Self-Directed IRA & Solo 401(k) Live Q&A With John Bowens (September 2026)

Lightly edited for readability: filler words and false starts are removed and misheard terms are corrected. Timestamps match the video above. This conversation is educational and is not tax, legal or investment advice.

0:00 · Cold open: AI doesn't have a license to lose

John Bowens: I also like to say ChatGPT and AI, they're not the ones signing your tax return. Laura and her team are signing your tax return. They have a license to lose. AI doesn't have a license to lose.

0:15 · Welcome and meet John Bowens

Laura Dohanes: Hello everyone, good morning, and happy Thursday. Some of you on this chat already have self-directed IRAs and have had them open for years. You know what they are and how you use them. Others may have just heard about them and are intrigued by what you can and can't do. So today is built for both groups. If you've had one for years, we'll go into a bit more depth, and if you're new, we'll cover what you can and can't use this account for.

Laura: Welcome again. I'm Laura Dohanes. I'm a CPA, and my firm works with business owners and investors, typically at the messy end: multiple entities, multiple states, self-directed IRAs and Solo 401(k)s, where something has gone wrong or broken by the time it comes to us. We're trying to bridge that gap before you get to the messy end.

Laura: Today I have with me John Bowens. If you've read or looked up anything about self-directed IRAs, you've probably seen John. He's a self-directed specialist, probably one of the best in the country, with more core knowledge of how these accounts work than we have. He's one of the most sought-after and respected speakers in the self-directed IRA industry, educating investors and tax professionals like us through live events, webinars, podcasts, books and courses.

Laura: John is Director and Head of Education and Investor Success at Equity Trust. You've probably seen Equity Trust all over the place. He travels across the United States and virtually, and he has educated more than 100,000 investors on building tax-free wealth, leaving a lasting legacy and investing in what investors know best. He's also the author of Wealth Beyond Wall Street, the field manual to growing retirement wealth through alternative and traditional assets, which I want to read. He's appeared on several national real estate and finance radio shows. He's a rock star, and very humble. John, welcome. I'm excited to jump into some really interesting conversations with you.

John: Thanks for having me, Laura. I appreciate it. I'm ready, so line up the questions and we'll answer as many as we can.

Laura: For a lot of the audience, the difference between self-directed IRAs and 401(k)s is fuzzy, even though most have heard of both. What's your understanding of where the market is going with all the nuances of these two accounts?

2:58 · Brokerage "self-directed" vs a true self-directed IRA
Full write-up: Self-directed IRA vs regular IRA

John: That's very common, Laura, because traditional financial firms may call the IRA or 401(k) they offer a self-directed IRA. What they generally mean is self-directed into their own investment products that run on their rails and their technology, which are typically traditional financial products: stocks, mutual funds, index funds, Treasuries, CDs and annuities.

John: When we say self-directed in our world, we mean self-directed into private market investments. Beyond Wall Street: real estate, private equity, venture capital, precious metals, cryptocurrency. And like you said, there's a lot of nuance within those types of private market investments, especially real estate. A lot of the big financial institutions don't want to hold those assets. They don't have the personnel or the infrastructure. They're just not built for those types of investments.

Laura: John, let's start where everybody gets confused. They have an IRA at a brokerage. When they decide they want to self-direct, what really changes? Do they have to make any changes? Many of them say, "Well, I have it at Fidelity, and it's self-directed."

4:33 · How to move money into a true self-directed IRA

John: Let's use the example of a traditional or Roth IRA at Fidelity, which is the most common one we see. They say, "I want to self-direct this IRA through a true self-directed IRA." So they'd establish a self-directed IRA with a custodian that accommodates alternative investments. I'll use the firm I represent, Equity Trust Company. They'd set up an Equity Trust self-directed IRA and then initiate what we call a trustee-to-trustee transfer from Fidelity to Equity Trust.

John: The good news is you're not on your own. Equity Trust, as custodian, sends the request to Fidelity, and Fidelity wires the money into the Equity Trust IRA. What the individual is responsible for is making sure they're in a cash or cash-equivalent position. Technically they could move securities over in kind, but generally people don't use us for that. They use us to buy real estate or private equity. So they sell their stocks, mutual funds and index funds, and then transfer cash.

John: I'm glad you brought this up, Laura, because a lot of people don't understand that IRAs are tax-exempt accounts. When you sell stocks, mutual funds or index funds inside the IRA, or receive dividend income, you're not recognizing any of those gains. They don't have to be reported on a tax return because they're in a tax-exempt account. So step one is liquidate those positions, and step two is transfer the cash to the self-directed IRA.

John: And you don't have to transfer all of your money. Most of my conversations with newer folks start with, "Do you want to transfer all of it or just a portion?" Don't feel you have to move everything to a custodian that holds alternative assets. Plenty of my clients move over just what they need for their first investment, whether that's real estate, cryptocurrency, precious metals or another alternative asset.

John: Lastly, Laura, in some cases a self-directed Solo 401(k) plan makes more sense than a self-directed IRA, which opens a different line of questions. Before someone moves their retirement plan, they should look at the difference between the two and decide which account to establish. In some cases it's both. A good example of where I'd stop a client and look at a Solo 401(k) is people investing in multifamily real estate syndications. I know you see that all the time, Laura.

John: Someone will say, "I want to invest in this multifamily real estate partnership with my traditional IRA." And I'll say, "Have you heard of unrelated debt-financed income tax?" They say, "I've never heard of that." So we talk about it, and about how we could potentially find an exclusion, which is available in a Solo 401(k) plan. We do a lot of rollovers from traditional IRAs, SEP IRAs and old 401(k)s into Solo 401(k) plans, primarily for real estate investors.

8:33 · What a self-directed IRA can and can't hold
Full write-up: Self-directed IRA prohibited transactions

Laura: That's a great point. Let's take a step back. If you look at the IRS regulations, there isn't really such a thing as "self-directed." It's an industry term. I remember the first CPA who introduced me to this 20 years ago. We thought it was illegal: how can he do such a thing? So "self-directed" isn't in the regs. It just means you now have more assets available.

Laura: Before we get into the distinctions between the two accounts, let's be clear about what self-directed accounts can hold, because a lot of people come in asking, "OK, what can I do?" I have a narrow list of what can't be held and a wider list of what can. On my "cannot" list: collectibles like art, antiques, gems, rocks and coins. Life insurance can't go in this account. And S corp stock can't either. If you want to do C corp stock, that's a ROBS conversation, which isn't for today's chat. Is there anything else you'd add to the list of what you can't hold?

