoy it, I enjoyed it as well. That’s why I bring it up. I would only bring it up to the audience that I know can tolerate it. Ultimately, under this tax code, what it says, with a solo 401(k) as long as the loan is structured right. I could go out and invest in a debt leverage piece of real estate and I would be exempt from unrelated business income tax see you.

UBIT occurs in an IRA or other tax-exempt environment when I go out and do a debt-leverage real estate deal. With my IRA, if I bought a property for $100,000 and borrowed $50,000. I would have to pay taxes based on that percentage, which is 50%. I would have to pay taxes on 50% of the net profit, but under a solo 401(k) or just 401(k) in general, I can go out and do debt-leverage real estate deals. I don’t have to necessarily worry about the UDFI, unrelated debt financing tax.

All that said to summarize because that’s a lot of meat there. It’s all based on the individual. It’s not that one is better than the other. It’s based on individual circumstances because some people may not want to go out and do debt-leverage real estate deals. Some people might have a lot of money in their IRA and they’re just looking to continue to grow that account as safely as they possibly can. Maybe their objective is to invest in notes.

If you’re investing in notes, there’s no debt leverage so you don’t have to worry about the unrelated business income tax. If all you’re trying to do is take your 401(k) from your old job and shift over to be able to invest in notes. You’re probably going to be better off just moving it over into a self-directed IRA and not worrying about the solo 401(k).

Checkbook LLC IRA

As a reminder, if you’re tuning in perhaps or skipping ahead, we’re talking with John Bowens. He is a director. He’s head of education, investors success and Equity Trust company. I’m a big advocate of education myself. I’ve been teaching and training in the note business for many years and you’ve been teaching in your space for many years.

It’s so important because you can structure things the wrong way. For example, there are a lot of companies that I’m sure some of the readers are like, “I can open an IRA with this company and they give me complete checkbook control and I’m good to go.” There’s a downside to all of that. The things that you were saying, which I agree with. I said that question properly, if your position is right, a 401(k) is better, but you’re right. It depends on your circumstances and that’s one of the things I like. You folks have so much education now on this and can help people which is the right and the best way to do it because things like checkbook control, although, in again cases are legal. You have to be careful.

You’re right, which is the checkbook LLC IRA can be used. It’s not something that I would say we are for or against. That’s another one of those. We want to make sure we provide an environment where our clients can choose their own journey but we want to make sure that they’re well-informed in educated. A checkbook LLC IRA can serve good purposes in certain situations.

For somebody who’s simply buying notes or doing private money lending. In many cases, a checkbook LLC IRA is completely unnecessary. In fact, there could be added costs, added burdens, and additional scrutiny that’s not necessary. Another instance is maybe somebody is managing a furnished rental property or has a rental property that’s very transaction heavy or maybe they’re going to do multiple rental properties. Maybe an LLC checkbook-style type account makes sense for that individual.

Again, that’s another one of those. It’s very dependent on the circumstances and you want to look at your individual situation. You’ll find that there are folks out, that one way is the only way. Everybody gets a checkbook LLC IRA. I see a lot of them that don’t make sense or even worse, I’m speaking at a seminar and I have somebody that comes up to me and says, “I got this checkbook LLC IRA and I did X, Y, and Z.” I’m like, “About five limited transactions and that account should be completely distributed.” There are severe consequences if one does a private transaction. The good news is, there are few and far between. The rules are pretty straightforward. You just have to understand the rules and play by the rules.

If you’re someone who’s tempted by, “I get money in the IRA, but I need money for this,” and it’s not an investment account. You’re tempted to, “Who’s going to know?” You can’t do that stuff. Be careful and structure the right one. If somebody doesn’t have an IRA or 401(k), what’s the deadline? When can they get going?

For an IRA and in some cases, even a solo 401(k), depending on whether you’re a sole prop or disregarded past through or self-employed individual. There are ways with both IRA and solo 401(k) and SEP IRA. Even throw in there that health savings account because you can self-direct in HSA. You can make a contribution for the previous year as long as you get it done on or before the tax filing deadline of April 15th.

It’s always April 15th. Hard code that in. Regardless of what year you might be reading this in. You can usually contribute to an IRA or even sometimes a solo 401(k) for the previous year up until that deadline, which is interesting because as we’re recording this, we have folks who will contribute for 2023 and 2024.

If you think about it for those that are under the age of 50, combined between the two years, they can get $13,500. For folks that are 50 and over, it’s $15,500 combined. Another thing that’s important to understand is we talk about how you have to have earned income that contributes to an IRA or solo 401(k). Specifically with IRAs. There’s something called a spousal IRA contribution. My wife does work. She works in the business Equity Trust. We’ve both been in the business for nearly two decades.

