Explore the untapped potential of your retirement fund with Carrie Cook in this engaging discussion on self-directed IRAs. Gain insights into the various types, uncover the associated benefits and challenges, and stay tuned until the end to empower your retirement journey. Don't miss out on maximizing your earning potential – join the conversation today!

Key takeaways to listen for

• [01:22]  What are the 4 types of IRAs, how they work, and which one is right for you
• [10:41] Top 3 alternative investment assets and the factors that impact them
• [19:28] Expert tips to help you avoid becoming a naive investor
• [27:00] Roth IRA vs. Traditional IRA: Their benefits and key differences
• [38:07] Biggest mistakes people make when investing retirement funds into alternative assets and how to solve them

Resources mentioned in this episode

• [15:38] Delaware Depository
• [15:42] Brink’s
• [19:12] Airbnb
• [28:10] Bitcoin
• [30:43] Facebook

About Carrie Cook

Carrie currently serves as President of Ignite Funding and CEO of Preferred Trust Company. With 17 years of expertise in private lending, she holds licenses from the Nevada Mortgage Lending Division and the Arizona Department of Financial Institutions.

Under Carrie's leadership, Ignite Funding has funded over $1 billion, emphasizing growth while preserving investor capital. As CEO of Preferred Trust Company, a licensed retail trust company specializing in alternative assets for IRA owners, Carrie oversees all aspects, demonstrating her commitment to transparency. She is a certified Self-Directed IRA Professional and has garnered recognition in notable financial publications and industry awards.

Connect with Carrie

• Website: Preferred Trust Company

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Mentioned in this episode:

Sponsored by Nomad Capital

Looking to invest in self-storage? Nomad Capital converts vacant big-box retail spaces across the Southeast into climate-controlled storage, with a target of 20% annual returns. Our fund combines low leverage and high depreciation for strong growth and valuable tax benefits. By buying properties at deep discounts, we often achieve break-even at just 40% occupancy. Join a proven model in a resilient asset class that continues to deliver, even in today’s market. Learn more at nomadcapital.us/tpi. Accredited investors only.

Carrie Cook: 00:00:42

If you have the means, the next natural progression to investing in real estate is typically buying a rental property. And it's typically within a 5 mile radius of where you currently live. That's what you would typically see.

Neil Henderson: 00:00:54

Welcome to Truly Passive Income. I'm Neil Henderson.

Clint Harris: 00:00:56

And I'm Clint Harris.

Neil Henderson: 00:00:57

Our guest is Carrie Cook from Preferred Trust and she's here to talk about self directed IRAs. Clint, check us out.

Clint Harris: 00:01:06

Hey Keri, I really appreciate you joining us today.

One of the scenarios that we're running into is that we have quite a few investors that are coming to us that have expressed interest in investing into alternative asset classes, specifically syndication or self storage. Or maybe they're looking at what we're offering, but they're also looking at multi family or RV parks or whatever it may be.

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

Carrie Cook: 00:02:02

Yeah. All right, let me unpack that a little bit. So we've got four different types of IRAs. We have. I'm actually gonna start with Roth.

I'm gonna 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 and 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 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, stocks, bonds, mutual funds, self directed alternative assets.

Neil Henderson: 00:03:49

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?

Carrie Cook: 00:03:59

So SEP IRAs are usually for small business owners. And when I say small, I mean one, two, maybe husband, wife, team.

what I mean by that, like in: 2024

a year in: 2024

Now you can either pay the IRS the $69,000 a year or you can pay yourself the. That's why SEP IRAs are so popular with small businesses.

And then you tear 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, you know, 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.

Neil Henderson: 00:05:15

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?

Carrie Cook: 00:05:24

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

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

Clint Harris: 00:06:03

I want to ask something a little bit more anecdotal and you may not want to answer this or choose to answer this or if you want to edit it out, that's fine as well. But I think we have a lot to talk about. The nuts and bolts here of what we're talking about.

You're obviously an expert on it and it's the reason we have you on. But what's your personal opinion on this? Like?

I think that there's a lot of pitfalls, especially in choosing on where you're going to invest self directed funds, but there's regulations as to where you can invest your retirement funds with the traditional model.

