The Wisconsin Investor

Avoid Taxes, Build Wealth: Self-Directed IRA & 401k Strategies

• Corey Reyment

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Taxes don’t have to be the cost of doing business. Specialized custodian Mikey Liello breaks down how self-directed retirement accounts let you buy rentals, fund flips, and lend privately — compounding gains with powerful tax advantages.

We simplify IRC 4975 so you understand what’s allowed, who’s disqualified, and how to structure deals legally. Learn the three clean funding paths — cash, non-recourse leverage, and partnerships — and why the solo 401k is the real estate investor’s multi-tool for tax-free growth, liquidity, and avoiding UBIT.

Plus:

• What the IRS allows vs. what custodians offer
 • Prohibited transactions and disqualified persons
 • Cash, leverage, and partner funding structures
 • Roth conversions, backdoor Roths, and step plans
 • How to turn old 401ks into private money for your deals
 • HSA and CESA strategies

🎧 Ready to keep more of what you earn? Hit follow, share this with a friend sitting on an old 401k, and grab your free “BRRRR for Beginners” course to land your first deal in 45–90 days.

📩 Contact Mikey Liello: mliello@irastc.com

SPEAKER_01:

What's up, everybody? Welcome back to another episode of the Wisconsin Investor. I'm your host, Corey Raymond. Today we got a really great guest here. I'm excited to get him on uh and introduce him here in a second. Before I do, though, like I do on every episode, guys, we're gonna talk about uh something that we want to highlight or sponsor. And so we always talk about Wisconsin discount properties as our sponsor. And I've been talking a little bit about some giveaways that we're doing here, some value add things. So hang on till the end of the episode. I'm gonna talk about uh some free tools that we have for you guys to really help make sure if you're looking to grow your real estate portfolio, that we can set you up for success with that. So, with that, let's get in today's episode. I got Mikey Liello with me. What's up, Mikey?

SPEAKER_02:

What's going on? How are you doing today?

SPEAKER_01:

I'm doing great. I'm doing great. So Mikey and I met at a uh Tim Bratz mastermind event uh not too long ago. And I've known uh Edwin from your company for quite a while from Collective Genius as well. Um but we were chit-chatting a little bit and having some good dialogue. And uh and Mikey, I'll let you introduce yourself and who you're with and all that sort of stuff, and then it'll make sense of why we have you on here today a little bit.

SPEAKER_02:

Yeah, so uh my name is Mikey Liello with a specialized trust company. Uh what we do is we are self-directed retirement account custodians. So essentially we teach you how to prevent some taxes, create some tax-free passive income, and basically secure your legacy wealth.

SPEAKER_01:

And as Mikey just mentioned, tax-free. Uh if you guys have been listening to any episodes with me, you know that one of my favorite things in this world is to legally pay as little amount of federal tax as possible. And so Mikey's got some cool things here that we can do that sometimes can sound kind of confusing, maybe overwhelming for people. And you know, we'll dive into some of those different vehicles and talk about how they can um be beneficial. But Mikey, talk first of all, self-directed. Can for the people that have never heard of that before, maybe they've got an IRA or a 401k or something like that right now through an employer, or maybe they have uh had they got you know legacy from a previous employer or something like that. Talk about the difference between that IRA or 401k and what specialized trusts helps people do.

SPEAKER_02:

Absolutely. So this is essentially what the retirement accounts are supposed to be, in my opinion. Okay. Um, not even my opinion, it's the IRS's opinion as well. So essentially, when it comes down to it, most people think when you have like a 401k with an employer, like you said, like an IRA, let's say, you know, with the traditional type of fiduciary, it's stocks, bonds, mutual funds. That's the only things that you can invest in, right? Not true. So when it comes down to the retirement accounts themselves, it comes down to this. So it's a tax code. IRC 4975. So that's like our Bible, right? Okay. Now, when it comes to the rule itself, it actually comes to this IRA owners can invest into alternative investments, i.e. real estate, but IRA custodians do not have to offer it as an investment option. Uh so here's the fun stuff. Are they lying to you? Not necessarily. They just kind of are just omitting a little bit. Yeah. Lying to omission. Yeah, I mean, here's the thing. They they want to use your capital. That's what they wanted to be in Stock Bonds mutual funds. Um, because if you were to invest in 123 Main Street, they can't take any kind of commission off of that. So here's the only things the IRS says that you cannot invest in antiques, collectibles, life insurance policies, S corporations, and alcohol. Those are your only limitations. Okay. Now, when it goes into who you cannot invest in, that's a little bit more complex. We'll get into that in a minute. Okay. Um, but when it comes to it, and the whole purpose of actually retirement account investing is the fact of retirement accounts earn tax-free. So if it's going to be in the stock market and things along that line, most people don't even notice that. Right. Right. So the gains are not actually going to be like, oh my God, it's tax free. This is amazing. When it comes to a situation where let's say real estate, yeah, well, those profits are significant. So what's better than those significant gains? Tax-free.

SPEAKER_01:

Tax-free.

SPEAKER_02:

Yes. So what you're able to do is if you have all 401ks uh from like previous employers, TSPs, right? So for your uh military um audience. Okay. For 403Bs for the teachers and the state employees, those can actually be moved and any IRA can be moved into a self-directed retirement account and be directly invested into real estate. Okay. Or alternative investing or private lending, buying land, you know, all of those investments are allowed to be invested directly. And then again, tax-free.

