The Secret Trick All Real Estate Experts Use to Invest Tax-Free! - John Bowens

Summary

John Bowen, a respected educator in the self-directed IRA industry, shares his journey and insights on using retirement accounts to invest in real estate and other alternative assets. He emphasizes the importance of taking control of one's retirement funds and the tax advantages of self-directed IRAs, including tax-deferred and tax-free growth, to build wealth and leave a lasting legacy.

Takeaways

• 🏦 The 2007-2008 financial crisis had a significant impact on many Americans' retirement portfolios, particularly those nearing or in retirement who had to withdraw from their accounts during a time of greatly reduced value.
• 🤔 John Bowen, the guest, questioned why his real estate-focused company founders did not have traditional retirement accounts like IRAs or 401ks, learning that they preferred investing in real estate and businesses over the stock market.
• 🏢 John Bowen is a respected educator in the self-directed IRA industry, with extensive experience in real estate and a passion for teaching about alternative investment strategies.
• 📚 Bowen has contributed to the book 'Self-Directed IRAs: Building Retirement Wealth Through Alternative Investing' and has appeared on various finance and real estate radio shows.
• 🎓 He holds a bachelor's degree in finance and is a Certified IRA Services Professional, emphasizing his educational and professional background in finance.
• 💡 The concept of a self-directed IRA was introduced by the guest as a way for individuals to take control of their retirement funds and invest in a wider range of assets beyond traditional stocks and bonds.
• 🚫 Self-directed IRAs come with certain restrictions, such as prohibitions on investing in artwork, collectibles, alcoholic beverages, and certain types of business transactions.
• 💡 The tax advantages of self-directed IRAs were highlighted, including the potential for tax-deferred or tax-free growth, which can significantly increase the account's value over time.
• 💰 The script provided a detailed explanation of the differences between traditional IRAs, Roth IRAs, and taxable accounts, emphasizing the potential for substantial tax savings with the right strategy.
• 🌱 The power of compounding interest without taxation was underscored as a key benefit of self-directed IRAs, allowing for wealth accumulation through reinvestment of earnings.
• 👨‍👩‍👧‍👦 The script shared a case study of a couple who successfully grew their retirement funds through self-directed IRA investments in real estate, demonstrating the potential for significant wealth creation and legacy planning.

Q & A

What significant event did John witness in 2007-2008 that affected many Americans' retirement portfolios?

John witnessed the great financial crisis of 2007-2008, which had a devastating impact on many Americans' retirement portfolios, causing significant losses especially for those nearing or already in retirement.

Why did the founders of the company John worked for not have traditional retirement accounts like IRAs or 401ks?

The founders did not have traditional retirement accounts because they did not believe in the stock market. They believed in real estate as a wealth creation tool and investing in businesses, which was their background and experience.

What is the primary role of John Bowen at Equity Trust Company?

John Bowen serves as the Director of Education and Head of Investor Success at Equity Trust Company, where he educates and informs the public about self-directed IRAs and the benefits of investing in alternative assets.

How has John contributed to the industry beyond his role at Equity Trust Company?

John has contributed to the industry by co-authoring the book 'Self-Directed IRAs: Building Retirement Wealth Through Alternative Investing with Equity Trust Company', and by appearing on several national real estate and finance-related radio shows.

What is the main difference between a self-directed IRA and a traditional retirement account?

A self-directed IRA allows investors to have more control over their retirement funds and invest in a wider range of assets, including alternative investments like real estate, while traditional retirement accounts are typically limited to stocks, bonds, and mutual funds.

What are some of the tax advantages of using a self-directed IRA for investing?

Self-directed IRAs offer tax advantages such as tax-deferred or tax-free growth, which means that the investments can grow without being taxed until withdrawal, potentially leading to significant tax savings over time.

Why did John decide to pursue higher education in finance?

John decided to pursue higher education in finance because his father encouraged him to do so, not wanting him to have to work as hard as he did, and to gain the knowledge and skills to create wealth through real estate investing and small business ownership.

What is the concept of 'compounding interest in the absence of taxation' that John mentions?

This concept refers to the ability to grow investments within a tax-advantaged account like a self-directed IRA, where the earnings can compound over time without being eroded by taxes, leading to potentially greater wealth accumulation.

What is the significance of the Roth IRA in terms of tax treatment compared to a traditional IRA?