And we're talking about going off the reservation a little bit and investing into alternative investments and that can be wins and losses and that's a whole other set of risk factors that we, we should probably discuss at least to some degree.

But personal opinion and again realizing that you're in this business but you see both sides of it, like what do you think about this type of investment strategy and is it something that you think people should lean heavily into or is it depends on the person, depends on the goals or where do you stand on that?

Carrie Cook: 00:06:58

So yeah, I mean I have no problem sharing my opinion on this whatsoever because I think that there's.

The individual is going to have a 401k plan with their employer and they're probably going to have a rainy day fund and that's probably the extent of their investment knowledge.

And when I say investment knowledge, the knowledge for the 401k plan is so limited, but yet managed by a professional manager that this is all they eat, sleep and breathe. Right? So the likelihood of their funds being somewhat protected by a knowledgeable professional person exists.

It only exists though as far as the economy can sustain that existence. So it's not so much about the person, but it's about the economic factors of it, which is something that the general public doesn't know much about.

And then you've got this sector of individuals that see what happens with their 401k plans and has seen what happens with their investments in stocks, bonds and mutual funds and the volatility of that. And they want to put that volatility in their own hands.

And, and it's usually based on things that they understand or they know or they have some familiarity with, or they've done a lot of due diligence.

Those are the types of individuals that should be looking to diversify outside of stocks, bonds and mutual funds with a percentage of their portfolio, not their whole portfolio. Don't go crazy.

And we do see that sometimes where individuals like, nope, I'm rolling everything over and you know, you ask them the question one, two, maybe three times and say, are you sure this is something that you want to do? And you know, after a while. We are all individuals, we all have choices in life and some of us are, have the willingness to take more risk.

Some of us have the age factor to be able to take more risk than others. So it is a pitfall because sometimes these alternatives, man, they can sound sexy, they can throw some big returns.

You can hear some numbers that you're like, gosh, I gotta take everything, I gotta take everything outta the market and do this. So, yeah, there is some risk in that for sure.

Neil Henderson: 00:08:59

For a small business owner who's maybe trying to decide between a simple IRA and a solo 401k, what would you say are the key differences and factors that they should consider in making that decision?

Carrie Cook: 00:09:10

Well, for a small business owner, they probably wouldn't set up a simple. They probably set up a sep. A SEP to a solo. Again, I'll go back to the same comment I made before.

The regulations of the two are completely different, but one is you're putting it all in your hands to understand those regulations. The other is it's still being maintained by a licensed custodian who is regulated to make sure that all of the checks and balances are there.

So how many of us know how to set up a 401k plan just off the street? Okay, that's what you need to know to have a solo 401k. That's a tough one.

And in my opinion, the vast majority of individuals that have the solo 401ks have probably gone to a professional to get advice on how to set those up, but then you're left to manage them on your own. So all I would say to you, if you're setting up the Solo 401k, keep going back to that professional and making sure you're doing it correctly.

Because when you go to use that solo 401k to invest in investments, not only do you have to understand your solo for 1K, the investment sponsors have to understand how that solo for a 1k needs to be treated. And so, you know, there's multiple factors there that certainly need to be considered.

At the end of the day, your SEP IRA is still going to give you your highest percentage of contribution into and reduce your taxes the highest in my opinion. Because it's very simple Math. The Solo 401k is not as simple math. Yes, there are some tax benefits.

Yes, you know, the company will receive some tax benefits for it. But you really need to know how to report on that correctly.

Clint Harris: 00:10:46

I think that's one of the most important things is that with a self directed IRA professional especially what you're really getting like, yeah, you have to use an intermediary who's going to help you with that. But what you're really getting is the educational value, like the base level knowledge to understand what you can and can't do, how to get it.

That's what you're paying for. Honestly, that's where the real value is in my opinion.

Of the people that have decided to get into the alternative investment space and your typical client, what are usually the top three or top five types of investments that they're looking at and what are some of the really weird ones?

Carrie Cook: 00:11:22

Let's do a top three. So top three I think will always be real estate. We'll be at the top. I think that's because that is what most of us understand.