SPEAKER_01:

Wonderful. Wonderful. So let's talk a little bit about um the just self-directing in general. You mentioned there's some who you can't invest with, right? Talk a little bit about some of the rules with that, because I think this is a uh clarifying point. Like you got to know the rules. You don't want to blow up your IRAs or your 401ks, right? And what I mean by that is basically if you do something wrong, the IRS could come and say, eh, nope, this is no longer a tax-free vehicle, right? You got to pay the tax and the penalties and all that stuff. So it is important to make sure you understand some of these things. But tell us a little bit about like what are some of those kind of just general rules of thumb when you're looking at like, say, I've got a I've got a sell, I've got something I transferred over to you guys, you help put it into a self-directed account. Now I've got an investment I want to use it in. What are the do's and don'ts here of making sure I'm doing this by the book and and not blowing this thing up?

SPEAKER_02:

Yeah. So we covered what you cannot invest in, right? Now, it's important to know who you can't invest in. So basically, here's the rule of thumb. Up and down the family tree, you cannot invest in those individuals. Okay. So you cannot invest in your um in your grandparents, in your parents, in yourself, in your spouse, in your kids, in your grandkids. Okay. Okay. Side to side in the family tree is fine though. Brothers, sisters, aunts, uncles, cousins, completely okay.

SPEAKER_04:

Oh.

SPEAKER_02:

Now the key word in that though is investing in. Okay, so just want to plant that. Just everybody just remember that keyword. Yes. Um so what can you do? There's essentially three different ways that you can invest a retirement account. Okay. One is outright. Okay. One, two, three, main street. I want to purchase that property. It cost me a hundred grand. I have a hundred grand in my account. I purchased that property in the name of the account, all the profits go back into the account tax rate.

SPEAKER_00:

Okay.

SPEAKER_02:

Okay. Simple.

SPEAKER_00:

Yes.

SPEAKER_02:

Now, the second is actually going to be leveraging. So leveraging is completely different. So you can actually, let's say you don't have a hundred grand in your account, you can borrow in the name of the retirement account, execute the investment, and then all the profits come back tax-free. Now, keyword on that though, there's a very uh specific type of loan, though. It has to be a non-recourse loan. Okay. Because remember, you're not going to be the investor. The account is.

SPEAKER_00:

Right.

SPEAKER_02:

So you can't actually personally back it.

SPEAKER_00:

Right.

SPEAKER_02:

Now the third one, we're going to go back and circle back to that investing in situation. So most people have multiple goals of what they're trying to accomplish financially. So especially for families, right? So you have yourself, you have your business, you have the kids, you have kids' education goals, all of these different things. That's why we're that's why we're grinding so much, right? Right, right. Retirement accounts and this or self-directed retirement accounts, it's better to think about them like they're financial tools. Okay. Okay. Because you have the control over it and you only have to listen to what the IRS says. Okay. So let's say, for example, you have um children in private school.

SPEAKER_04:

Okay.

SPEAKER_02:

Now, in that situation, okay, now I have to earn more, get taxed on it, and so I can pay for this education. Wouldn't it be better if I had a financial tool that would just pay for that on its own? That there is accounts. It's called a CISA account, Coverdale Education Savings Account that can be invested into real estate and actually will earn tax-free.

SPEAKER_04:

Okay.

SPEAKER_02:

You also, for the sake of legacy, set up a Roth IRA for your kids. And it will, you pay them, and then they have a Roth IRA. How amazing would that be if you were actually, you know, if all our parents did that?

SPEAKER_01:

For sure. And a Roth IRA, for those that don't know, is a tax-free investment investment retirement.

SPEAKER_02:

Um so here's the difference between just to kind of plant it. Tax deferred dollars is great for now. So tax deferred or traditional accounts, um, that basically money put into that account, it's gonna be a tax write-off for either yourself or for the business.

SPEAKER_04:

Okay.

SPEAKER_02:

Now it will earn tax free, but then one day you're gonna have to pay taxes on the growth. Now the Roth is gonna be the opposite. Roth is, I don't want the tax break right now. It's gonna earn tax free, and then it's tax-free forever. Yeah. So you gotta love that. And it is down tax-free. So setting up like a Roth and a CISA account for the kids, it's very functional, plus it's also legacy. Now when it comes down to the business, of course, we want to save as much taxes still today, right? The Roth is great for later on. But there is an account called a Roth solo 401k. Okay. Or just a solo 401k. And what that does is it allows yourself to set up a 401k in the name of your company. So you're basically gonna be the employer and the employee. Okay. Now that 401k and you have the Roth account set up for the kids, right? And then you have the CISA account. So now you're covering yourself, you're covering the business, and you cover the legacy. Now remember what I said you can't invest in each other, right? But you can partner. So if you have all these different financial tools in place and you structure the deals accordingly, which we we can help you with, um that is the way that you can actually multitask with those different financial goals and have them all be growing tax-free at the same time.

SPEAKER_00:

Interesting.

SPEAKER_02:

And you're not wasting the one thing that I always tell everybody is that when you are actually paying attention, you're utilizing these different self-directed tools that is available for everyone. That you are doing something that not many people can't or know about, but you're saving the time to get to your financial goal. Because time is the only thing you can't get back. So if you can prevent the tax, you're gonna reach your goal a whole lot faster. And these are tools that you can actually implement.

SPEAKER_01:

That's amazing. So you can take your you're what you're saying, I just want to clarify this and land the plane here a little bit. You're you can take that Roth IRA in your name, you could take uh solo Roth 401k in your name, or in the company's name, as you said, and you can partner those on a deal, 50-50, let's just call it. If they both have 50,000 for this, 50,000 for that, boom, they partner now. Now they earn 50% of each goes back in for the profits, and the growth that earns tax-free. Wow, I didn't realize that. See, I always thought I'm this is why I have you on here, Mikey. I always thought you that's a no-no, that's a prohibited transaction, is what I thought.