John: That's a great start, Laura. The starting point is that the code is exclusive, not inclusive. When Congress wrote the law and the regulations that followed, they told us what we can't do, not what we can do. And it's interesting you bring that up. Some people say you can't hold real estate in an IRA. If you go to the IRS website, it's very clear that you can. But because of the administrative burden, most financial institutions don't allow it. That goes back to traditional institutions versus the custodians that allow it. Remember, self-directed is just an industry term that says you have control and can invest beyond Wall Street products.

John: You named the investments you can't hold, and you're absolutely right. The other thing to be aware of is what we call prohibited transactions, acts that result in penalties. And the starting point there is disqualified persons with respect to the retirement plan.

11:25 · Prohibited transactions and disqualified persons

John: To keep it short and not lose everyone in the tax code: for IRAs and Solo 401(k) plans, and I'll add HSAs because they're governed by the same code section, Section 4975, Congress tells us which individuals we can't transact with. They're called disqualified persons. Think of it as anyone up and down the family tree: parents, grandparents, children, grandchildren, yourself and your spouse, plus businesses and trusts you own or control 50% or more of. There's more nuance than that, but that's what most people need to know. Immediate family members are disqualified persons, and they can't transact with your IRA.

John: So what counts as a transaction between the IRA and a disqualified person? Buying, selling, leasing, exchanging, lending money, extending credit, providing services and personal benefit. Here are a couple of examples. This is the most common question I get: "John, I have a $300,000 piece of land. I want to develop it, I'm going to make $20 million and I don't want to pay taxes. Can I put this land in my IRA or Solo 401(k)?" No, you can't. "Could I sell it to my IRA or 401(k) at fair market value?" No. "Can I sell it to my brother and have my IRA buy it from him?" No, that would be a step transaction. None of those work.

John: Also, with real estate, when your IRA or 401(k) borrows to buy property, you can't sign a personal guarantee, so you get what's called a non-recourse loan. And lastly, personal benefit. I have a lot of clients who buy vacation rentals with their IRAs or 401(k)s. You can't stay there personally. You can't use it.

Laura: So we've talked about self-directed accounts. To make sure everyone's on the same page, here's what we can hold: real estate, raw land, private notes and mortgages, syndications, private funds, LLC and LP interests, private company equity and metals. There are some rules around metals.

13:49 · Rapid fire: yes, no, or it depends

Laura: You've summarized quite a few things that can and can't be done, so let's do some quick yes, no or it-depends questions. These are real questions people ask. Can I buy a rental from my parents in either account, the Solo 401(k) or the self-directed IRA? The answer is no. Remember what John said: anybody up and down the family tree, parents, grandparents, children, you can't transact with them. Next: can I buy a property from my brother?

John: You could, because your brother isn't a disqualified person under the code. But be careful, because there's also something called the exclusive benefit rule. If the transaction with your brother is at fair market value, it's probably OK. If there's some sort of disparity in the transaction, it could bust it. I'll say I don't see a lot of those transactions. They generally don't make sense economically.

John: One thing a lot of people get tempted to do, Laura: they can't touch their IRA or 401(k) until 59½ for personal use, although there are exceptions, especially with a Roth IRA. So people start using their IRA in ways that aren't in the spirit of the IRA. These accounts are some of the most advantageous tax devices I've ever studied, and I'm sure you'd agree after being a CPA as long as you have. The things you can do with them, especially a Roth IRA, are incredibly powerful, and you wouldn't want to do anything to threaten that. So think about the economics of a transaction before you use your IRA for it. When I consult with people a little more closely, they often say, "John, I don't think I should use my IRA for this deal. I should save it for a deal that's going to be really successful." And I say, yes, that's what the IRA and 401(k) are for, at least in our world.

Laura: That's right. Another quick one: can I fix up the IRA's rental property myself on weekends?

John: It's gray. If you do physical sweat equity, the IRS could argue you're providing a service. Section 4975, which I keep mentioning, clearly says services but doesn't define them, and we don't have a good definition from the courts either. So the rule of thumb is that you can do the desk work, the administrative work, but stay away from physical sweat equity.

Laura: So don't replace the roof yourself. Next: can I stay in the IRA's vacation home for a week?

John: No. That would be a personal benefit. Stay away from that.

Laura: So if you own in Maui, don't stay in it for a week. I think you touched on this one: can I personally guarantee the IRA's mortgage?

John: You can't. You can't sign a personal guarantee. You need a true non-recourse loan. There are lenders out there, by the way, Laura, more than I've ever seen, that are willing to lend to IRAs and 401(k)s, because the default rate on these loans nationwide is less than 3%. A lot of banks and lenders are attracted to lending to IRAs and 401(k)s because it's a stable note.

Laura: A quick tip for anyone taking notes: that lender is most likely not your SBA lender. Another one: can I pay a property tax bill from my personal account, just once?

John: No. That would be you benefiting the IRA, which isn't as bad as the reverse. If the IRA benefits you, that's really bad. If you benefit the IRA, it's less bad. I don't know that it would be a prohibited transaction, but it would be considered a contribution. If you've already made your maximum contribution, it's an excess contribution, and you haven't reported it as a contribution on Form 5498, so that can create other problems. I wouldn't lose sleep over it from a prohibited transaction standpoint, but you're still out of compliance, and you don't want that. Any expenses should be paid from the IRA, and all profits go back into the IRA. Some people form an LLC that's 100% owned by their IRA, so all profits and expenses flow through that LLC's bank account.

Laura: Very good. Another quick one: can my IRA lend money to my own company?

John: The IRA or Solo 401(k) can't lend money to a disqualified person, which includes that person's company, a trust, or any other entity or person that's disqualified. I know what some people are thinking, Laura, so I'll stop them now: "I heard about the 50% rule. What if I structure an LLC where Cynthia owns 51% and I own 49%? She's not a disqualified person to me. Then my IRA or 401(k) lends to that LLC, we flip houses and I get a bunch of personal benefit." The IRS would look through that transaction and say you're still getting a personal benefit. There's actually a Tax Court case on this, the Rollins case, from the early 2000s. That transaction gets busted.

Laura: And the last rapid-fire question: can I invest in a friend's syndication?

John: Yes, as long as your friend isn't a disqualified person. I'm assuming they're not. You'd invest as an LP, as we say in the industry. Your IRA or Solo 401(k) is an LP in that syndication. We process hundreds of those a week. They're very common. I don't want to get ahead of myself, but I'd rather do a transaction like that in a Solo 401(k) than in an IRA.

20:39 · Who is (and isn't) disqualified

Laura: So grandparents, father, mother, stepmother: all disqualified. Children and grandchildren are disqualified. Your spouse is disqualified. The people who aren't disqualified are your brother, your sister, your cousins, your uncles and your aunts. Everybody else is not disqualified. But any activity you perform with a disqualified person can trap you in a prohibited transaction, and that's the danger.