The minute you buy a house, you quickly understand when you make a principal payment that you're adding equity.

And so I think that is just a natural progression that people want to consider as part of, you know, an alternative investment for them without having to go buy maybe another rental property. Maybe they do it through other means. You know, investing in some storage facilities. Right, that's a great example.

They're like, you know what I see these storage facilities looks like a fairly simple model. Let me find a group that does this and have a natural fit there. The second is probably going to be precious metals.

And I think a lot of the reason why we've seen that tear up over the years is because of the economy, because of war, because of the instability of maybe what some feel the government has. Like there's a variety of different factors that, that elevate what individuals are investing in from there.

I mean I saw a huge, huge increase in digital currency. It ebbs and flows right again. Ties back to what's going on in the economy, what's going on with the government, what's going on in the environment.

There's so many different factors there. Small businesses, the weirdest. Oh my gosh, I see some very bizarre things. So all farming, farming is always a fun one, right?

So investing in farming you think would be an easy investment, except when they're buying livestock. And when you buy livestock, I know it sounds crazy. I can see the look on your face. You're like, what?

The beauty is, a lot of my personal investments come from what other investors invest in, coming through preferred trust.

And because I get the opportunity to see both ends, I get the opportunity to see all the investment documents and look into the company and then I get to see what the returns look like and if they actually perform. And, and so admittedly I have a few heads of cattle, grass fed cattle. That's a great return. And it's a little morbid, right?

You really have to kind of think about this for a second. We feed our cattle, we slaughter our cattle, and then we get an 18 annualized return. That's a great return. And so, you know, it's stuff like that.

I've also seen individuals buy goats.

I've been taking a kind of a farming approach here where they buy the goats because the goats are actually performing a task for the farm and the operation of a farm.

And ironically, you know, insurance policies, you get insurance policies on your animals and so if one happens to pass, you know, you replace it with another one. And so, you know, there's so many different things that we get to see that are super exciting to see and varieties that we get to see.

And as I would consider ourselves as more of a boutique custodian in the sense that we don't specialize in just one thing. There are some custodians that will only specialize in certain areas. I look at that as very narrow minded.

If I don't know anything about it, then I need to get educated about it. I need to understand what can and can't be held right. There's only three things you can't hold in an ira.

Everything else is subject to whether or not the company has a willingness to hold custody of those assets. And so I like to make it well known that I'm interested in just about anything as long as it does not touch those.

Those three topics that are not allowed.

Clint Harris: 00:14:40

So, next question.

Carrie Cook: 00:14:42

There we go.

Clint Harris: 00:14:42

I thought goats would have Been on the list, but apparently it's not. What are those three things that they're not allowed to hold?

Carrie Cook: 00:14:49

Collectibles. I always joke about this because, you know, individuals will come to us and say, I want to put my wine collection and blah blah, blah.

I'm like, that's great, but I can't hold custody of your wine collection. And they're like, but why? This doesn't make any sense. I don't know if you drink it. I drink my wine collection. Right, so I'm assuming you do as well.

So collectibles are not allowed. Rugs, wine, rare coins, those sorts of things. S Corp stock, for obvious reasons, it already has a tax benefit.

So the government's not going to give us a two layer tax benefit. And life insurance policies are not able to be held in an ira. Those are the only three items.

Obviously collectibles will accumulate quite a few items, but those are only three areas that are not allowed in Iraq. That means who? The sky's the limit, right?

When you really think about it, if you just isolate those couple of things, that leaves the door open for a lot of other topics.

Clint Harris: 00:15:45

So before you reference commodities in terms of buying precious metals like gold and silver.

So that can either be the actual bullion that hopefully that you're buying and holding yourself, or it could be paper assets in a company that is holding gold or silver.

Carrie Cook: 00:15:58

That's correct.

Clint Harris: 00:15:59

But you could do it either way.

You could literally go to a local market or order it online and you could get, you know, $500,000 worth of gold delivered to your house as part of your self directed ira.

Carrie Cook: 00:16:08

It cannot be delivered to your house.