SPEAKER_02:

If you invest in each other, got it.

SPEAKER_01:

That's the key word. My Roth can't own it, and then my 401k lends capital to it, is what you're saying.

SPEAKER_02:

They have to that's exactly right.

SPEAKER_01:

Got it. They have to be joint venture partners in a sense, or LLC set up with those two as 50% owners in each. Yeah. Can it can it be separate? Could it be 35%, 65% ownership? Okay. So it doesn't have to be 50-50.

SPEAKER_02:

It just needs to be represented monetarily. So basically, you can have it to where um I'll give you a scenario. So let's say that you have a family of four, right? And kids go to private school, kids want Roth IRAs, they're smart kids. Um and then so the parents have a solo case set up. Okay. So you can have it where dad and mom, let's say, are 40% of this deal, right? So 40 and 40. And then you have the kids, which are 10 and 10 represented.

SPEAKER_04:

Okay.

SPEAKER_02:

Right? To make it easy, what you would do is that all those think of them as entities, not as retirement accounts. Think of them as like these are business entities.

SPEAKER_04:

Okay.

SPEAKER_02:

They're all going to be members of one brand new LLC. And then that LLC makes the investment.

SPEAKER_00:

Nice.

SPEAKER_02:

So you can customize the percentage however you like to. There's not, it doesn't have to be 50-50 in any way.

SPEAKER_01:

Okay. All right, cool. With a structure like that, how are like I'm just trying to think through like bookkeeping-wise. Like that to me sounds like it might be a bit of a challenge, right? Or maybe a pain in the butt. What are you seeing from clients doing some of this stuff? Like, how are they keeping everything, you know, by the books and making sure the distributions are appropriate and all that sort of thing? Is it is it easy? Is it simpler than I'm thinking it's going to be?

SPEAKER_02:

It's a lot, it it seems like this is the thing I always tell everybody when it comes down to self-direction and then the different strategies, is that it seems like it's very complicated and difficult. But really, in nature, uh in its truest form, it's really very simple. It's actually much less terrifying than actually having like a traditional type of account because there you have no control.

SPEAKER_00:

Yeah.

SPEAKER_02:

Um when it comes down to what we do very well, is basically it's like kind of learning a new language, and you're we're just the translators to help basically kind of navigate you through to get you to where you want to be.

SPEAKER_04:

Okay.

SPEAKER_02:

Um, and that's the kind of the reason why, you know, every single time I talk to any client, it's about what are you trying to accomplish? Because then you know which accounts that you would um you would want to open up and you know why.

SPEAKER_04:

Right.

SPEAKER_02:

So um when it comes down to how to actually structure it, you know, we'll guide you through that process. Okay. As passive custodians, we process the investments, we hold the investments. Um, but as at specialized, we really try to be the investors' custodian. So we want to basically guide you through, reverse engineer what you're trying to accomplish, and then you know, teach accordingly.

SPEAKER_01:

Okay, cool. Yeah, because I know there's some companies out there, trust companies, they won't they won't really get on the phone, they won't give you any advice, they won't talk you through how to do anything. You're saying you guys are specialized, you guys will will hold some hands a little bit, is what I'm hearing here, Mikey.

SPEAKER_02:

Yeah, there's just not a lot of like educational tools out there to kind of guide people when it comes to self-direction.

SPEAKER_04:

Right.

SPEAKER_02:

Not a whole lot of people. We were just actually at an event in Dallas, and it's funny because I was sitting at a round table, and I'm leading this round table, and I know that these people have been doing real estate investing for decades. And I'm talking to them about self-direction, and it's the first time they've actually ever heard of it. Which is wow. When it comes to real estate investors, this should be I this is an ideal tool for you.

SPEAKER_01:

For sure. Well, and that's why I wanted to have you on here because I feel like I've known about it because of some people locally that were already doing some self-direction when I got started at some of the local meetups and that kind of thing. They were already talking about some of these things. But for a lot of people listening to this, they may have never this might be the first time they're like, wait, wait a minute, what the hell is self-direction versus this and all this sort of thing? And that's why I thought, hey, let's introduce that topic to the audience today after meeting you, Mikey. I'm like, hey, this would be great for us to to to jam out on a little bit because it is a awesome vehicle and it's a tool. Like you said, it shouldn't be it shouldn't be every deal you're doing is in your IRA, but and I mean maybe if that's your strategy, it's it's an I think that's a tool for yeah, exactly, because you know it does it does a couple different things, right?

SPEAKER_02:

So um, like solo 401k. Solo 401k, one of the reasons why it's such an important tool for real estate investors, it's a way that you can write off 46,500 for 2025. Okay.

SPEAKER_01:

And that's what from your business, I could take it from my business, put it into the solo 401k, I write that off.

SPEAKER_02:

Correct. And then so 2000, if you guys are looking for tax write-offs for 2025, get started because that has to be established for before the end of the calendar year.

SPEAKER_04:

Okay.

SPEAKER_02:

Um now on that same front, so that's your tax deferment contribution. Okay, but you're still an employee of that same um company, right? Right. You're the employer, you're the employee, you pay yourself. Yep. So with that in mind, you can actually contribute up to 23.5 over the age of 50, you can do 31 directly to your Roth. So now you have the best of both worlds. So that's kind of like the flexibility when it comes to um solo K is a great example, just because it's kind of like a financial multi-tool in a lot of ways. Okay. Um because with the same, let's say that you need some like household or you just need some capital for private use, right? Let's say you have an old 401k from an old employer, you move that and it's called a rollover. It's not a taxable event, it's not gonna be something you're gonna get penalized for. You just move it from house to house. Now, within that new 401k, though, that you just set up for yourself, you can borrow up to 50,000 unrestricted. So that 50,000 doesn't follow any rules. It's an unrestricted cash uh loan. Oh. And you're gonna pay yourself back with interest.