A Roth IRA is significant because contributions are made after-tax, but the growth is tax-free, and qualified withdrawals are also tax-free, unlike a traditional IRA where contributions are tax-deductible, growth is tax-deferred, and withdrawals are taxed.

Can you explain the term 'backdoor Roth' mentioned in the script?

A 'backdoor Roth' refers to a strategy where an individual contributes to a traditional IRA (which they might not be eligible to do directly due to income limits) and then converts that traditional IRA to a Roth IRA, allowing high earners to get the benefits of Roth IRA tax treatment.

How did Kevin and Cynthia, the couple mentioned in the script, grow their initial investment using a self-directed IRA?

Kevin and Cynthia grew their initial investment of $117,000 to over $2 million in properties and cash flow over 10-11 years by using a self-directed IRA to invest in real estate, applying value-adding investment strategies and private money lending.

Outlines

00:00

🏦 Financial Crisis Impact and Real Estate Investment Beliefs

The speaker reflects on the 2007-2008 financial crisis, noting the devastating effects on many Americans' retirement portfolios. The crisis prompted questions about the reliance on traditional stock market investments for retirement. The speaker's experience in the real estate industry and discussions with company founders led to a realization that real estate and business investments were viewed as more reliable wealth creation tools than the stock market. The narrative transitions into an introduction of John Bowen, an educator in the self-directed IRA industry, who has trained thousands of investors and contributed to the book on self-directed IRAs. The introduction highlights John's background, expertise, and his role in promoting alternative investment strategies for retirement planning.

05:01

🤔 The Shift from Traditional to Self-Directed Retirement Accounts

This paragraph delves into the speaker's journey from considering a career in financial advising to discovering the self-directed IRA industry. The speaker recounts the revelation that traditional retirement accounts like IRAs and 401ks were not the only options and that self-directed IRAs offered a way to invest in alternative assets such as real estate. The narrative focuses on the influence of Equity Trust's founder, Dick Desage, who is credited with pioneering the self-directed IRA industry. The speaker emphasizes the appeal of tax-deferred or tax-free growth through self-directed IRAs and the potential for higher returns through direct investment in tangible assets like real estate, as opposed to traditional stock market investments.

10:01

🏘️ Self-Directed IRAs: Empowering Investors with Diverse Investment Options

The speaker explains the concept of self-directed IRAs, emphasizing the investor's ability to choose investment assets beyond traditional stocks and bonds. It clarifies that while self-directed IRAs offer broad investment freedom, certain assets like artwork, collectibles, and alcoholic beverages are prohibited. The explanation includes the process of transferring funds from a traditional retirement account to a self-directed IRA without incurring taxes or penalties. The speaker advocates for the empowerment of investors to make their own investment decisions, highlighting the tax advantages of self-directed IRAs, including the elimination of taxes on rental income and capital gains when selling properties held within the IRA.

15:02

📈 Tax Implications of Traditional vs. Roth IRAs and the Power of Tax-Free Growth

This section provides an in-depth comparison of traditional IRAs and Roth IRAs, focusing on their tax implications. The speaker uses the analogy of paying taxes 'on the seed or the crop' to illustrate the difference between tax-deferred growth (traditional IRAs) and tax-free growth (Roth IRAs). The narrative includes a hypothetical scenario to demonstrate the significant tax savings achievable with a Roth IRA compared to a traditional IRA or a taxable account. The speaker also touches on the 'backdoor Roth' strategy, which allows high earners to convert traditional IRAs to Roth IRAs, and presents a case study of a couple who successfully grew their retirement funds using self-directed IRAs, emphasizing the potential for substantial wealth accumulation and tax savings.

20:03

💼 Self-Directed IRAs as a Tool for Investment Control and Legacy Planning

The final paragraph discusses the empowerment that comes with self-directed IRAs, allowing investors to take control of their retirement funds and invest in assets they believe in, such as real estate or private equity. The speaker dispels the misconception that self-directed IRAs are only beneficial for Roth IRAs and highlights the potential for higher returns and better control over one's financial future. The narrative concludes with a real-life example of investors who have successfully used self-directed IRAs to not only grow their wealth but also plan for their legacy, intending to pass on their tax-free, cash-flowing properties to their children and grandchildren.

Keywords

💡Financial Crisis

The term 'Financial Crisis' refers to a period of economic turmoil characterized by a sharp decline in asset values, high levels of bankruptcies, and a lack of liquidity in the financial system. In the video, the 2007-2008 financial crisis is mentioned as a pivotal event that significantly impacted many Americans' retirement portfolios, leading to a loss in value and challenging those nearing or in retirement.