Clint Harris: 00:16:10

That was my next question is as the custodian, you have to hold that, right?

Carrie Cook: 00:16:14

We do. I don't have a vault here, let's just put it that way. Right. So we use depositories. Delaware Depository is probably a relatively familiar one.

We don't use Brinks anymore because they're just not friendly to the self directed environment. But you see the trucks, right? So they're being held in facilities that are equipped to hold billions of dollars of gold, silver, palladium, platinum.

And so that is an expense that you have as part of holding precious metals in your IRA is the physical metals themselves are held at a depository with 24 hour guards. You know, all the stuff that comes along with that.

The only thing that you know as far as custody, if you will say the client doesn't have access to go to that depository and take their medals. They do have to go through the custodian.

Because we are the ones that are licensed and regulated to hold it under that IRA and report to the IRS the value of the commodity.

Neil Henderson: 00:17:09

I don't mean to get into, like psychoanalyze investors, but this is one of the things that I sort of always sort of puzzles me when people, you know, oh, the economy's going to collapse, so we should buy precious metals. And again, what you're talking about is we don't actually have it on hand. It's at some vault somewhere under someone else's custody.

And if the economy collapses, you're going to travel to wherever that vault is and collect your precious metals. And I don't know, it's just, it's always been one of these.

Carrie Cook: 00:17:38

Yeah. And then try to sell them to somebody so you can get cash. Right. Because you can't pay with the gold.

Neil Henderson: 00:17:42

Yeah. And it's always sort of been something I struggle with. I guess it's more of an interim. Is that okay?

If the economy starts to really, really start to tank, then the value of precious metals will be uncorrelated with stocks and real estate, I guess is the way to put it.

Carrie Cook: 00:17:58

And that's what history has proven.

But at the end of the day, I think what really happens with precious metals investors in general, I'm not talking generality here, this doesn't happen with all of them.

But if you look at the Armageddon approach of marketing that these precious metals dealers apply, that is what really drives people to obtain precious metals in their IRAs. I don't think individuals go out seeking to invest in precious metals because it has no income generating factor until you sell it. Right.

So you're really paying for a self directed IRA year after year after year with the intent that over time it will generate enough equity from your original investment to make it worthwhile investment. So you are exactly correct in the point that you're making right now. But I think a lot of that has to stem with how it's being being marketed.

Clint Harris: 00:18:49

That makes sense. I want to circle back to the number one on the top three list that you gave us. So. And this scenario happens with us quite a bit.

We have investors that come to us that are interested in what we're doing. We specifically buy old Kmarts and grocery stores and big box warehouses and we convert them to climate controlled self storage facilities.

But whether it's that multifamily apartments or RV parks or ATMs or whatever, it may be a lot of people, especially with retirement funds or at least retirement age tend to seem like they are attracted to syndication because it can be for them completely hands off. Right?

Carrie Cook: 00:19:20

Yeah.

Clint Harris: 00:19:20

You have to have time, experience and money to have success. They've got money, but they don't want to spend their time. They certainly don't want to get the experience of managing it. So they come to us.

And a lot of those people migrate towards syndication because they want their money to do more work than it's doing in the market. They like the idea of it being in real estate that they can see, feel and touch.

They understand the drivers, especially in a local market, as you're having growth, maybe near a certain facility outside of syndication, that's obviously we're a little insulated. That's pretty much what we see because it's what we do.

But people can take those self directed IRA and they could go invest in an Airbnb property or single family homes that they manage themselves and they can do the heavy lifting. I mean, can they flip houses?

Can they do everything that you would typically do with in real estate, all the different strategies you can do that using these funds, is that right?

Carrie Cook: 00:20:10

You can, but this goes back to the savvy investor versus the naive investor.

I'll compare them in that fashion where if you have the means, the next natural progression to investing in real estate is typically buying a rental property. And it's typically within a 5 mile radius of where you currently live. That's what you would typically see.

And when an individual buys a rental property inside of their ira, it comes with a lot of rules, a lot of rules that we have to educate the client about.