SPEAKER_01:

Okay. So now you're writing off. Is there a rule of like how much interest you can charge yourself? Because then that that interest is tax deductible, right? If you're writing it off as an expense to your 401k?

SPEAKER_02:

Well, it it's not gonna be um attached write-off because there's no tax applied. So it's tax-free and it doesn't hit your credit, and it's prime plus two that you're paying yourself back.

SPEAKER_01:

Prime plus two. Okay, but that prime plus two percentage, I'm saying, is that gonna be tax deductible, that interest that you're paying yourself back?

SPEAKER_02:

It will not be. No, it won't be. Yeah.

SPEAKER_01:

Okay. It's just going back in to help that investment grow. Okay. Got it. What are some of the reasons people don't do a 401k, for example, or a solo 401k? Like, is it are there certain rules, restrictions, is there like what are the lockup rules before you can touch it, like all that kind of stuff. Talk a little bit about that.

SPEAKER_02:

So 59 and a half is that age that you have to uh you have to wait until 59 and a half to actually pay make a distribution, is the wording, without uh gonna be penalty. And if it's Roth, then it's gonna be tax free.

SPEAKER_04:

Okay.

SPEAKER_02:

Now, with a solo 401k, the only restriction that you have is that you cannot have full-time W-2 employees. So that's your restriction. Now you and your spouse can be participants, okay? Okay so you can pay yourself, you can pay your spouse, but you just can't have any other W-2 employees. Got it.

SPEAKER_01:

Okay. So it wouldn't work for me necessarily. Otherwise, what is the rule? Don't you have to offer it to everybody if you offer it if you have one yourself, then you have to offer it to everybody, or there's some some something about that type of rule, right?

SPEAKER_02:

Yeah, correct. So for like your situation, it might be um more advantageous to go with like a SEP or a simple. Um, so for those ones, you're kind of going into the weeds a little bit, and anybody who's actually interested, who has W2 employees, um, just go ahead and get a hold of me. I'll kind of I'll lay it down for you. But with um there's always gonna be an option. It just depends on what the situation is. Okay. So saps and simples are your second, third place, basically.

SPEAKER_01:

Okay. Got it. Okay. Yeah, I knew there was some reason we we didn't do one of those over the years, and it must be because of that W-2 requirement or whatever that is, right?

SPEAKER_02:

Yeah, it might be something that we uh probably want to revisit just to because you have you always have a possibility when it comes down to these accounts to actually establish something for the for the um company itself, but it just needs to be matched up right.

SPEAKER_01:

Cool. One one thing I'll talk about here too, Mikey, is we're still talking about tax-free. One of the my favorite things that we've done over the years, and now it's changed a little bit because we have employees and I'm not in the day-to-day as much doing these deals, but we have done deals in our self-directed HSA account. Mm-hmm. And wholesaling a deal for us, it was really it's a really great way to grow tax-free money that you can then use. I mean, I know I'm gonna use money on healthcare, probably, you know. I'm not getting what I'm not getting. Yeah, right. Uh so talk a little bit about HSAs, self-directed HSAs. What can you use that money on, right? So for the people out there who maybe have never heard of this HSA thing, how do you get one? Like those types of things, and then I can kind of I'll share an example of the wholesale deal we did in our HSA.

SPEAKER_02:

Going back into kind of how you know, these are just tools. Um now going into like the let's talk about the family plan, kind of going backwards a little bit. So with our example, we had the uh the fan the company taken care of, we had mom and dad taken care of, kids' legacy, and then you know, kids' education is taken care of, right? Now, to make sure that you basically are going to be able to you utilize every tool that you can is that you can have, which most people are aware of, you know, you can have an HSA, but you can self-direct it. And so an HSA, it earns tax-free. So, for one, whatever money you put into the HSA is tax deductible. So it's a tax write-off. So you gotta love that. Now it will earn tax-free and it will spend tax-free on any qualified health cost. So now you covered all across the board. Every single thing that you actually are doing real estate for and what you're trying to afford for your family, it's all being taken care of. So I always qualify the CISA account and the HSA, those are your necessary costs of life. Right? So health and the kids' education, no matter what, you probably're gonna have to spend some money on that eventually. So now you actually, instead of actually having to earn more, getting taxed, and afford those necessary costs of life, you have these tools in place and they're part of your structure.

SPEAKER_01:

Yep. Yep. So HSA's how what are there's some ri rules about who can get one, though, isn't there? Like, don't you have to have a certain type of uh insurance plan or something like that in order to be able to qualify to open one if you don't already have one?

SPEAKER_02:

Most investors actually Or contribute. Yeah, so most investors really do um without them knowing they qualify for an HSA. So your only thing is the fact that you have to have a high deductible health insurance. Okay. So that's your only qualifying, you know, the difference between like W-2 employees that you might have an employer who actually you know offers you some great health insurance, so therefore you can't have an HSA.

SPEAKER_03:

Yeah.

SPEAKER_02:

Um but most and entrepreneurs, they're kind of set up in that high deductible world. And so the HSA is perfect because then that'll offset you know most of your, or if not all, of your health costs.

SPEAKER_01:

What do they what do they define as high deductible?