21:27 · UDFI: the leveraged-rental tax and the Solo 401(k) fix
Full write-up: Self-directed IRA real estate with a mortgage? The hidden UDFI tax

Laura: John, let's come back to someone who just opened a self-directed IRA and buys a rental with a mortgage. Walk me through the tax bill. Before you answer, let me add that there's a fundamental difference between retirement accounts that a lot of people don't realize. There are individual accounts, which have somewhat looser rules on what you can't do, although they still have limits you need to watch: traditional IRAs, Roth IRAs, self-directed traditional and Roth IRAs, SEP IRAs and SIMPLE IRAs. SIMPLE IRAs can be a little tricky. And then there's the bucket of employer accounts, which you can't access as an individual unless you're an employer.

Laura: A lot of you mentioned you're self-employed or a 1099 earner. For the record, if you're self-employed, you're an employer, so you can open these accounts. That's how you get access to Solo 401(k)s, for example. A Solo 401(k) is an employer plan. You might be the only employee, but it's an employer plan, while an IRA is an individual plan. So, back to buying a rental with a mortgage. Walk me through the tax bill they weren't expecting.

John: I'll give you a real example. A client I'm working with right now, his name is Greg, has a fourplex in East Hampton, Massachusetts. It's a really good property. He invested five years ago, so he's had it for five years. It generates gross income of about $72,000 a year. He has a non-recourse mortgage on it. The property is worth about $667,000 today, he bought it for about $500,000, and he's about 60% leveraged. So every year, his IRA is exposed to a tax called unrelated debt-financed income tax.

John: It's not on 100% of the net gains, only on the percentage attributable to the debt-financed share, which in this case is 60%. For 2025, I ran the numbers, and he paid about $200 in unrelated debt-financed income tax. The cash flow is great, and depreciation significantly offsets the unrelated debt-financed income, so he pays very little. But it's still $200, so he has to file a 990-T and pay the tax. Right now Greg doesn't have much heartburn about it, because depreciation is doing the heavy lifting.

John: Let me back up for people who are brand new, because this gets confusing fast. A lot of people ask me, "That probably doesn't apply to a Roth IRA, right? A Roth is tax-free." No, it still applies. Traditional IRA, Roth IRA, SEP IRA, SIMPLE IRA, any IRA, and you can put HSAs in that category too. If you buy real estate with debt on it, or you're an LP in a syndication that owns an apartment building with debt on it, your IRA is exposed to unrelated debt-financed income tax.

John: That doesn't mean run away from the deal and don't use your IRA. It means analyze the deal and see whether a different strategy works better, such as doing it in a Solo 401(k), which I'll get to. So back to Greg. He's 60% leveraged, so he pays tax on 60% of the net gains, about $200 a year. He's not losing sleep over it, but he's also paying someone $500 to prepare the 990-T. So he's paying $700 more every year than he needs to.

John: Greg found me somewhere and called me: "John, can you tell me about this unrelated debt-financed income tax and the 990-T? I'm trying to find a way around it." I said there's really no way around it as things stand, but let me ask a few questions. "Are you self-employed?" "Yes, I'm a private physician. I have no W-2 employees and never plan to." "Greg, have you heard of a self-directed Solo 401(k)?" "I don't think so, but I have an individual 401(k) at Fidelity." Bingo. Now we're in play.

John: He already had a Solo 401(k). All we had to do was transfer it into an Equity Trust self-directed Solo 401(k), and we're rolling the fourplex over from his traditional IRA into the Solo 401(k). The reason is that under Section 514(c)(9) of the code, there's an exclusion from unrelated debt-financed income tax. In other words, a Solo 401(k) doesn't pay unrelated debt-financed income tax as long as the debt is for acquiring or improving real property, which applies here.

John: Right now that saves him $200 in tax and a $500 fee to file the 990-T each year. Where he'd really feel it, if he hadn't rolled it over, is when he sells. He has about $100,000 of capital gain in the property. If he sold tomorrow, we'd take $100,000, multiply by 60%, the debt percentage, and multiply that by the long-term unrelated debt-financed income tax rate of 20%. That's $12,000 in taxes. So we saved him $12,000 by rolling the asset into the Solo 401(k).

John: That's the strategy. In Greg's case he qualifies for a Solo 401(k) as a self-employed person. So if you can, look to invest in debt-financed real estate in a Solo 401(k), not an IRA. And because his was in a traditional IRA, we could easily move it into a Solo 401(k).

Laura: Thank you for that. Let me summarize what this means for most of you. If you have any exposure to UDFI or any tax on your investments, and debt and leverage are usually what get you there, always do the math on which account makes more sense, and know what you're getting in exchange. Before you invest, know what to expect from the deal.

Laura: If I have a leveraged rental in a self-directed IRA, the tax could be as high as 37%. You hit that rate very fast on a 990-T, and a lot goes into the calculation. John mentioned a few things, and depreciation is always great to have. If you do the exact same deal in a self-directed Solo 401(k), same rental, same income, you could owe zero, because it's generally exempt on non-recourse debt.

Laura: So the numbers matter. This is educational and the general rule. Your deal may have different assumptions or facts, so run the numbers on your own deal. In summary: a self-directed IRA can carry a tax as high as 37% that you have to pay. That's where a lot of people get into trouble, when there's a tax bill and not enough money in the account to pay it, especially if they have no contribution room left for the year. Watch for that. In a Solo 401(k), it can be zero, but you have to qualify, at minimum by being self-employed.

31:08 · Custodian, TPA, attorney, CPA: who does what

Laura: Now, a lot of the questions are about who the parties are in these transactions. You, as an individual, self-employed person or business owner, have the money and open an account. Here's what I see from our side of who's around you and the money you're trying to set aside and grow.

Laura: You have a custodian. In a self-directed account, you'll have a custodian, and I'll let John explain what they really do. Custodians hold title and execute your written instructions. Then you have a TPA, a third-party administrator, typically for your 401(k). You need one as part of compliance. They prepare your Form 5500, a compliance form that reports to the IRS what the account holds and what transactions happened.

Laura: If you have either of these accounts and use a checkbook LLC, and we won't go through every detail of how these accounts are structured, you'll probably have an attorney who drafts your plan and entity documents and operating agreements. When you make investments between the plan, you and other people, you need those in place. And the CPA is where tax strategy comes in: connecting the compliance with the strategy. How much can I put in this account? How do I make sure I don't over-contribute? How much can I take out? How do I avoid that tax bill? Those are the parties. Anything I missed, John?