Because when you buy within a 5 mile radius, your first idea is that you are going to be the property manager of your rental property, which is not allowed. The next rule is you're already a plumber. So when the plumbing goes bad, you're going to go fix the toilet. And well, that's not allowed either.

And at some point they get a little bit discouraged because they're like, well, I'm trying to save money here, I'm not trying to. Okay, well that's great. But that is a prohibited transaction tied to that rental property.

So what we have seen over the years now there's been eras of fix and flip, right where that was gangbusters and then accordions back in and then it accordions back out. So we see the fluctuation of that come and go.

But I think the vast majority of individuals are, are actually investing in the syndications now because of the fact of the same principles that I applied with 401k plans. They're looking to find professionals that this is all they eat, breathe and sleep. Right.

They're looking for individuals that specialize in a specific area of real estate so that they can have that hands off passive investment. Just send the income back into my IRA and let it be the. But there are some pitfalls in that as well. Not all syndications are set up the same.

And so that's why it's so important that Preferred Trust reviews the documents to find out how those syndications are set up because they could potentially have some tax consequences to your tax sheltered ira. What I'm talking about there is UBIT and udfi.

So some of these syndications leverage their syndications and it creates an environment where the IRA actually becomes subject to additional tax consequences that may or may not be disclosed to them by the syndication. So that again, it's just layers and layers and layers and layers and layers, which is why self directed custodians exist.

Our job is to understand all those nuances and try to protect you from yourself. And quite frankly, I spend the vast majority of my time educating the investment companies on this regard.

And out of pure frustration when I tell the client, hey, just so you know, they leverage this fund by 50 plus percent. That means 50% of all income that you generate from this investment is taxable. And they're like what do you mean taxable within my ira? Yes.

And not only that, I'm going to have to file taxes on it. So I'm going to have to charge you to file the 990Ts each year. And so it starts steamrolling.

And so there are a bunch of nuances in any type of investment that you have to be aware of.

Clint Harris: 00:23:24

Wow. See again, that goes to the value of what you're getting. Right. It's not just someone to help you convert your account from one type to another.

and is interested in putting: 250000

And so through the process of you walking through what they can do with their account, you're also looking at the opportunity and looking at any liability they're going to have as a result of that and help educate them of what that really means, I guess.

Are you reviewing the private placement memorandum, the legal, the operating agreement, subscription booklet, all that stuff that's part of your services as well to look at? Hey, this is what exposure you might potentially have because of this offering.

Carrie Cook: 00:24:07

So it stops at the last comment that you made. I have always run corporations under the idea of client advocacy. And if you see something, say something.

And so one of the things that we do or we require, and some custodians do, some custodians don't, some are a little bit looser on this. But. But I have run companies that have investment strategies associated with them, so I know what to look for.

And I have the ability to train my staff on what to look for because I'm familiar with it. This is where my career has taken me.

And so, yes, we look at the private placement memorandums, we look at the joint venture agreements, we look at everything and we know what to look for and just hone in on those items to make sure that everything is in place. If it is a filed or registered SEC product, we actually check. We check to see. We don't just take it on face value.

We look at the operating agreement, we look at the documentation associated with the company, make sure the company is still active. So we do some preliminary checks and balance on our side. Because here's the reality. Not only is the client working with you, I'm working with you.

And so you as an investment company or investment sponsor, there's some relationship that has to be developed for trust in you because either 10ks are coming from you or some sort of tax reporting or some sort of fair market valuation. So I need to know who I'm working with.

So it's not just about, you know, bring in as many clients as you can carry, right, and open up these accounts and let them invest in whatever they want. You know, I have to protect the liability of preferred trust company as well. And in doing so, I require that we do some level of due diligence.

But it stops at making sure that if you say it's registered, that it is with the SEC and that your business is active and the operating agreements are executed by the people that should be executing them, and that your subscription agreements have all of the required details in there for the type of fund that you've created, because they're all different, which I have a lot of knowledge about as well. So it kind of helps us check those boxes.

But the only time that we say to a client, buyer beware, is when we find something inside of those documents that could have tax consequences to them outside of, you know, the normal IRA that typically doesn't have tax consequences.