I was so passionate about the industry. I tell people, “I had to marry into the industry as well.” Anyway, let’s say my wife didn’t work. I have earned income. I’ve W-2 earned income. I’m paying my Medicare, Social Security, and tax. All that on there and then let’s say my spouse does not work, but we’re married and filing a joint return. That’s okay. My earned income can support my wife’s contribution. That’s called a spousal IRA contribution.

You can go to the IRS Publication 590 and see the spousal IRA contribution. It talks all about it. This is interesting for those folks out there who may be their full-time investor. They’re not showing any income but their spouse has a full-time job. You can still have an IRA as long as you’re married filing a joint return or maybe it’s the other way around.

Maybe you have a stay-at-home spouse and you have the earned income. That’s fine. You can both have contributions going into your own separate IRAs. For a couple that is both over the age of 50, they can get a total of $31,000 into IRAs. If you’re under the age of 50, that’s a total of $27,000. I say that because you think about, “What am I going to do with only X amount of dollars in an IRA?”

There’s quite a bit you can do. Your contributions are important every year, but then also being creative with real estate transactions. For example, I have a client who started at Roth IRA for the first time in his 50s. He only had about $13,000 and some change in his Roth IRA and he found a deal. He found a property. He needed about $105,000 for the purchase and rehab but he only had $13,000 and some changes to the Roth IRA. What he did is he partnered up with a financial friend. Another investor that he met in his local real estate investor group.

These two guys are from Dayton, Ohio. They bought a three-bedroom and one-bath house in Dayton, and $105,000 purchase and rehab. Investor A put in $13,000 and some changes with this Roth. The other investor funded a majority of the transaction, but when they sold the property, they split the profits 50/50.

That was a simple real estate joint venture. They split the profit 50/50. It was $68,000 in profit. The investor with only $13,000 and some change in his Roth IRA. He made about $34,000 profit tax-free in his Roth IRA. He grew his Roth IRA from $13,000 and some change to over $47,000. He paid 0% tax. There are ways you can get either in the note business or real estate.

You can get creative. With even a smaller amount of money in an IRA, you can make some profitable returns tax-free. There are rules and guidelines you need to follow, so let me be clear on that. If you follow the rules and guidelines and you structure things properly, there are ways that you can be creative with some of those smaller dollar deals.

 

I’m going to have all your social media links and everything on here. I know you’ve got home courses. You folks are doing your own show as well. He does live events and is it EquityTrust.com?

That might work but TrustETC.com. You are right, Kevin. I appreciate the shout-out in terms of education. We have a lot of videos on our YouTube Channel. You can go to YouTube and search Equity Trust Company. It’s free content. Our objective is to make publicly available how this works and that it can work and people are doing it. We’ve been doing it for over 50 years. We have over 200,000 customers all across the United States. We’re headquartered in Cleveland, Ohio, but we have a lot of video content for people to sync their teeth into and get educated. Folks can check us out there or go to our website TrustETC.com.

Thank you, John. Everybody, I’ll be on YouTube. You got my YouTube channel as well. While you’re there, make sure you look up Equity Trust, get on their YouTube channel, and see some good content there as well. John always delivers as I said. John, thanks for being on. I do appreciate it.

Thank you, Kevin.

You bet. Thank you, everybody, for reading. Again, give me a nice rating if you enjoy the show and let somebody else know about it. If you have any recommendations or suggestions for other guests, you can do that as well. Shoot me an email at Kevin@KevinShortle.com. I’d be glad to look into that. Again, check out my tip of the day on all the social media and the YouTube channel. I look forward to putting together an episode for you real soon.

 

Important Links

• Noteworthy USA
• John Bowens on LinkedIn
• Equity Trust
• YouTube Channel – Equity Trust Company
• Kevin@KevinShortle.com
• Kevin Shortle – YouTube Channel

 

About John Bowens

As Director, Head of Education and Investor Success at Equity Trust Company, John draws from his 15 years in the real estate industry and his experience as an active real estate investor. In his travels across the U.S. and virtually, he has taught 70,000 investors during more than 300 workshops and classes, spreading the message about the power of building tax-free wealth and leaving a lasting legacy by investing in what you know best.

John contributed to the book “Self-Directed IRAs: Building Retirement Wealth Through Alternative Investing” with Equity Trust Company Founder Richard Desich, Sr., and has appeared on several national real estate and finance-related radio shows, including the Rich Dad Radio Show.

 

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