SPEAKER_02:

Um, it's gonna go off of basically what the household is. So um I think they actually kind of changed it this year. Um I'll look that up. I'll get back to you on that one. So the high deductible plan. Let me see here.

SPEAKER_01:

Yeah, I knew there was something, but here is here's one of the things, Mikey. Correct me if I'm wrong. If you already have an existing HSA account from say you worked at a place or you had a high deductible plan, now you got a new gig or new your company switched insurance plans to a low deductible. As long as you still have that account, you can still self-direct that, correct?

SPEAKER_02:

Correct.

SPEAKER_01:

You just can't contribute to it.

SPEAKER_02:

Correct. That's that is absolutely correct. So with a uh an HSA, so you any HSA that you had previously can be transferred. So that's gonna be another one of those keywords, right? Because it's not gonna be a taxable event, it's just gonna move from house to house.

SPEAKER_00:

Yeah.

SPEAKER_02:

And now it's able to be invested in what you're looking for and what you're trying to accomplish.

SPEAKER_01:

Yeah. So here's an example, guys. I I used to work for a company pre private previously, uh, and we had high deductibles, so we could set up HSA. So I I was contributing the amount, I think at the time it was like six or seven grand for a family or something. So I would contribute that to the HSA, which again is a tax, tax-deductible event. And then um I I found out I could self-direct this and actually invest that money in the HSA. I thought it was just a savings account, right? That's what it's labeled at. So I was like, oh, I don't know. I'll like I'll just keep the money in here and then I'll just spend it down every year, and then I'll put more in next year and I'll spend it down. And uh then I learned about investing it. And then I realized for for us, for example, a wholesale deal, when I was more active in the acquisition side of things, I would do this at least a couple of these a year, where I would lock up a deal, I would give the seller some kind of earnest money. And I so when I locked it up, instead of it coming from my LLC as the buyer, I put down my HSA, FBO, whatever the thing is that I had to put down on my offer to purchase, I would get some earnest money, and then I would have the uh custodian send that earnest money to my seller, and then I sell this thing, and in 45 days, let's say I made$20,000 on this wholesale deal. I invested$100 and I got back$20,000 tax-free into my HSA account that I can now use for whatever I want, health reasons-wise. It's got to fit within certain parameters.

SPEAKER_02:

Any qualified health cost, which is it's a long list, just you know. I mean, it's very expensive.

SPEAKER_01:

Right. Like chiropractors, orthodontists, dentists, doctors, medicine with it now. Yeah, that's right. Any yeah, you can go to Walgreens, you get your medicines, you're you can get ointments, all that kind of weird stuff you can use your HSA for.

SPEAKER_02:

I remember uh driving to the office during COVID time, and I was last week listening to like terrestrial radio, and uh the Musinex commercial came on, and at the end of it was you can now use your HSA for Musinex. And I'm like, Oh really? Oh wow. Yeah. I'm the only person listening to this and going, Oh, okay. All right, now I got some more stuff to talk about.

SPEAKER_01:

That's right. That's right. That was one of my favorite when I when I realized that I'm like, wait, I can do, and this is totally legal, there's no issue, and I like I had this epiphany moment of like, oh my gosh, I'm gonna spend money on healthcare no matter what. I might as well make it tax-free, right? That was kind of my top process. So, those of you guys out there listening, let's say you're, you know, maybe you're not wholesaling, but maybe you're flipping and you've got a good chunk saved up in your uh in your HSA account. You can use that money to do your flip, and then you put the profits back in. Now, Mikey, question for you. A lot of people aren't gonna have enough capital, let's say, to do a flip. Is this one of those scenarios where they could partner with an LLC? They could have their HSA partner with themselves. Can they partner with themselves on the deal?

SPEAKER_02:

So you can't partner with yourself on that one because yeah, that's gonna be a little that's muddy. So you don't want to kind of muddy the waters when it comes to that one. So you um like a lot of the times when it comes to the conversation I have with like my 101 clients is you know, let's figure out the overall plan um and just base it off of that. So just base off of what your goals are and then just reverse engineer from there. So Like, for example, I I have a client who kind of similar to you, uh, just different vehicle. He has four children in private school in j in uh Jacksonville at twenty thousand dollars a pop. That's a large check, and it's kind of not the most favorite time of the year for them to write that tuition check, right? Um, or it wasn't at the time because same thing, you can actually prioritize some kind of deal structure accordingly. So now he does four deals a year, wholesales out of those CISA accounts. So therefore, instead of actually, and what he did, and you know, similar to like with your HSA, he's not earning more to afford his necessary cost of life, right? He is actually structuring these deals to make sure his tax liability is not gonna go up so he can pay for things that he wants to pay for. Right. So now you're eliminating the tax problem at the same time that you're actually accomplishing your goals.

SPEAKER_01:

For sure. Well, and you're keeping yourself in a lower bracket, right? So not only are you not paying tax on income, you're keeping all of your other income in a lower bracket. Exactly. Because you're not paying that, yeah. That makes a lot of sense.

SPEAKER_02:

You're not sacrificing anything.

SPEAKER_01:

No, not at all. Exactly.

SPEAKER_02:

So life's good.

SPEAKER_01:

So talk, let's talk through a flip scenario because I have a lot of flippers that listen to this. How could a flipper structure something like an HSA and their CISA and some of these things? Like, how would they do that? Let's say they're, you know, they're just starting out, they just opened some of these accounts in the last couple years, they don't have a lot of uh capital built up in it per se. What's what's kind of a creative way they could maybe utilize a smaller amount of capital in some of these accounts besides wholesaling? Again, I know the wholesale went pretty easy. Yeah. Talk about like a flip. How could we structure a flip? So maybe a couple different ways.