And all we do is we mention it to them so that they can further those conversations with you just to make sure we're all on the same page before we move forward, but we don't stop the investment from happening. So I just want to be clear. There it is, a self directed ira.

So the client is the one that's taking the direction from as far as it pertains to the investment. But if the operating company is not in good standing with the business in the state that they operate in, we will not allow the investment.

Neil Henderson: 00:27:01

So I want to transition just a little bit. That was kind of a deep cut. Let's back out a little more high level view here.

We're talking about all four different types of IRAs, but my understanding is there's actually eight. Because you could have a traditional or a Roth in each one. Correct? You could have a solo 401k Roth or a traditional self directed traditional.

And I think you talked about this on our first take where we actually had to restart. So I want you to repeat this and make it clear to people what you believe are the benefits between a traditional IRA and a Roth ira.

Carrie Cook: 00:27:41

So traditional seps and simples all fall under the premise of you pay the taxes after. Right? The whole goal here is reduce your income on traditional SEP and Roth and pay the taxes later.

Now that concept is great as long as the tax brackets don't increase over time. Right? So it may be more cost effective to pay the tax now versus paying it later. That's where the Roth IRA comes into play.

And I say this and we probably should get into a little bit the high net worth individuals for Roth IRA too, because there's some AGI issues there and stuff along those lines, which could be a whole nother podcast that we could talk about. Because I really truly love the whole backdoor Roth IRA component, primarily from being a high net worth individual.

But the Roth ira, you're pay the tax now on it. So let me give you an example. I'm going to give you a digital currency example just to kind of veer off of real estate for just a second. Okay.

I'm an individual that purchased Bitcoin at $3,500 a unit. I happen to sell mine at $55,000 a unit inside of a Roth. I will never pay any tax on the income that was derived from that.

So in a one day period, that million dollar gain that I just made, I will never pay tax on that.

That is an extremely powerful tool because the original amount that I invested in Bitcoin that I paid tax on, I can assure you, was not a million dollars. It wasn't even in the ballpark, Right. Even at the highest tax bracket that you could possibly get.

So the power of utilizing a Roth IRA I could go on and on and on about. So as the younger generation. Because Roth IRAs haven't been around forever, right? That's the newer of the IRAs that are available.

And it's crazy to think about how current it is if you're taking the traditional sense and the Roth sense. That's why you see the 401k plans now have both options, a Roth option and a traditional option.

Because when you contribute to it, it's either pre or post tax. I try to harp on the younger generation to say, start with the Roth. Don't even bother. Figure it out. Don't go to Starbucks every day.

Whatever you have to do, pay the tax now. Because you're never going to see that tax bracket again in your lifetime. I truly believe that you will never see it again in your lifetime.

So, you know, take advantage of the opportunity now.

So that way when they go to invest in real estate, everything that they invest in, both with income and potential equity or capital gains, they're not going to be paying additional tax on. So those are the major, major, major differences between the two.

Neil Henderson: 00:30:37

I'm old enough that when I got my first ira, unfortunately it was a traditional ira, because they just weren't. Roth wasn't available. My mom and dad were the same way they got traditional IRAs.

And my mom is now 80 and she's now faced with the required minimum distributions that she needs to take. Correct me if I'm wrong, with a Roth, there is no required minimum distribution. But with a traditional, the IRS is going, hey, it's time to pay up.

And unfortunately or fortunately from my mom is her tax bracket has only gone up and she's now faced with. She's got those required minimum distributions that are being taxed at her now very high tax bracket. It's a real challenge.

There's of course, the very famous story of Peter Thiel, one of the first investors in Facebook, who used a Roth IRA to invest in some of his original investment in Facebook that's now worth, I don't know, it's something like $5 billion. I don't know what's. It's some absurd amount it's worth.

Carrie Cook: 00:31:38

Put a zero on the end of that. Yes.

Neil Henderson: 00:31:41

And so 50 billion maybe. And he will never pay a dime in taxes on that.

So I guess my question is, do you think, given that sometimes the pitchforks come out for the rich that the Roth is ever going to go away.

