The salient focus of this discussion revolves around the intricacies of converting various retirement accounts into self-directed IRAs, emphasizing both the advantages and potential challenges inherent in this process. We elucidate the four primary types of IRAs: Roth, Traditional, SEP, and Simple, each characterized by distinct features and contribution limits. The dialogue further distinguishes between traditional custodians, who primarily engage with stocks and bonds, and alternative custodians, exemplified by Preferred Trust, which facilitate investments in alternative assets. Notably, we explore the appeal of SEP IRAs among small business proprietors, particularly due to their substantially higher contribution limits compared to traditional IRAs and 401(k) plans. Additionally, the complexities associated with solo 401(k)s are briefly examined, underlining the necessity for a comprehensive understanding of IRS regulations when navigating this particular retirement vehicle.

Takeaways:

• Converting various retirement accounts into self-directed IRAs allows for active real estate investment.
• The four primary types of IRAs include Roth, Traditional, SEP, and Simple IRAs, each with distinct characteristics.
• SEP IRAs are particularly advantageous for small business owners due to their high contribution limits.
• Traditional custodians typically restrict investments to stocks and mutual funds, unlike alternative custodians.
• The contribution limit for SEP IRAs is significantly higher than that for 401k plans, making them appealing.
• Solo 401ks involve more complex regulations and reporting requirements compared to SEP IRAs, necessitating thorough knowledge of IRS rules.

And a lot of the people coming to us have various different types of retirement accounts and a lot of them have just maybe possibly heard about being able to convert those accounts to a self directed ira, being able to use those accounts to actively invest in real estate.

There's a little bit of nuance as to how that happens and also some pitfalls along the way.

So that's the scenario that we're up against, which is one of the reasons we're really excited to have you on talking about this today.

So, um, why don't you get started and just tell us maybe what the four types of IRAs are and then just feel free to expound on that as to, you know, what that journey looks like for those investors trying to go through that process.

Yeah.

All right, let me unpack that a little bit.

So we've got four different types of IRAs.

We have.

I'm actually going to start with Roth.

I'm going to start with the Roth ira, because in my opinion the Roth IRA is probably the greatest gift that the government has ever given us.

And I know I put the government and gift in the same envelope while we're talking about tax sheltered qualified funds here, but it truly is.

So there's the Roth ira.

Those funds going into your Roth are taxed before they go in and not taxed when they come out.

The other three IRAs are traditional IRAs, SEP IRAs and simple IRAs.

That is an interesting scenario where it's not taxed going in and taxed going out.

So those are the four types.

Now as far as these IRAs are concerned, there is your traditional IRAs, and when I say traditional, these are maintained at your big box custodians, your TD ameritrades, your schwabs, your fidelities, and they only invest in stocks, bonds and mutual funds.

The alternative space is not something that they specialize in, which is why a preferred trust exists.

We specialize in utilizing some of those IRA funds in kind of carving them out into individuals, being able to invest them in alternative assets.

But it requires working with an alternative custodian that will allow those alternative assets.

So that's where preferred trust comes into play.

So we're taking that same environment that you currently have your tax sheltered in, your tax sheltered funds in, and we are converting that into a self directed ira.

So you've got traditional IRA and you've got your self directed ira.

Traditionals, stock sponsored mutual funds, self directed alternative assets.

When I worked for a small business in Las Vegas, we had a SEP ira.

Now what's the difference between a SEP IRA and a more traditional IRA?

So SEP IRAs are usually for small business owners.

And when I say small, I mean one, two, maybe husband, wife, team.

The reason being is because the SEP IRA for small business owners really kind of becomes your 401k plan, but you kind of get to put it on steroids.

It's $69,000 a year.

You can contribute to it.

And so being able to contribute to the SEP IRA really allows you to invest in your future more so than you would otherwise.

Now, you can either pay the IRS the $69,000 a year or you can pay yourself.

That's why SEP IRAs are so popular with small businesses.

And then you take tier that down even further for your traditional, your Roth IRAs, which are going to be maxed out at 7,000 next year.

As far as contribution limits, you got 7,000, you've got simples that are at 16,000, you've got your 401k plans at 23,000, and you've got these SEP plans at 69,000.

You can see why they become very, very popular.

Now, hold on one second.

I follow up question, Clint.

I'm sorry, how does a SEP IRA, and we're not going to dig deep into 401ks here, but how does a SEP IRA differ from, let's say, a solo 401k?

So as far as a solo 401k, it one, it requires a multitude of layers in there for the Solo 401Ks, more so than a SEP.

A SEP is very simple.

The paperwork is very simple.

The reporting is handled by the custodian, where solo 401ks, that reporting has to be handled by somebody else at the irs.

So you really need to know, you need to know all the ins and outs of IRS rules and regulations to have a solo 401k because it's not as easy as just put a pen to paper.

And I, I'm not going to say I don't recommend them, but you really need to know what you're doing because they, they will be audited frequently because a lot of people utilize them as kind of a workaround.

So be careful with those.