SPEAKER_02:

Yeah, so a couple different ways. So let's say that you have like old retirement accounts from previous employer, right? So uh mom and dad, you know, they both had previous lives, they you know had different uh jobs. So that's the one thing that I think a lot of people don't realize is the fact that they have complete access to those accounts. It's still your money, right? It's just a matter of you think and everybody's told you that it's locked up where it is and it's monopoly money. Who cares about it, right? So when it comes to actually moving it, not gonna be a taxable event. I don't care what your financial advisor told you, that you just they just said they just don't they omit when it comes down to oh, if you take money out, you're gonna get taxed and penalized. True. If you actually just took a distribution, that's right, but you're not doing that, you're moving it. Okay, so now you have untapped capital that's now funding your solo 401k, for example, and you want to open up accounts for the kids. So you can partner all of those different accounts, including the HSA, partner them all together. So now one account, let's say, didn't didn't have enough capital, but combined, they can't. So that's a way that you can actually deal structure something. So let's go back to the partnering. Now, let's just say that mom and dad are just trying to go with using their they want to take care of their um 401k, they want to make that grow. They basically they've uh they're trying to catch up for time, right? Now the solo 401k is unique again because it's the only account that you can actually borrow in the name of and if you avoid what's called a UBIT tax. So unrelated business income tax. So deal structure number two is leverage. So you don't want to pay any more taxes personally, you want to have this fix and flip because you know it's gonna be um tax-free forever because it's gonna be in your Roth account. All those scenarios, everything's great, but you don't have the capital inside of it. You can leverage and avoid that U bit tax. So U-bit tax basically is kind of one of those ones where um everything seems great in the world, and then all of a sudden the government had another idea. Um, but this is the way that you can do that. So that's that's why that solo K is also very important because it does avoid that. And most flippers will love that situation. Okay.

unknown:

Okay.

SPEAKER_01:

Talk about U-Bit tax for a second, Mike. You can go on to the other point, but uh, we can circle back to U-Bit tax. But I do want to talk about that because that's always kind of been a uh cloudy thing in my brain of understanding U-Bit. Okay.

SPEAKER_02:

Um yeah, it's one of those ones where the government doesn't want you to operate a business inside of your retirement account because it's tax-free, right? Okay. So an IRA can be subject to UBIT tax. Okay. Okay. 401k is not really. Now, when does it kick in? We don't know. Like no one actually there's not a set number of deals that you can have like in an IRA before UBIT tax kicks in. So it's it's so cloudy. It's just a matter of whenever it pops up. That's why, okay. If you have a 401k, you're you're happy. Um, inside the IRA, you just want to kind of it could be four, it could be five. It's there's no set rule in the tax code to kind of like this is what it does.

SPEAKER_01:

It's just when they're somebody's doing a deal a year, they're gonna be fine. Right? Yeah, is there a certain dollar amount like gain on their investment that triggers it, or is it there's really not.

SPEAKER_02:

It's it's so and it's such an interesting rule because it's so vague. Um and then so when it kicks in, it sucks. Uh you know, it's 37%. Um so it's a matter of if you can apply uh if you qualify for the solo 401k, set the solo 401k. Okay. That's that's your your best friend right there.

SPEAKER_01:

Okay. And if you want more info on UBit, maybe go to like ChatGPT or something, research it up a little bit.

SPEAKER_02:

Yeah, you want to do that. I mean, most people if you're gonna be in that situation, you're flirting with that idea, talk it to uh your CPA tax attorney just to kind of go through the details on that. Um they might have a little bit more insight, but it's just it's such a random rule that that just kicks in whenever. And it's basically kind of the idea behind it is that they just don't want you to operate a business.

SPEAKER_01:

Okay. So one one thought I had as you were talking, Mikey, before about how do we how do we structure a flip or even rentals, right? You could do rental properties in these and create some passive uh ongoing income coming into your into your retirement accounts. Uh let's say here's an example. I've got a buddy, he's got a good amount of capital, right? I've got a smaller amount of capital in my IRA or my 401k or my HSA or whatever my CISA, whatever I want to self-direct, right? We decide we're gonna part we're gonna create an LLC with my retirement, CISA, whatever account, and there. So maybe it's 75, 25% ownership, something like that, right? Flip side, they also have some retirement accounts over here that are smaller amounts, and I have a bigger amount. We could create a different LLC for that, and we just trade deals for say, okay, this deal we're gonna do it under this LC, this deal we're gonna do under this LC. And it's a way for us both to maybe grow our retirement accounts together and try to split that up. And that's totally legal, no issues with that.

SPEAKER_02:

Yeah, as long as you're not investing in yourself. That's that's the key word in that. So with that scenario, you just don't want to be lending to your own deal, like for example, right?

SPEAKER_01:

So they would have to bring the capital for that deal outside of anything that my retirement account had, or that we we weren't leveraged. But again, the leverage piece is where it gets tricky because you've got a a lot of these are gonna be personal guarantees that these lenders are gonna want, right? So it's gotta be a non-personal guarantee.

SPEAKER_02:

Non-recourse. Yeah, correct. So here's here's a kind of scenario for the here's your fix for that. Okay. Um, a lot of people, I usually say it's roughly around 80% of the room that has had has like retirement accounts from previous employers just around, right? Okay. That most people don't even know that they can access. Um, it's monopoly money, right? It's just not even a real thing. Now, what they don't know though, is that all of you real estate investors, you can borrow other people's retirement money. And you can give them an actual return and they're gonna love you for it. And everybody wins. Yeah. Because it used to be a lazy asset and now it's not. And so when it comes down to making sure that you can take full advantage, um what it was doing before was nothing.