Carrie Cook: 00:31:55

I think the Roth potentially could be reduced as to the cap of what you can have in it. Now, this is going to sound crazy. I did a stint. I was a PAC treasurer one time, a political action committee treasurer, and for Fortune 500 company.

I have a weird background, but nevertheless.

Neil Henderson: 00:32:13

Yeah, we were talking beforehand. You've got a very weird background.

Carrie Cook: 00:32:17

I saw what the power of making contributions to political officials achieve. And those who are making contributions to these political officials tend to have some agenda. They do. I mean, that's just the reality of politics.

Right. And they have tried to limit the maximum amount you can have in a Roth IRA to $10 million. Okay.

Even if you put that into play of $10 million, and how many Americans actually have the capabilities to get to $10 million in a Roth IRA? So when we really talk about the magnitude of this, yes, you hear those stories, but those stories are, I mean, one tenth of our population, right?

The vast majority of us, if we have the ability to grow our Roth to that amount, remember, you can only make a $7,000 contribution a year. How do we get it there? And like I said, that's probably a whole nother podcast.

But there are ways to get it there by paying the tax to convert it from your traditional to that Roth. Now, there's a lot of components that go into this. I'm not a tax professional, I have to disclose that.

But I will say to you, talk to your tax professional about it, because there's always opportune times to make those conversions throughout your life. And I'm not saying you should do this with your mom, who's 80 years old. I'm not saying that at all.

But what I'm saying is there are opportunities throughout your life where you should consider those conversions and pay the tax now. And maybe it happens before an investment. There's always opportunity. Where you see the opportunity, take it. You see something, say something.

If you see an opportunity, take the opportunity.

If, if there's an opportunity to invest in something for $50,000 and you have a deep rooted feeling that that's going to be a million dollar play, a $250,000 play, do you want to pay the tax on that later in life or is that the time to make the conversion of that $50,000 to the Roth and then invest using those Roth dollars to amp up the return on that tax free?

So you really have to stop as an individual and really think about not just what you're investing in, when you're investing in it and what the outcome could potentially be of that, win or lose, right?

All investments have risk, but something that, you know, hopefully individuals, when they're looking at alternative investments, they tend to be more savvy when they look at that, but they forget about the fact or they think they cannot contribute to a Roth IRA because there are some, you know, you know, modified aggregated gross income restrictions, but you can always convert. There's definite loopholes out there that the government left the loopholes. So walk through them. It's a gift, use it.

Clint Harris: 00:35:13

We're going to have to have a conversation offline also. I got some questions. Let me ask you a question.

This is in a roundabout way coming from a conversation that I have with an investor and it alludes to the issue of potential dead capital in a retirement account.

Meaning let's say we've got an example of an investor who comes to us and wants to put, put a hundred thousand dollars from a self directed IRA into a syndication deal. A lot of ours are a 10 year hold, some are 5, some are 10, some of them are combination, some of them are a long term hold.

Within that, let's say there's cash flow coming out of either preferred return or cash flow coming out of the project that is distributed back into the ira. Well, once it goes back into the IRA in these smaller chunks as cash flow, that money's just sitting there. Say we have a $50,000 minimum.

Somebody puts $50,000 in and then as they're getting quarterly distributions back into their retirement account, that money's just sitting there, not really doing anything and not working for them. And when it's in a retirement account, obviously you want it to be working.

What are some of the ways that people can look at taking those smaller amounts of capital back in? Are there other places that they can deploy that?

Or there are other types of things that they can do with that money to maybe at least put it to work while it's earning up to a large amount that can be reinvested.

Carrie Cook: 00:36:24

So preferred trust is not for investments. Let's just start there. So I can't give investment advice as it pertains to that.

I can tell you that I've started to see more and more syndications adding a drip program, direct reinvestment program where we set up reoccurring investment opportunities with them. And I say this because, you know, a lot of these syndications are accredited investors and they do not want to see a dime of this.

Alternative funds that they've moved over into their self direct IRA sit stale. We do pay on a 6 month CD rate on our cash. I know many custodians don't do that. We do as a custodian. We operate as a full fledged bank.

We do so we make money on fees, we make money on cash deposits. That's how we operate. It's very clear cut and very simple.