💡Retirement Portfolios

A 'Retirement Portfolio' is an investment strategy designed to provide financial security during retirement. The video discusses how many retirement portfolios were severely affected during the financial crisis, with some individuals having to withdraw funds from their retirement accounts at a time when their values were significantly reduced.

💡Self-Directed IRA

A 'Self-Directed IRA' is a type of individual retirement account that allows the account holder to have control over the investment decisions, rather than entrusting a financial institution to manage the assets. The video emphasizes the benefits of self-directed IRAs, including the ability to invest in a wide range of assets beyond traditional stocks and bonds, and the potential for tax advantages.

💡Tax-Free Wealth

The concept of 'Tax-Free Wealth' refers to the accumulation of wealth where the growth is not subject to taxes, allowing for greater compounding of earnings. The video highlights the potential of self-directed IRAs to build tax-free wealth through investments in real estate and other alternative assets.

💡Real Estate Investing

Real Estate Investing involves the purchase, ownership, management, rental, or sale of real estate for profit. The video discusses real estate as a preferred wealth creation tool by some, including the founders of the company mentioned, who believe in its potential for generating income and appreciation over time.

💡Traditional Stocks and Bonds

Traditional Stocks and Bonds represent common investment vehicles in the financial markets. Stocks represent ownership in a company, while bonds are debt instruments. The video contrasts these with alternative investments, suggesting that some investors may find better returns in non-traditional assets like real estate.

💡Tax Deferral

Tax Deferral is a strategy where taxes on investment earnings are postponed until the money is withdrawn, typically during retirement. The video explains how traditional IRAs offer tax-deferred growth, which can be advantageous compared to taxable investments.

💡Roth IRA

A 'Roth IRA' is a type of retirement account where contributions are made with after-tax dollars, and qualified withdrawals are tax-free. The video discusses the benefits of the Roth IRA, including tax-free growth and the potential for substantial tax savings over time.

💡Prohibited Transactions

In the context of the video, 'Prohibited Transactions' refer to certain activities that are not allowed with retirement accounts, such as investing in collectibles or engaging in business with disqualified persons. The video mentions these to clarify the limits of what can be done with a self-directed IRA.

💡Legacy Planning

Legacy Planning involves strategies to pass on wealth to future generations. The video uses the example of a couple who have grown their Roth IRA to over two million dollars, with plans to leave this wealth to their children and grandchildren, illustrating how a Roth IRA can be a powerful estate planning tool.

💡Private Market Investments

Private Market Investments are non-publicly traded investments, such as real estate or private equity, that are not typically available through traditional brokerage accounts. The video discusses how self-directed IRAs allow individuals to invest in these types of assets, providing an alternative to the stock market.

Highlights

John Bowen discusses the impact of the 2007-2008 financial crisis on retirement portfolios and the challenges faced by those nearing or in retirement.

The founders of the company John worked for preferred real estate as a wealth creation tool over traditional stock market investments.

John's background in real estate and finance, and his journey from considering a career in financial advising to becoming an educator in the self-directed IRA industry.

Introduction of John Bowen as a respected educator in the self-directed IRA industry, with extensive experience in real estate investing and workshops.

John emphasizes the power of building tax-free wealth and leaving a lasting legacy through alternative investments.

Explanation of the concept of self-directed IRAs and the ability for investors to take control of their retirement funds.

The difference between self-directed IRAs and traditional retirement accounts, focusing on the freedom to invest in a wider range of assets.

Clarification on the tax advantages of self-directed IRAs, including tax-deferred and tax-free growth.

John explains the process of moving funds from traditional retirement accounts to self-directed IRAs without incurring taxes or penalties.

The potential for significant tax savings through self-directed IRAs compared to taxable investments.

The story of Kevin and Cynthia, who successfully grew their retirement funds through self-directed IRA investments in real estate.

The use of self-directed IRAs for legacy planning and estate planning, allowing for wealth to be passed down tax-free to future generations.

John's emphasis on the importance of investor control and decision-making in self-directed IRAs, as opposed to reliance on traditional financial markets.

The flexibility of self-directed IRAs to invest in various alternative assets, such as real estate, private equity, and precious metals.

The potential for higher returns through self-directed IRAs, contingent on the investor's strategy and market conditions.

John's role in educating the public on self-directed IRAs and empowering them to make informed investment decisions.