SPEAKER_03:

Right.

SPEAKER_02:

Now you're have you're having a new conversation and you're saying, like, hey, you know, do you have old retirement money? Well, I have this deal, I'll give you nine percent, I'll give you whatever the amount that you decide, because you get to decide it. And they're gonna be like, Oh my god, that's way better than whatever I've done before. And then now you started a private money network that is secured by a promissory note and you made up the terms, yeah, and you have a network that's never gonna, you know, the next time that there's a deal, would you think they're gonna say no? No, just like no, let's keep it on, let's double up, let's you know, let's compound. So for you guys who are learning um trying to raise private money, then we should talk because you know, you start those conversations. We have plenty of clients who are like this. Is that you know, you start that conversation and we'll talk them through because it's gonna be scary and weird for them at first, yeah, right? Because who knows anything about this stuff.

SPEAKER_04:

For sure.

SPEAKER_02:

But we do. And so we'll guide them through to give them all, you know, make sure that they feel secure because that's all this is tax code. Right?

SPEAKER_04:

Yep.

SPEAKER_02:

So when it comes down to that situation, you're just basically telling them this is what it should be like. It just wasn't that way before. Yeah. But now it can be.

SPEAKER_01:

So what Mikey's basically saying, guys, is such a good point out there. So if you're sitting here and you're like, I I don't even want to think about retirement right now. I'm just getting started. I want to get my first couple deals, whatever the case is. And it's a private money, right? What Mikey's talking about is there is a massive amount of untapped money sitting in retirement accounts, not even deployed, right? Mikey, isn't it like something in the trillions? Yeah.

SPEAKER_02:

Yeah, um, I think it was 24 trillion, I think, last time I checked.

SPEAKER_01:

Literally trillions of dollars sitting in people's retirement accounts, not even working right now. It's just sitting there. People kind of forgot about that. They even have it. So Mike is saying, go go talk to them. They don't they don't want to put their own cash into it, but they've got this monopoly money sitting there that they, you know, they're not really emotionally attached to. It's kind of like, ah, it's just sitting here anyway, right?

SPEAKER_02:

Yeah, it's good. It's literally they're not thinking about it in any way possible, right? It's just something. Imagine that you had, and this is what comes up. You know, you'll have a lot of people like, uh, it's not even that much. It's like a hundred grand. Okay. If that was cash, you wouldn't be talking about it like that. So true. So, and so all you real estate investors, when you actually think about that type of thing, or you hear that, those that should make some like your eyes just get real wide and you guys get real happy because that's a hundred grand that you can use for capital.

SPEAKER_01:

Absolutely. Yeah. And you know, let's say that person has like their retirement account sitting in Vanguard or Fidelity or something, and they're like, Well, I can't I can't do it because it's in this Vanguard Fidelity. That's why you got somebody like Mikey here. What Mikey's talking about is you guys you connect with him, we'll get his contact info and everything in the show notes here for you. You contact Mikey, you say, Hey, Mikey, I got this client, they want to move to self-directed, but they don't want to pay the penalties. What he's talking about earlier is a rollover, not a distribution. So Mikey will help them make sure that they do the rollover properly. So they're rolling it into a similar account. It's just instead of sitting in their Roth IRA of Fidelity, it is now sitting in a self-directed account, a specialized. And now they can now they can go and deploy that capital however they want, as long as it's in that, you know, not in the alcohol business or whatever, you know, those those prohibited ones we talked about earlier. Don't be buying booze with it, right? Uh, but they could do it in your real estate deal. And they could be a private investor basically lending to you. They're gonna be secured by the real estate, by a promissory note. Their IRA is gonna be insured, it'll be insured on the property and all those sort of things. Make sure you do all that correctly. But that it's a much safer vehicle for them. Uh plus they're getting cap, they're getting a return on their money and it's tax-free.

SPEAKER_02:

Yeah. It's amazing how it's just one of those situations where you're just taking control. That's what you're doing. And you're utilizing what you can utilize. Just just because it's unknown does not mean that it's not allowed. Yeah, that's you just have to have those conversations. Um, of course, you need to make sure to to listen to the rules, but yeah, we'll we'll teach you those. Um, but when it comes down to what the end result is, it's tax-free forever wealth.

SPEAKER_01:

Yeah. Yeah, which is amazing. So nine, your nine percent your Roth. I mean, I don't know what the conversion is if you had to pay tax on that, but it's much better than nine percent if you look at comparatively speaking to a taxed nine percent return.

SPEAKER_02:

So and the Roth is is always going to be something that's gonna be king. I mean, it's like it's basically paying tax on the seed, not the crop.

SPEAKER_01:

Yeah, that's a great analogy, by the way. Last question I have for you, Mikey. This is one I have uh stole that one from Edwin. I like that one. That one's good. Uh I I have a family member who has an account invested in a hard money lending fund. So similarly, they're just not the one they're getting a return on their money. They're just not uh the one directing which investments. They just put it in the fund and then that company goes and lends that money out on their behalf, so to speak. But one of their accounts is a traditional IRA. And so they're they're wondering how can they get that into a Roth? Can you talk a little bit about what that process is? And and I I believe there's something called the backdoor Roth. Can you talk a little bit about that?