So if their cash is sitting there, I'm going to make some money on it and I'm going to pay you a very small percentage of that. So get it deployed. I would say to you that in a self directed IRA, we know the three things you can invest in. Research. Look, utilize those funds.

A lot of these crowdfunding platforms allow very, very small amounts. My opinion, I don't love crowdfunding platforms, but it's allowable.

So if you want to invest as little as $1,000 in something, you actually can, you could buy digital currency at very small amounts. You could buy precious metals at very small amounts. You can do other things with those funds that they're not sitting stagnant per se.

But really I'm starting to see a ton, a ton, a ton, a ton of these direct reinvestment programs starting. So we have clients that are set up for reoccurring so they get to the thousand dollars and boom, we get it reinvested.

We send out, you know, a subscription, make sure it's signed off on and we just keep it as deployed as possible. But there are, there's some great companies out there that have reduced down their thresholds to get in.

Or if you start at the 50, you know, once you're an investor, you can drop down to five, right? And you can make reoccurring investments with them. So a lot of it has to do with doing your research.

Do your due diligence, you know, find companies that will allow you to park some of that smaller amounts or ask the companies that you're working with if it's allowed. Many of them have started to allow it.

Neil Henderson: 00:38:34

I want to ask one more question before we go. We could probably sit here for another two hours and talk. Carrie.

But what are some of the biggest mistakes you see people make when investing retirement funds into alternative assets?

Carrie Cook: 00:38:49

Not vetting the investment sponsor? You know, it's really, really hard for me. I can only take my due diligence so far because it is a self directed ira.

But how to do the due diligence on those investment sponsors is very, very difficult. Anytime you're working from the syndication side of things, it's so important to understand who manages the funds.

And I think many of us don't take enough time to do the research of not only the company they currently work with, but the prior companies that they've worked with and what the outcomes were of that and why they've left. Are they coming from a Fortune 500 company and decided to start their own? And there's four of them that have gotten together.

Okay, Yeah, I can logically see how something like that could potentially grow legs and work.

Or is it an individual that had four companies prior to that, like dig Deep, that was investigated by the CFTC or the sec, or they've got, you know, some sort of broker check that's not checking out. Right. With FINRA or something. Do your due diligence. Like, the World Wide Web is a monster. It could be good, it can be bad.

Pass the first page, pass the second page, pass the third page. Find out who you're working with.

Because when you're working on, from the syndication side, you really, the onus is on the people that are running it, not the assets that are contained within it. And the assets that are contained within it are only as good as the people that are managing them.

And so if you're not directly investing in the collateral itself where you know you have possession of it, you better darn well look into those people behind it.

Neil Henderson: 00:40:23

Kerry Cook, thanks so much for sharing with our audience today. If people want to find out more about preferred trust and what you do, what would be the best way for them to go about doing that?

Carrie Cook: 00:40:33

Go to our website, preferredtrustcompany.com you could obviously look me up. You can find me just about anywhere. But go to our website and I always suggest to people we have a free consultation.

Click the button, schedule a time talk with one of our professionals. Doesn't cost you anything. See where your funds are at, see if you're even able to move them.

You know, a lot of times we have clients that call us with 401k plans and, you know, we just can't move the funds yet because there has not been an event that will allow you to like, just talk to us about it. Let's see what you have, let's see what the situation is. But first and foremost, you know, find your alternative investment first.

There's no reason to have us until you find the right group to place those funds with. Check us out on our website.

Clint Harris: 00:41:15

Sounds great. Carrie, thank you so much. Really appreciate your time today.

Carrie Cook: 00:41:17

Absolutely, you're welcome.

Neil Henderson: 00:41:19

Thanks, Carrie, thank you so much for listening and watching the truly Passive Income podcast.

If you liked the show, if you think it would be useful for someone else, the greatest compliment that you could give us would be to share the episode. Leave a comment down below or leave us an honest review. If you have any questions, don't hesitate to let us know down below.

And remember, with truly Passive Income comes freedom of time, place, and the freedom to pursue your higher purpose.

Carrie Cook: 00:41:52

RAM.