John: Good summary. You have a custodian for IRAs specifically. With a Solo 401(k), you mentioned a third-party administrator. It's important to know that a Solo 401(k) doesn't need a custodian the way an IRA does, but it does need an IRS-approved plan document, a record-keeping system and a service provider. A lot of firms that offer self-directed IRAs also offer self-directed Solo 401(k)s. There are subtle differences in how you direct money from the account, but they're very similar. The idea is that you're in control. It's self-directed.

John: The custodian isn't going to provide tax, legal or financial advice, and they'll be very clear about that. If you call with hyper-nuanced questions, the associates at a custodian don't have the ability to answer them. In many cases you need to talk to a licensed professional, a CPA, someone like Laura, who has actually defended people in tax audits on these issues. The basic prohibited transaction rules and how to move money in and out of your account are generally questions a custodian such as Equity Trust can answer. But when you get into "I want to know strategy, I want to do things differently," have those discussions with a professional outside the custodian.

34:41 · Will your custodian stop a bad move?

Laura: Thank you, John. I'm going to ask you an unfair question, because a lot of people ask it. Say I have an account at Equity Trust and I call and tell your company to wire money for something really stupid, prohibited or not. Would they stop me?

John: If it's a blatant prohibited transaction, we're typically going to be able to stop it. Custodians, including Equity Trust, look for blatant prohibited transactions. But there are subtle ones and gray areas, and sometimes people want to be more aggressive from a tax standpoint and still do those gray-area transactions. Most custodians, including Equity Trust, will stop the blatant ones. I think your question was more about whether the investment is simply a bad investment, the economics of it. A custodian such as Equity Trust doesn't perform any due diligence, so we're not going to evaluate the merits of the investment. That's up to the client.

35:40 · Breaking a rule: IRA vs Solo 401(k)
Full write-up: Prohibited transaction penalty, IRA vs Solo 401(k)

Laura: What I wanted to get at is what happens when something goes wrong and you have an audit. Let's define "goes wrong." The IRS has the power to dismantle your entire structure and say the whole account is disqualified, so it's treated as a distribution. Remember John said a few minutes ago that the more assets you hold, the more you need some sort of risk protection. Don't do anything that jeopardizes the funds, because with one prohibited transaction, regardless of the amount, the IRS could say the entire account was distributed to you. Then it's taxed, if it's taxable, and penalized if you're under 59½. Is it worth it? Probably not.

Laura: A lot of people don't take on the responsibility that comes with a self-directed account. If something goes wrong, it's typically the owner's fault, because you self-direct. It's not "Equity Trust directed." You're taking responsibility for knowing and understanding the rules. The people involved can help, but most of the time you're the one giving the instructions and making the investment. You can ask whether something is prohibited, and people are always pushing into that gray area. So whose fault is it when something goes wrong? What would you say, John?

John: You're absolutely right that the responsibility is on the IRA owner if they engage in a prohibited transaction. Fortunately, prohibited transactions have been few and far between in my last 20 years, but they have come up. I've seen them, and we've had to distribute assets from IRAs when they occur, whether at the client's request or, if it's blatant, by forcing a distribution. Custodians sometimes have to do that.

John: And you're right, Laura: the entire IRA is treated as distributed on January 1 of the year the prohibited transaction occurred. If the owner was under 59½ at the time, there's a 10% early withdrawal penalty on top of ordinary income tax, and potentially the 20% accuracy-related penalty as well, which we won't get into.

John: It's important to mention that with a Solo 401(k), the consequences aren't as severe. You don't get a complete deemed distribution of the account. With a 401(k), including a Solo 401(k), there's a 15% penalty on the amount involved in the prohibited transaction. Say I lend my mother $100,000. That's a prohibited transaction. In my IRA, the entire IRA is distributed. Think of it as the fruit of the poisonous tree. With a Solo 401(k), I'd have a 15% penalty, which compounds until I correct the prohibited transaction, so you want to correct it. In short, a Solo 401(k) has less severe consequences for a prohibited transaction.

John: The last thing I'll mention, Laura: from time to time I have clients, generally working with tax and legal counsel, who want to do a transaction that's more gray. For example, investing in a company they work for, maybe as an executive. In those cases the individual will sometimes set up a separate IRA. There's fairly clear guidance that IRAs are separate. So if I hold privately held stock in one Roth IRA and I'm concerned about prohibited transaction risk, and I have another Roth IRA doing private money loans to third parties that I'm not worried about, I keep those two IRAs separate. That way, if the stock turns out to be a prohibited transaction, it doesn't taint my other Roth IRA.

40:35 · Do custodians sign subscription documents?

Laura: That's a good one. Time is flying, so let me go through some of the questions. A lot of the questions you sent touched the same subjects, and we're trying to answer most of you. David asks: does the custodian have to sign the private placement documents, rather than the investor?

John: The subscription agreement is what he's referring to. The answer is no. The custodian doesn't need to sign, and in fact we don't want to sign it. It's extra work for you, for us and for everybody else. The problem is that a lot of investment sponsors don't understand self-directed IRAs. The good news is that your custodian, if it's Equity Trust, can help. Your custodian should have a drafted letter authorizing you to sign on behalf of your IRA. If they can't provide that, some custodians will sign the document once you've read, approved and signed it as well.

41:38 · Real estate in your IRA after you die
Full write-up: Self-directed IRA real estate when you die

Laura: Another question: "How do I use a self-directed IRA to invest in real estate, what are the tax consequences, and what happens after I die?" I'll quickly say, from a tax perspective, these accounts don't necessarily go through your estate. They go by beneficiaries. So when you open an account, make sure you name the beneficiaries you want to take it over. John, anything to add? What happens after someone dies with a self-directed IRA that holds real estate?

John: First, how do you buy real estate with an IRA? There are two ways. One, your IRA buys the property directly, and the deed is in the name of your IRA, for example "Equity Trust Company, Custodian FBO" your name or account number. All expenses and profits go in and out of your IRA. Two, you form an LLC, which we call a real estate checkbook IRA LLC. The IRA owns 100% of the LLC and you, the account owner, are the manager. The LLC has a bank account, money flows from your IRA to that account, you buy the property and take title in the LLC, and all profits and expenses flow through the LLC and eventually back to your IRA.

John: When you pass away, Laura is absolutely right: you'll have a beneficiary, maybe several. When you hold alternative assets, think about whether you want to leave the IRA to five people who have to split those assets five ways, or to just one person. Some of my clients even keep separate IRAs and leave one to each child or grandchild, so there's strategy in that. Remember that IRAs avoid probate, as long as your beneficiaries are named. When you pass away, it goes to them.

John: When you leave an IRA with real estate to your beneficiaries, they don't have to sell the real estate. A Roth IRA is even better, because it's tax-free to your children or grandchildren. Say you leave a property in a Roth IRA to your child. They inherit the Roth IRA and can keep growing it for 10 years. At 10 years, they have to distribute the entire Roth IRA, but they don't have to sell the property. At that point they'd get an appraisal, and I'd encourage an actual appraisal from a licensed appraiser. That establishes the basis in the property, so when they distribute it, even though it's tax-free, they have an established basis to use for depreciation going forward.

