May 25, 2023
125: Unlocking the Power of Self-Directed IRAs with John Bowens
John Bowens from Equity Trust Company, one of the nation's largest providers of self-directed IRAs and solo 401ks, joins Chad on the Real Estate Runway Podcast to discuss how to get started investing in alternative assets through a self-directed IRA. John Bowens is one of the most sought-after and respected educators in the self-directed IRA industry. As Director, Head of Education, and Investor Success at Equity Trust Company, John draws from his 20 years in the real estate industry and his experience as an active real estate investor. Learn about the process for investing in self-directed IRAs, the tax implications you need to be aware of, and how to transfer money into an Equity Trust IRA without incurring any taxes or penalties.
This episode provides essential information for anyone looking to make use of self-directed IRAs in their investment portfolio. Tune in now for all the details!
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[00:00 - 07:16] Introducing John Bowens of Equity Trust Company
• Equity Trust Company is one of the largest providers of self-directed IRAs and solo 401ks
• John Bowens has been in the real estate industry for 20 years and has trained over 60,000 investors
• Self-directed IRAs allow individuals to invest in real estate, gold, private equity, hedge funds, cryptocurrency, and more
• Individuals can move their existing retirement accounts from prior employers or qualified plans into self-directed IRAs to gain control over their money
[07:16 - 14:03] Taking Control of Your Financial Future with a Self-Directed IRA or Solo 401K
• Rolling over or transferring money from one financial institution to another does not create any taxes or penalties
• Self-directed IRA is the first step of the three-step process to invest in private market investments
• No taxes or penalties when investing in a private asset, such as buying a property with IRA money
• Rental income and expenses are paid with IRA funds; no tax reporting is necessary when selling the property
• Most financial institutions do not allow alternative investments in IRAs
• Some financial advisors may discourage investing in alternative assets
[14:04 - 21:16] Rules, Disqualified Persons, and Prohibited Transactions Explanation
• Equity Trust is just another member of your financial team, a tool in your toolbox
• The Internal Revenue Code 4975 tells us what we can't invest in with our IRA, not what we can invest in
• Disqualified persons include yourself, your spouse, any businesses you own and operate, and your children and grandchildren.
• Transactions include buying, selling, leasing, or exchanging any property.
[21:16 - 28:36] Prohibited Transactions: What You Need to Know About Investing With Disqualified Persons
• It is not possible to move a property or interest in an LLC into an IRA
• Taking money from an IRA and loaning it to oneself, spouse, or children is prohibited
• Investors can take IRA money and buy a new property, rent it out, and have cash flow coming back in
• Investors can take their IRA money and loan it to a real estate flipper as long as they are not a disqualified person
• Transactions with disqualified persons must be done proportionally
[28:36 - 36:25] Understanding Unrelated Business Income Tax (UBI or UDFI) for Real Estate Investments
• Equity Trust Company custodian FBO is in for the benefit of the client's name or account number IRA is the titling that will be seen on public records
• Unrelated Business Income Tax (UBI) applies to tax exempt entities, including IRAs and other tax exempt entities
• UBI occurs when an IRA is investing in an ongoing trader business or borrowing money to acquire real estate
• UBI can be as high as 37% for income over 13,400 in 2023.
[36:25 - 45:56] Unlocking the Power of Self-Directed IRAs
• Self-directed IRA investments can provide tax shelter and the potential for higher returns.
• Equity Trust does not give tax, legal or financial advice but prepares 990Ts to take advantage of carry forward losses.
• John's superpower is adult education and financial education.
• His biggest mistake is falling victim to analysis paralysis and missing out on good opportunities.
• Equity Trust provides white glove service, educational content, webinars, reports and guides.
"And so you have to Learn more about that. You have to do your own due diligence and make a decision on where and how you wanna invest and what percentage of your retirement portfolio you wanna allocate to these private market investments like real estate partnerships or other types of alternative investments." - John Bowens
"Sometimes it's okay to pay a little bit of a price today so that we can pay any price in the future because going forward, maybe you find that you can get involved in other real estate investments or other opportunities that don't require debt leverage." - John Bowens
Connect with John through LinkedIn, or visit Equity Trust
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Real Estate Runway Podcast is all about alternative business and investment strategies to help you amplify life and maximize wealth! Click here to find out more about the host, Chad Sutton.
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