Transcripts

I live through the great financial

crisis and I saw in 2007 2008 a lot of

Americans their retirement portfolios

completely wiped out but there were

major challenges for those individuals

at that time especially those that were

setting themselves up for near

retirement or were actually in

retirement where they had to take draws

from their retirement accounts when

those plans were at 60 70% value of

where they were at prior to the great

financial crisis and so the founders of

this company that I was working for that

were in the real estate business I

started asking them questions about why

don't you have IAS or 401ks or other

retirement plans and they said well John

we don't have those types of accounts

because we don't believe in the stock

market we believe in real estate as a

wealth creation tool we believe in

investing in businesses starting

businesses that's all they had ever

[Music]

done

[Music]

you're tuned in to the freedom show we

are in the studio having a conversation

we're really excited to share with you

today today's guest is John

Bowen we're so excited to have you John

and before we dive into the freedom show

and your freedom story we would love to

uh let the audience get to know you a

little bit so flip you want to um

introduce John I got on my my Santa

glasses all

right joh Bowens is one of the most

sought-after and respected Educators in

the self-directed ira industry as

director head of education and investor

success at Equity Trust Company John

draws from his 20 years in the real

estate industry and his experience as an

active real estate investor in his

travels across the US and virtually he

has trained 60,000 investors during the

more than 400 workshops and classes

spreading the message about the power of

building tax-free wealth and leaving a

lasting Legacy by investing in what

other investors know best in addition to

thought leadership in the industry John

has also directed teams in both the

front office and back office operations

with Equity Trust focusing on the

custody of various alternative assets

including but not limited to real estate

notes private Equity precious metals and

much more John contributed to the book

self-directed IAS building retirement

wealth through alternative investing

with Equity Trust Company fund found ER

Richard desich senior and has appeared

on several National real estate and

finance related radio shows including

their Rich Dad Radio Show he received

his bachelor's degree in finance from

Ohio University John holds the certified

Ira Services professional designation

through the American Bankers Association

welcome to the show John hey thank you

so much flip and Danny really appreciate

you having me on today we are so

grateful to have you here and so um for

our audience you guys know that the

freedom show um we love talking about

Freedom we love inviting people who are

in our Network already so that we can

introduce you to them John is somebody

who we um met personally actually in the

power room um and we've seen them quite

a few times at those events and they are

putting on workshops across the the

country and we are starting to do more

things with them ourselves I was just

telling John right before the show that

the very first self-directed Ira company

that we worked with personally um with

our investors was Equity Trust and we

built our entire process document of how

how to use self self-directed IAS in our

investment opportunities based on their

model and so we're super excited to have

John here he has been on we like we

looked at his Media Kit John's been

everywhere so now he's on the freedom

show and we're super excited um to start

really off um the way that we start off

with every guest John we want to start

this off getting to know you on a

personal level um and you sharing with

us what does freedom mean to you and uh

tell us about your journey and how you

feel like you've achieved some type of

freedom in your life yeah well I

appreciate the question and you know in

terms of you know where my journey began

uh 20 years ago I got involved in real

estate and I didn't get involved in real

estate you know going out on my own and

flipping houses I was very young I

worked for a small real estate company

in Cleveland Ohio and it was just a

small family-owned operation they owned

a lot of industrial commercial building

some single family properties uh that's

what got me exposed to real estate and

uh even before then growing up you know

I always had sort of my own little

landscaping business so I always had

sort of this entrepreneurial type sort

of drive to me and uh I was working for

a small mom and pop hardware store uh so

I got exposure to what it means to run a

small business and work very closely

with the owners and then working for

this real estate company that got me

exposure to how to create wealth and

leave wealth to other family members

through real estate investing and small

business ownership and so I decided to

pursue um higher education that was just

something my father uh said hey that

wasn't something that I ever had an

opportunity to do I don't want you to

have to work like I do so I want you to

to pursue this so I went ahead and did

that I'm very grateful that I did that I

studied Finance real estate finance and

then out of school uh I had this this

thought of becoming a financial adviser

because I spent a lot of time on that

and through school all I learned about

as a lot of people that have gone

through the same Journey as I've gone

through uh I I thought that all I could

use my retirement money for my Ira's

401ks and other retirement accounts is