Laura: Let's not get confused on that. There's a step-up in basis when you inherit property through means other than an IRA. With an IRA, that appraisal is what's used inside the account. That's a great nuance.

44:54 · Who pays the account's expenses

Laura: Another question, from an attendee who's also named Laura: "I have to pay a fee for a business checking account. Can this expense be taken out of the self-directed IRA?" I assume this is for a checkbook LLC.

John: If they have a checkbook LLC, first, if your bank is charging you a fee, there are better banks out there for self-directed checkbook LLCs. But if you do have the fee, you pay it from the IRA. Any expenses related to any asset in your IRA should be paid from the IRA. The only thing you can pay for outside the IRA is your custodial or administrative fees. For example, the custodian's own administrative fee can be paid by credit card instead of with IRA funds. But anything related to an asset, pay from the IRA.

Laura: That also answers her other question: "How do I deduct expenses to maintain the apartment building I invested in with my self-directed IRA?" John gave the answer. You need an account for it. If the bank holding your account charges a fee, switch banks. You're the master of your own finances, so find one that doesn't. Use the IRA money for asset expenses. For third-party custodial fees, you can use credit cards and collect the points like everybody else.

46:18 · What it costs and how long it takes

Laura: Courtney asks about the cost to move money to a self-directed account and the time needed. So how much does it cost, and how long does it take?

John: For an IRA-to-IRA transfer, it's five to eight business days on average. For a 401(k), 403(b) or TSP rollover from an employer plan, it's around three weeks. So make sure the account is set up and funded well before you find an opportunity.

John: Fees vary from custodian to custodian, and between an IRA and a Solo 401(k), and they usually depend on how much is in the account, so compare service providers before you choose one.

John: Remember that custodians and administrators don't make any money on your investments. That's why we charge fees. Fidelity, Schwab and similar firms don't charge an account fee because they make money on the investments you hold. That's worth knowing whether you do business with us or with someone else.

48:10 · Can your IRA buy a business? (ROBS)

Laura: Gino asks: "Can I invest in a business with my IRA? If yes, what structure should be used?"

John: First we'd need to define the type of business and the owner's involvement. If they're personally buying the business to run it, being active, let's call them the CEO, they can't use their IRA, because they'd run into the prohibited transaction rules: the self-dealing rules, providing services and personal benefit. They'd blow up their IRA.

John: Where they could potentially start a business is the rollover business startup structure, ROBS, that you mentioned, Laura. That requires a traditional IRA, not a Roth, because a Roth IRA can't be rolled into a 401(k), or an old 401(k). They roll it into a 401(k), and the 401(k) buys 98% of the shares of a newly formed C corporation. They keep 2%, and now they can run a business in that C corporation funded with their retirement money. That's a ROBS, and it's a totally separate conversation.

John: Now let me rewind. Say the question is, "I'm not going to run the business. I just want to invest in a privately held AI startup as a half-percent shareholder among many others." That's a passive investment: an IRA buying privately held shares of a company. I don't see any issues with that.

49:53 · ChatGPT vs a license to lose

Laura: Are you sure about that, John? Should we count on what you're saying when ChatGPT just told me I can create all this structure and invest freely?

John: I love it. The number of emails I get now that are generated by AI and are somewhat close but very wrong in a lot of areas is a big problem. There's a lot of garbage in the self-directed IRA world that gets pulled from online sources. And laws and regulations have changed over time, so ChatGPT and other sources sometimes pull from old law and it's not accurate. If you use AI tools, make sure you check the sources. And of course work with professionals like Laura. I can't speak highly enough of Laura and her team. Having people in your corner who look at the regs every day and work in this world is well worth it.

Laura: So, folks, what's the bottom line? ChatGPT will lie to your face without apologizing, and if you choose to believe it over the professionals, that's on you. I had to include this, John, because I get so many of those emails too. You can tell when it's ChatGPT, and I wonder whether it's your opinion in the message or a real question you have. Even the questions come from ChatGPT. It's very interesting.

John: Laura, I don't want to go off on a tangent, but this matters in the world of social media. There are a lot of social media gurus talking about equipment leasing and all sorts of things. Maybe it works, maybe it doesn't, but they're not talking about everything we see every day. Do you have material participation? Does this even work? There's a lot to work through, and I can't caution people enough to be careful.

John: I also like to say that ChatGPT and AI aren't the ones signing your tax return. Laura and her team are signing your tax return. They have a license to lose. AI doesn't. And a lot of those social media tax gurus, when you look at their credentials, none of them have CPA after their name. None of them have a license to lose, and none of them sign your tax return. The way I see it, if they're not signing your tax return, I'm not saying don't trust them or don't consider the strategy, but certainly get additional advice from someone who does have something to lose.

Laura: I wish ChatGPT could sign returns. As soon as that happens, I'll be the first to tell you. Thank you, John.

52:40 · Annuities inside an IRA

Laura: Another one: "What kinds of annuities can I buy with my self-directed IRA?" Seasoned adds: "Self-directed Roth IRA held for over 15 years. Am I getting conflicting information on these? I'm 66."

John: Annuities can sometimes work in an IRA. Here's what I'd be cautious about. With an annuity, you lock your money up for a period of time, and there are stiff surrender penalties if you break the contract. And an annuity can be a tax-efficient contract on its own, outside a retirement plan. So you're taking a tax-efficient investment and putting it in an account that's already tax-efficient.

John: The larger question is whether it makes economic sense to buy an annuity in an IRA. Can you do it? Yes. Do a lot of insurance companies push it heavily? They do, and many of them can't sell you anything other than an annuity. So if you're working with a so-called advisor who can only sell annuity products, you might want a second opinion. I don't mean to disparage the annuity sales world. Sometimes it can make sense to hold an annuity in an IRA, but in my experience they're way oversold to IRA investors. And remember, if you need the money, you can't get to it without a surrender penalty.

54:14 · Partnering with your own IRA

Laura: Another question: can I partner with my Roth IRA to invest in a flip or a rental?

John: Our favorite question, Laura. Can I partner with my IRA personally on a property, whether a fix-and-flip or a rental? The answer is that it depends. The starting point is that you're a disqualified person with respect to your IRA, like we discussed. So if you put your IRA money and your personal money into the same deal, you need to follow what we call the in-proportion, or pro rata, rules. If you buy a property for $200,000 and your IRA puts in $100,000 and you put in $100,000, that's a 50/50 split, and going forward all profits and expenses need to flow 50/50. Any disproportionate split of profits or expenses creates a prohibited transaction.