to invest in traditional stocks bonds

and mutual funds and as you did I live

through the great financial crisis and I

saw in 2007 2008 a lot of Americans

their retirement portfolios I'm not

going to say were completely wiped out

but there there were major challenges

for those individuals at that time

especially those that were setting

themselves up for near retirement or

were actually in retirement where they

had to take draws from their retirement

accounts when those plans were at 60 70%

value of where they were at prior to the

great financial crisis and so the

founders of this company that I was

working for that were in the real estate

business I started asking them questions

about you know why don't you have IAS or

401ks or other retirement plans and they

said well John we we don't have those

types of accounts because we don't

believe in the stock market we we

believe in real estate as a wealth

creation tool we believe in investing in

businesses starting businesses that's

all they had ever done and so through

that exposure I then stumbled across

Equity Trust and our company founder his

name is Dick desage and he's widely

known as the pioneer of the

self-directed IRA industry he put

together one of the very first real

estate transactions with self-directed

Ira investors back in the early 80s and

it was 22 Ira investors in a commercial

real estate syndication and each of

those 22 Ira investors made nearly

$200,000 tax deferred in their

self-directed IRAs over 19 years under

the triple net lease and so it was it

was just a a really great success story

and so this started to this started to

gain momentum in the 80s and 90s and

then in the 2000s with the internet it

really started to take off and so I I

met Mr desich about nearly two decades

ago he became my mentor uh t me a lot

about the ability to be able to use a

retirement account to invest in real

estate private Equity cryptocurrency now

at that time it didn't exist but now it

does gold and silver but but very much

concentrated around real estate and I

was absolutely fascinated with the

concept of being able to own a single

family rental property or invest in

apartment building or a commercial

shopping strip or whatever type of asset

class or private money lending and be

able to do that in a tax defer or

taxfree environment I I like to say

compounding interest in the absence of

Taxation you know my my journey was

really I was down this path of becoming

a a financial advisor and Advising

people on moving all their money to me

and investing solely in the traditional

stock market and and nearly two decades

ago I met our company founder and I I

thought there's got to be a better way

to do this and I don't necessarily think

I want to continue on that trajectory in

disclosure I don't give Financial advice

I don't provide recommendations uh what

I do is I educate and inform the public

on how they can take control of their

IRAs 401ks and other retirement plans

how they can unlock them from the

current structure they're in now and how

they can actually self-direct those

funds into what I call Private Market

Investments so real estate single family

rental properties whether they're buying

them TurnKey or they're investing in a

real estate fund or they're lending

money secured by real estate or maybe

they're investing in a private credit

fund like a hard money loan fund that

those are all the types of Investments

that our clients they'll move their

Monies to us and then ultimately they'll

use us as the conduit at their custodian

to be able to direct their funds into

those types of opportunities and they're

doing it because they have more

confidence over those types of

Investments they have more trust in

those types of Investments which they

consider to be more hard assets compared

to the traditional financial markets wow

yes you unpacked act a ton right there

there was about three or four times I

was like oh we could go off on that

tangent and that tangent and that

tangent so let's um start from the

beginning John talk about a

self-directed IRA explain the difference

between self-directed IRA and a

retirement account so for those where

this is they've heard us talk about it a

few times but not nearly um to the

extent of which we're going to talk

about it today so can you unpack it very

simply for those who have retirement

accounts and they're not exactly sure

the difference between what they have

now and a self-directed account yeah

yeah so the best way to think about it

for the audience is self-directed is an

industry term it just tells the investor

that they have the ability to

self-direct their retirement funds into

any type of asset that they deem as a

best fit for their portfolio now it is

important to cavey out that with the

notion that there are assets that you

cannot invest in with your self-directed

IRA so no artwork no collectibles no

beanie babies or pogs uh you can't

invest in alcoholic beverages and be a

member of an S corporation with your IRA

there are certain individuals that you

cannot transact with these are called

prohibited transactions ultimately the

tax code going back to 1974 the orisa

Act was exclusive rather than being

inclusive so there's a lot more that you

can do than you can't do so the idea is

is investors are only limited by their

own creativity so self-directed is just

an IND industry term the best way to

think about it is let's say you have an

IRA 401K 403b thft Savings Plan 457 so

you have an existing retirement account

and it's it's with a custodian now some

people don't know who their custodian is

they're not sure that's okay it's easy