John: Here's the second part. The code also covers personal benefit: your IRA benefiting you personally, here and now. If you do a partnership deal like that, you want to be able to prove you didn't rely on your IRA to do the deal. There's a Department of Labor advisory opinion, 2000-10A, that addresses this. If my IRA partners with me and I had no way to fund the deal personally, so the only way I could do it was by partnering with my IRA, that can be a problem. We haven't seen it challenged, but we know it could be, based on the code and that advisory opinion.

Laura: There was another question in the same area: can you buy a rental with part IRA money and part cash? I think you answered that. Let me make a distinction. Forget the mortgage for a moment, since we covered leverage. With a flip, the question is whether you, or a company you own more than 50% of, are providing services to it. That's where things fall through the cracks, like John said. This is the part people hear, "you can partner," and they miss the rules about what you can and can't do. So what are the requirements, and where do you see things go wrong?

John: It comes back to services: sweat equity versus desk work. If you're doing a flip, stick to the desk work, not the physical sweat equity. There are no clearly defined guidelines for which is which, but we can use examples. Say the flip doesn't need extensive rehab and I hire four different contractors. Is that desk work? I think it could be. But if I'm at the property every day cleaning things out and telling 1099 contractors where to go and what to do, that looks very different from hiring a general contractor.

John: If you want to be on the absolute conservative side, hire a general contractor and have an agreement that says exactly what they're doing. If you're ever audited, you can hand that over: "Here's my general contractor. Go interview them. They'll tell you I was literally not at the property. I stepped foot on it once, at the very end." That's the optics. Remember: stick to the desk work and stay away from physical sweat equity. There's a lot of subtlety we could get into, but that rule of thumb is a good starting point for everyone.

58:21 · House flips and UBIT

John: The other thing I'll mention about house flipping, Laura. The question always comes up: "If I'm not paying any tax, it's my Roth IRA, I'm flipping houses and making $35,000 per flip on average, why not do all my flips in my IRA and never pay tax?" I wish that were the case, but there's a tax called unrelated business income tax, UBIT. It's similar to the unrelated debt-financed income tax we talked about earlier, in the same code sections, 511 to 514. UBIT applies when you start running your IRA like a full-bore business, more precisely a trade or business that's regularly carried on. So if I'm flipping properties in my IRA, it might not be a prohibited transaction, but I might owe unrelated business income tax, which can be as high as 37%.

John: The question is how many flips I can do a year, and I'm surprised no one has posted it in the Q&A yet. I can't give you an exact number. The rule of thumb is that if you do more than two flips in a one- to two-year period, there's a high likelihood of unrelated business income tax. So what do a lot of investors do? They do a flip, and then they do things like private money lending, because when you lend money secured by real estate, you don't have to worry about UBIT. Under Section 512 of the code, interest income is excluded from UBIT. So you design a portfolio that fits your situation.

John: Lastly on this: say you tell me, "John, I don't care. I want to do 10 flips a year. I'm good at it, and that's how I want to save for retirement." That's OK. That's where you team up with someone like Laura and other smart people who know how to do this, and set up a ROBS structure. If you're going to do a lot of house flipping, a ROBS, a rollover business startup, is probably better. And with a ROBS, you get to put on the work boots and go to the property. You don't have to be completely hands-off like you do with an IRA.

Laura: That's a great nuance, and I'll touch on it because this is exactly what happens in real life when someone goes into flipping mode, especially now that the flip market is getting a little hotter, kind of like déjà vu of 2008 and 2009. If you flip one or two properties, you may get capital gain treatment, same as on your personal return. But where's the line where it becomes a trade or business, treated as a business, with ordinary income on your personal return? I've had people argue with me that 16 properties isn't an ordinary business. You can't prove that to the IRS, even though the IRS doesn't give an exact number. We have court cases we can rely on showing that this kind of intense activity doesn't fit capital gain treatment. Let's go back to the questions. Do we have a few more minutes of your time, John?

John: Yes, I'm good on time. I'll stay as long as you want me.

1:02:04 · Can you deduct the rental your IRA buys?

Laura: Thank you, John. Johnny asks, and I'll paraphrase: "I have extra cash and want to move a lot of money. Can I move the entire down payment into a self-directed IRA to buy a rental and then write off the property cost as a deduction against my income?" That's a tough one, so I'll start with my piece, John, because it's a mouthful.

Laura: You have to understand that IRAs and 401(k)s have different rules for what you can contribute. If you're a W-2 employee, you're limited to IRAs, and you have to fit within the IRA rules. Contributions are the amounts the IRS sets as a limit every year, $7,500 a year, and if you're 50 or older you add another $1,100. Separately, if you have money in other accounts, you can move money between accounts, like John mentioned, and transfer it into a self-directed IRA, and transfers don't have a limit. So be really clear about whether you mean a contribution or a transfer.

Laura: Once the money is in the account, John already covered how you buy. You can buy outright, or borrow to buy the property. But if you buy something with your IRA money, you don't own the property. The IRA owns it, through a checkbook LLC or directly. You can't write anything off. If there are losses, they stay against the income inside your IRA, not on your return. You and the IRA are two separate entities for reporting.

Laura: Now let's tackle what happens when you partner with your IRA to buy a property. John, what are the consequences when the two of them partner and there's a partnership tax return where you own, say, 20% and the IRA owns 80%? You'd deduct your share against your income. Is there anything you have to add on that split when you partner with your IRA?

John: That's correct. Say I form an LLC that's 50% my IRA and 50% me personally. As we've been saying, if it's 50/50 going in, it's 50/50 coming out. It could be different percentages, as long as they match the capital each side put in. Your IRA has one tax ID number and you have another, so it's not a disregarded entity. It's a partnership, which obligates you to an annual partnership return. Do clients do that? Yes, all the time. It's just something to be aware of.

John: And to Laura's point, if I own 50% and my IRA owns 50%, I can't personally take 100% of the depreciation and expenses. That's split 50/50 and reported on the partnership return through the K-1. I think Johnny's question was whether he could use his IRA for a down payment, buy a property, and take all the depreciation and expenses against his personal W-2 income. In short, your IRA can't benefit you personally here and now, so you can't carry those tax benefits over to yourself. They belong to the IRA. And if the IRA has debt, you have unrelated debt-financed income tax, so you'd use the depreciation and expenses to offset that.

1:06:15 · A real example: $100K cash + $100K Roth

Laura: Let me summarize this section with another question. Johnny says, "Good answer, thank you." Then: "If I put in $100,000 of my own money and $100,000 from my Roth IRA to buy a $150,000 property with $50,000 of rehab, and a general contractor does all the remodeling for the $50,000, will this be OK?"