to figure out who that is but it's it's

with a custodian it has to be with a

custodian and assuming that you've left

that employer or if it's just an IRA

like a traditional IRA or Roth IRA or

sep CP Ira or simple IRA ultimately you

move that into an Equity Trust

self-directed IRA and by moving that

money from One financial institution to

another there's no taxes or penalties

and and I say that because a lot of

people get caught up in thinking that if

they move their money from One financial

institution to another that there's no

taxes or penalties what what I'll say

and I'll be pretty candid about this

financial institutions have gotten very

creative at figuring out ways to get

people's money into their ecosystem and

then it never leaves right the reality

is is that's what financial services

does and it's not good bad or

indifferent right everybody's got to

make money everybody's got a business

model and and and I will say there's

nothing wrong with that but you just

have to understand as a consumer

investor that you have choices you have

the ability to empower yourself to make

your own decisions you don't have to put

all of your money with this particular

Institution

and leave it in a traditional

stock-based portfolio or fixed income

based portfolio you have the ability to

take control and there's not going to be

any type of onerous taxes or penalties

you simply just move your money over

from One financial institution into the

Equity Trust self-directed Ira once

you're there you then have the ability

to direct your funds out to private

Market Investments specifically we're

talking about real estate here I'm

passionate about real estate I invest in

in real estate with my self- dried

accounts I make private money loans with

my self- dried accounts uh that's what

I've been doing for a lot of years

that's what I've been teaching other

people how to do and so let's say

somebody moves their

$150,000 from their 401K over into a

self-directed ra and then they want to

buy a house for 110,000 put $110,000 wor

a rehab into it and rent it out for

$1,400 a month they move their money

over they move their money out for that

investment and then all their rental

income comes back into their

self-directed account and the beauty of

it is that they eliminate taxation on

those returns as long as they follow the

rules and guidelines there's no taxes on

the rental income and then when they

sell that rental property there's no

long-term capital gains tax there's no

recapture depreciation there's no

schedule ease there's no reporting on a

1040 so what's nice about the

self-directed IRA is it allows an

individual to be able to a like we've

been talking about invest in hard assets

like real estate and B there's some

pretty powerful tax advantages like I

always say compounding interest in the

absence of Taxation yeah so why don't we

just go down that rabbit hole um talk

about the tax advantages and what you

mean by the compounding interest in

absence of Taxation yeah so inherently a

self-directed IRA and really any Ira

just remember self-directed is an

industry term the growth in that account

will either be what's called tax

deferred or tax-free

so the difference between the two are

the account types and I think it is

important for viewers to understand that

there are two different types or styles

of accounts you have a traditional IRA

and you have a Roth IRA so a traditional

IRA which is where most of the

retirement wealth is in this country by

the way because people have been

conditioned to put money into an account

to get a tax deduction grow it tax

deferred and then when they take the

money out after the qualifier retirement

age of 59 and a half that's when they

pay taxes the analogy we like to use in

the industry is you either pay taxes on

the seed or you pay taxes on the crop so

most people have put money into tax

deferred accounts 401ks 403bs Thrift

Savings plans these are all employer

plans or maybe someone just has a

traditional IRA or SE Ira or simple iray

the monies are going in they're getting

deductions for that it grows tax

deferred again when they take the money

out they pay taxes now tax deferred

growth is still pretty powerful if we

actually put some numbers behind this if

we put $6,000 away into an account for

25 years and we apply a 12% compounding

return taxes of 30% during our working

years of 25 years and taxes of 20% when

we take the money out if we compare a

traditional IRA to just taxable meaning

every year you got to pay taxes compared

to tax deferred you'd have over $300,000

in tax savings if you punch that into

your financial calculator you got

$300,000 in tax savings so economically

financially you can argue that a

traditional IRA can be powerful in

contrast to just saving taxable right

then you go to the Roth IRA which is the

second call it style of account the Roth

IRA didn't come about until 1997 1998

williiam Roth Jr he was the senator from

Delaware that really pushed this

legislation took them about nine times

got it passed 1998 Americans now have

access to a Roth IRA now you will learn

that high net worth individuals or

rather I should say higher income

earners in 1998 weren't allowed to have

a Roth

IRA and so the way the Roth IRA works is

the money that goes in is after tax it

grows taxfree and then when you take the

money out you pay zero percent tax so as

long as you follow the rules the

guidelines you're 59 a half or older you

pay 0% tax so if we apply that same

compounding interest formula that I

mentioned in a Roth IRA you would have

$1.17 million so if you compare the Roth

to the traditional you got over $200,000