John: It should be OK. I always add the hedge, "it should be." If those are the facts and there are no other transactions that could be prohibited, I'd say yes. To restate: he puts in $100,000 of his own money and $100,000 from his Roth, the purchase and rehab total $200,000, it's 50/50, and he hires a general contractor. Let's also assume he didn't need his IRA to fund the deal, meaning he had $100,000 of personal cash and could have done it himself. He didn't rely on his IRA. That transaction doesn't give any of us heartburn.

Laura: And I think we already answered how many flips you can do.

1:07:20 · Is the IRS watching? Form 5498

Laura: Pat asks: "I've heard from tax attorneys that the IRS is always a bit behind and is just now starting to examine self-directed IRAs, especially checkbook IRAs. Do we need to be concerned?"

John: I always stress that we always need to be concerned. As for what the IRS is or isn't doing, we don't like to speak about that publicly. I know people want to hear it, but it's not something we at Equity Trust can speak about publicly. Here's what I can tell you about prohibited transactions and checkbook LLCs. Does the IRS know you're holding alternative investments? Yes. They call them non-readily ascertainable valued assets: basically anything that isn't publicly traded securities. On Form 5498, which custodians file every year, the types of alternative assets have to be disclosed to the IRS.

John: When you look at the 5498 instructions, you don't write in "real estate," "checkbook LLC," "private equity" or "crypto." There are codes, and interestingly, if you hold three or more types of assets, a general code is used. Have I heard of people who strategically hold multiple types of alternative assets? Yes. Have I heard of people with multiple IRAs? Yes.

John: Like we said before, prohibited transactions shouldn't scare anyone. The goal is to do very straightforward transactions. If you want to be aggressive and gray, I won't stop you, but pay good counsel to guide you and build a narrative that can be supported if you're challenged. It's not about whether the IRS is looking. The approach is to be strategic in tax planning: work with a tax professional, understand the risk of a possible prohibited transaction, and build a narrative showing it's a good transaction and not a bad one.

Laura: The other thing I'll add: whatever position you take, you need the code to support it. Advice that disregards the code isn't necessarily wrong, because beyond the code there are a lot of gray areas that aren't clearly laid out, and then we rely on facts and circumstances and on court cases. If you're building something large or at scale, it's worth laying out the entire structure and diagram up front and sitting down with the right specialists to build how it will work from the beginning, instead of resolving it at the end of the transaction.

Laura: The best defense is the one you build before you make the deal. Document your position: what am I relying on, and whose counsel am I counting on? That's crucial. And I can't stress enough that multiple parties have different roles in your deal: the TPA, the custodian, the attorneys and the CPA strategy. They all have to work together and help you design the deals, especially at scale. If you're doing small deals, test it out and see how you can grow your IRAs with the investments you make. I don't want you to think you can't do it. Just check the rules and talk to the right people before you get into these deals.

1:11:52 · Private stock in a checkbook IRA at death

Laura: Another question: "If I hold private equity in a checkbook IRA, the IRA owner dies, and that stock can't be sold, how do you transfer the LLC itself to a spouse or IRA beneficiary when the family can't manage the LLC?"

John: If you have a checkbook LLC that owns private stock, the first thing I'd do is get the stock out of the LLC: distribute it through the LLC back to your IRA custodian. That's not a taxable event, because it's a disregarded LLC. That's step one, and it's what I'd do if I were worried about leaving clutter to my heirs. Then when you pass away, your IRA goes to your beneficiary, whether that's your spouse or your children. For a non-spouse, it becomes an inherited IRA. For a spouse, it can be treated as their own, as if it had always been their IRA. Either way, they're now the account owner and in control of that stock.

John: If the stock isn't performing, there are ways to assess and update its value, even to zero if it's worthless, and get it out of the IRA so they're not paying administrative fees. If they think it will pay off at some point, they can hold it in the inherited IRA until that happens and then distribute. And if it's left to children, there's a 10-year period by which they'll have to distribute the entire asset, so there are things they'll need to work through.

Laura: And always keep in mind that self-directed IRAs and Solo 401(k)s have a lot of compliance and very complex rules. When we answer a question with only partial facts, the answer is purely educational. It can't be complete, because an important fact may be missing from the question. When you have a nuanced question like that, go to a specialist to help you navigate it, so you can be confident before you make a move instead of finding out it's broken after you've moved the money.

1:14:35 · Found out you broke a rule?

Laura: Another question that came in by email: what do I do if I find out I broke a rule? It depends. With a self-directed IRA, what does breaking a rule mean? John gave some nuances on the money, like whether it benefits you as an individual or benefits the IRA. The other side is whether it's a Solo 401(k) or an IRA. If you broke a rule, how do you get it fixed as soon as possible? John, what would you say? Say I found out I did a prohibited transaction. Does the size matter? How bad is it? Do I distribute the funds right away? Can I write an apology letter and keep it in a drawer to show the IRS that I've repented?

John: There's no exact playbook, and that's one of the challenges in the industry. There haven't been a lot of prohibited transaction cases. There are very few Tax Court cases, as you know, Laura. We cite a handful, like the Swanson case and the Rollins case I mentioned. When you read the facts, they're all blatant prohibited transactions. I haven't yet seen a Tax Court case dealing with the subtleties and gray areas we talk about. Will that happen? Maybe, maybe not. That's the challenge, and it's why we don't really have a playbook.

John: The rule of thumb is: if you mess up, fess up. The logical path if you engage in a prohibited transaction is to distribute that asset from the IRA as quickly as possible. And if there's been income, you report it, because it's taxable income. If it wasn't in the IRA, it was yours, so any rental, interest or dividend income has to be reported and the gains recognized. That creates some extra compliance work. Again, there's no exact playbook, but the logical next step is distributing the asset involved in the prohibited transaction.

Laura: To add from my experience in the audit space: when you have a prohibited transaction, you're at fault, so we try to mitigate it in appeals as much as possible. You give some and the IRS gives some. Those cases never make it to Tax Court, because if it's prohibited, you're probably going to lose. Most cases don't go to court because it's a clear mistake, and you take whatever the IRS offers in the negotiation and appeals process. You won't see many court cases unless it's a very gray area where you have a really strong case to defend and had everything ready before you set it up. That's probably one reason we don't see many, and in practice you'll end up in appeals.

1:18:25 · Is it worth it with less than $1 million?

Laura: Is it even worth opening these accounts with less than a million dollars?

John: Yes. In fact, most of the people we work with aren't opening accounts with a million dollars or more. If you have enough capital for the investments you want, it works. For example, with limited partnerships, like investing in an LLC that owns an apartment building, say the minimum investment is $50,000. You transfer $50,000 and invest it in a private real estate partnership. That's fine. Most of our clients aren't moving millions. They're moving tens or hundreds of thousands. You generally won't see people moving just a few hundred dollars, because private assets like real estate, private equity and venture usually require bigger tickets, like $25,000, $50,000 or $75,000.