in savings if you compare the Roth to

the taxable environment it's over

$500,000 in savings so the Roth IRA is

is really really powerful now I

mentioned that high income earners in

1998 didn't qualify but fast forward to

2010 they changed the legislation and

they said okay all income earners can

convert from a traditional to a Roth we

like to call this a backdoor Roth so

what you do is you take your pre-tax

money or you just make a contribution to

a traditional and then convert over to a

Roth Now I I'll button this up with a

quick sort of example or case study that

I think might help some folks comprehend

how this works I have a a husband and

wife couple I've known for a lot of

years Kevin and Cynthia uh in fact you

guys may have come across them at one

point or another at a real estate event

uh it's a small world right it seems

like everybody knows everybody and so

Kevin and Cynthia they're from uh

Collinsville Illinois area and they have

uh they had I should say

401ks and they left their jobs like most

people they leave their jobs eventually

and they rolled their 401ks which were

all pre-taxed into traditional IRAs and

they knew that they were this was back

in 2011 2012 they called themselves

stock market refugees that was their

words not mine so they took losses in

the market they recovered a bit they

rolled their money over into traditional

IRA self-directed of course again don't

get caught up with the confusion of

self-directed it's just an industry term

and so at that time they said hey we got

about 117,000 to start with and we we

feel strongly through our real estate

investment strategies because they're

they're value ad investors right they

find properties they add value

they sell them on owner financing lease

option to purchase rent to own they have

rentals they do private money lending

and so over the course of the last 10

years 10 to 11 years they've grown that

117,000 to over two million in

properties in cash flow they've done

well over 30 real estate transactions

they still have 14 cash flowing

properties in their Roth IRAs and they

have

$200,000 roughly 200,000 in net cash

flow coming in every year into the Roth

IR raise and they pay 0% tax no

long-term capital gains tax no recapture

depreciation no taxes on the

distributions because they're over 59

and a half they're doing private money

lending is well in that account rewind

the tape back to

201122 their monies were in pre-tax

accounts but I just said Roth in

201122 over the course of two years they

converted it's called a Roth conversion

they converted their pre-tax money into

Roth they paid taxes on the

17,000 so they don't have to pay it on

the much larger Nest Egg of over two

million in properties in cash flow and

when I asked Kevin and cynthy I

interviewed them just like we're kind of

doing an interview here and I said what

do you plan on doing with your Roth IRAs

and I figured they were going to buy as

secondary residents they're up north

like I am here in Cleveland they're in

Collinsville so the the winners are

pretty brutal and I figured they were

going to buy a secondary residence

somewhere else you know in a warmer

climate Florida somewhere Texas wherever

and they said no we we plan on leaving

this Roth IRA these Roth IRAs because

they both have roths husband and wife

both of them they said we plan on

leaving these accounts to our children

and if our children have children we'll

leave it to our

grandchildren because when they leave

those accounts with those cash flowing

assets to their children or

grandchildren the children and

grandchildren will pay 0% tax so what

you start to pick up on is that this

Roth IRA can be also a very effective

Legacy planning or estate planning tool

now if all they have is traditional

moneyy there's nothing wrong with that

tax deferred growth and investing could

still be better than taxable investing

maybe Roth IRA investing is even better

you could make the argument but to each

is it really depends on the individual

situation and so I say that because I

don't want anybody to walk away from

this podcast thinking that the only way

to self-direct is with a Roth IRA I've

had so many people that think that way

the concept of it is if you have a 401k

or traditional IRA and you don't want

all of your money invested in the

traditional financial markets and you

feel you can make a better rate of

return investing in real estate private

Equity private placement deals private

money lending private credit funds

whatever you want to invest in if you

think you can make a better rate of

return then you might want to consider

the self-directed IRA option now like I

said I can't advise and tell someone

that just by opening a self-directed IRA

you're going to make a better rate of

return ultimately the rate of return

is going to be dictated by you as the

investor and that's really what's so

powerful here is that you get to take

control and ALS ultimately chart your

own destiny and you're not beholding or

Reliant upon the traditional financial

markets yes I love that chart your own

destiny we talk about that a lot that's

why we vertically integrated our

companies because at some point

everything came down to how much control

do we have over the decisions we're

making where we're investing our time

where where where we are investing our

money

nothing on the show should be considered

specific personal or professional advice

please consult an appropriate tax legal

real estate Financial or business

professional for individualized advice

opinions and information on the show are

not guaranteed all investment strategies

have the potential for profit or loss