1:19:37 · Five rules to avoid almost every pitfall

Laura: We'll do just a couple more questions. I know a lot more came in. "How do I use a self-directed IRA for real estate without falling into IRS pitfalls?" Here are the five rules I'd use to avoid almost everything.

Laura: Rule one: no disqualified person on either side of the transaction, as John already covered. That includes buying, selling, renting, lending and managing services. Rule two: no sweat equity. Like John said, desk work only. Rule three: no personal use. Not one night, not one week, no vacation, no family. Rule four: every dollar in and every dollar out runs through the account. The self-directed IRA pays the expenses and receives the income. You don't front money and you don't take money out or borrow from it. Rule five: if you borrow, non-recourse only. That leverage creates a tax bill in the IRA, but not in the self-directed 401(k).

1:20:38 · Reporting your IRA's value every year

Laura: Next: are you required to report the IRA's market value, sales and purchases to the IRS? I'm going to say yes, and John, this one's on you. How do you get the fair market value that goes on Form 5498 and is reported to the IRS?

John: Each year we ask clients to submit a fair market valuation through what we call a fair market valuation form, and the supporting documentation varies by asset. A promissory note is easy: it's the unpaid balance of the loan, unless you think otherwise and have a third-party appraiser value the note, which is pretty rare. So for notes, whether lending secured by real estate, by other collateral, or unsecured, which I wouldn't encourage, it's based on the unpaid balance. Private lending is very easy to value each year.

John: For real estate, you'd get a broker price opinion or an appraisal, or we'll accept a screenshot of a Zillow estimate or another online aggregator. I know some people say that's not an accurate valuation, but there has to be a standard, easy way to update the values of properties in IRAs, so we accept it. For private equity, the sponsor typically sends the custodian an updated share price each year, or for an LLC, an updated value of the membership units, and we update it for all of our customers in that fund or partnership. Precious metals are based on spot price, so you don't have to worry about them. Cryptocurrency is exchange-based, and so are stocks, bonds and mutual funds, so there's no annual valuation to worry about there.

1:22:45 · Roth conversions and the tax bomb

Laura: That's a great one. I'll go through this quickly, and John, add anything you want. "I bought a property cheap in my traditional self-directed IRA. If I move it to my Roth, am I taxed on what I paid?" No. A conversion is taxed at fair market value when you convert, so the valuation John just described is what's used. I know that's not a fun one.

Laura: Another: "My SEP IRA owns a paid-off house. How can my kids inherit it without a huge tax bill? Can I move it into a 401(k)? The stretch IRA looks bad now." It does. The stretch is mostly gone. John, anything to add?

John: This needs a deeper conversation, but as a start, here's what I'd suggest they look at. If they qualify for a SEP IRA, they probably qualify for a Solo 401(k). Roll the property into a Solo 401(k). If the goal is converting to Roth, it's much easier to do partial Roth conversions every year in a Solo 401(k). Say the property is worth $200,000. Roll it from the SEP IRA into the Solo 401(k), and then convert $25,000 of value each year for the next eight years, so you're converting in stages.

John: Because it's in a Solo 401(k), that's just simple record-keeping in software. You don't have to deed X percent of the property to one side and X percent to the other, Roth and traditional. And if you want to take on debt and buy another property, there's no unrelated debt-financed income tax. So if the goal is to get the asset into a Roth, I'd look at rolling it into a Solo 401(k) first and then doing the conversions to the Roth side.

John: Once it's all on the Roth side, all your growth is tax-free and all your distributions are tax-free. You leave it to your kids or grandkids, and they don't pay taxes. They just have to take it out within 10 years, and when they do, they pay no tax. You've left them one of the best gifts you can, tax-free money, instead of a traditional IRA, which is what a lot of people are doing. They're leaving what we call a tax bomb to their kids. Imagine leaving a million dollars to your kids in a traditional IRA or pre-tax 401(k) during the highest-income years of their lives. They pay tax on all those distributions in some of their highest brackets. Don't you think Congress thought about that when they did the math and passed the law? They did, and that's why they put the 10-year rule in. At least that's my theory.

1:25:45 · Build your team, plus the takeaways

Laura: This is probably the best question to end on: remember the people involved. Your accountant won't be able to move your money or open the account. Remember the specialists you need to implement the strategy. First you lay out the plan: what do I want to do? Most of us who are attracted to this are attracted to the Roth piece, not the traditional, and the question is how to get to that Roth account in the end. If you understand your goal and create the plan, the map is probably the biggest piece. Who do you need in your corner to create it? The custodian. A TPA if you have a Solo 401(k). I recommend both, and if you're self-employed or run a business, we run both. Then the CPA, with the strategy laid out ahead of time, and an attorney alongside, because the best defense is documented, with the right agreements in place. Choose the people who will help you create the structure you want. It's not one person. It's a group of people working together to help you build tax-free wealth.

Laura: I think we're at time, probably past it. John, thank you so much. This is a great conversation that doesn't happen enough. I want you to take three things with you. First, these accounts are tools, and tools are made for a specific job, so understand what you're trying to achieve. Second, compliance on self-directed accounts is always yours. You sign off on it and the penalty is yours, never the custodian's. There's real benefit in having a strong custodian like Equity Trust in your corner, but it's your filings that would bite you, not your custodian's. Third, if you need to talk to someone, figure out which piece of the puzzle you're missing. Is it a custodian question? A strategy and tax question? An attorney question, because you've done all this work and have no agreements in place? Then reach out to the people who can help. We help with the strategy and the tax side, and John and his team are on the custodian side. Do you also act as TPA for 401(k)s?

John: For Solo 401(k)s, yes.

Laura: Solo 401(k)s are a newer product, and a lot of people are more familiar with self-directed IRAs, but Solo 401(k)s have a place on the stage. Explore them, make sure you understand them, and book a call with the people who can answer your questions. My team has links in the chat if you need help. With that, thank you so much, John, and thank you everyone for this Q&A. I know there were repeat questions we didn't get to, but I feel we answered them throughout the hour and a half. John, we appreciate you and Equity Trust and the role you play in this space, and thank you for educating people on these complex accounts.

John: Thank you, Laura. I work with lots of CPA firms, and I can't thank you enough for being an advocate for self-directed IRAs and Solo 401(k)s. Not all of them have the experience you have, including representing someone in an audit. I love that story you told me. And thank you to everyone for spending the hour and a half with us. If there's anything we can do, let me know.

Laura: Sounds good. Thank you so much, and see you all next month.