SPEAKER_02:

Yeah, so um backdoor Roths, or essentially, this is one of the most prevalent things that um I've heard so many times throughout the years, is that you know, oh, I can't I can't, I make too much, I can't have a Roth IRA. No, that's not what it is. When it comes down to establishing a Roth IRA, it is very much a situation where you can establish it, but you might not be able to directly contribute to it. Okay. Okay. So when that that happens, what you do is you establish a traditional IRA, you contribute to the traditional account, and then you can actually convert it. Okay. So conversion is the different that's what the rule of thumb is, or not the rule of thumb, that's the terminology for going from traditional or tax deferred to raw. So you pay the tax, it's a taxable event, but now that's the last time that that account will ever be taxed. So real estate investors love conversion because that sucks right now. The I mean, that conversion you know might be it's tacking um onto your taxable income for the year, but the end result is tax-free forever gains.

SPEAKER_01:

So in this example, that they've had this traditional Roth earning income for a while and all that sort of stuff. So is there any kind of set time frame of like you've got to convert it in a certain period of time, or you can convert it at any time, you're just gonna have to pay the tax on it?

SPEAKER_02:

Yeah, that's a great yeah, that's a great question because um everybody always assumes, and this is just again, it's just coming from a bad source, um, that you would have to make the full conversion. Let's say that you have a million dollars in your IRA, you don't want to pay tax on that full amount. So, what you can do is what's called step conversion. So, step conversion is a way that you can just pick the amount of tax that you want to pay.

SPEAKER_04:

Okay.

SPEAKER_02:

And then you can do that on an annual basis, and then it's just work with your CPA, work with your accountant, um, and then you can kind of, and again, let's say like you have like a solo K, which is a tax deferred and a Roth account. You know, those two accounts can partner together.

SPEAKER_04:

Okay.

SPEAKER_02:

So that's just part of the overall strategy. At the end of the day, we uh want everything to be Roth. Right. Right. But for today, we still want to save on taxes, so there's still like the tax deferred contributions, you just need to play with the numbers.

SPEAKER_01:

Okay. So you could you would basically the process would be you would open up a new uh self-directed Roth, let's just say, and you would start a rollover bit by bit from this from this traditional year by year or whatever you wanted to do with it.

SPEAKER_02:

Yeah, so that's yeah, that's how you can actually, I mean, whether it be you open up a new Roth IRA or whether you open up like a uh the solo 401k because there's a Roth component inside that. Um, but yeah, you can make conversion to either.

SPEAKER_01:

Cool. Okay. Good to know. Good to know. Well, Mikey, we always end with a little fun question because we get we get people like yourself who, you know, you're out aside of Wisconsin and you don't really know a lot about Wisconsin.

SPEAKER_02:

So we want people who are desert.

SPEAKER_01:

Yes. Yes. So we want people to be able to deploy some of that capital here in the great state, whether they're private investing and and they're gonna lend to somebody here in the state. Sometimes they like to just know a little bit about it. But you haven't ever been to Wisconsin, right? No, I have not. So I'm just gonna ask you kind of an off-the-cuff question. What's your favorite place you've been like travel-wise ever? You know what?

SPEAKER_02:

So I used to think so much back a little bit of a background story like story. My grandparents actually retired to Aruba. So that was I thought that was the coolest place I ever. So I was like the only kid who was actually excited just to visit their grandparents for the summer. Um but just recently um we went to Hawaii.

SPEAKER_04:

Okay.

SPEAKER_02:

And that was the most beautiful place I've ever been to. It was uh Turtle Bay.

SPEAKER_01:

Okay, which island is that? Maui?

SPEAKER_02:

Uh Oahu.

SPEAKER_01:

Oahu. Nice, dude.

SPEAKER_02:

So that was like every single morning. Just it was the same hotel, um Saving Sarah Marshall, I think it was.

SPEAKER_04:

Okay.

SPEAKER_02:

Yeah. So it was the same hotel, and it was just like every morning he was like, oh, this is unfair. This is not even real.

SPEAKER_01:

Yeah. Dude, Hawaii's amazing. I've been to uh a couple of the islands there, Oahu, the Big Island, and uh Maui. Okay. They're all green. I mean, they all have their they all have their strengths for sure.

SPEAKER_02:

Yep. I mean, I I literally saw a dog surfing. It was ridiculous.

SPEAKER_01:

That's amazing, dude. I love it. Well, Mikey, we appreciate you being on today, man. If people want to get in touch with you and and talk through any of the strategy stuff, or if they've got a private investor they want to, you know, connect you with, what's the best way for them to get in touch with you?

SPEAKER_02:

Yeah, so the best way is probably going to be just to email me. Um so M-L I-E L-L-O at I-R A S T C dot com.

SPEAKER_01:

Cool. Awesome, man. Well, dude, I appreciate you being on here. For those of you guys earlier, I talked about some free giveaways we're doing. So we have a Burr for Beginners course. We used to charge$1,900 for this course. We are giving it away to our listeners for free, you guys. So this is a huge advantage. If you are sitting on the sidelines because you've got, you know, analysis paralysis or hey, I really want to do this Burr process. I just don't really know where to start. Get the course, guys. It's free. Do the work, though. I will say this. If you get the course, just do it. Just do the work. It's set up to get you into your first or next deal in 45 to 90 days. So for 45 to 90 days after you start taking the course, you should have your first deal under contract if you follow the action steps. Part of that is raising private money in there. We do go into that in a little bit. And this is a great uh Mikey's company here is a great uh avenue to help with some of that uh private money raising. So appreciate you being on, Mikey. And uh appreciate all you guys you bet, appreciate all you guys listening in. If you got some value out of this, as we talk about a lot of episodes, please share this episode. Uh, if you're following us on YouTube, hit the subscribe button and comment. That really helps us get up in the algorithms. And so we really want to grow the uh listener base and we want to grow the ratings and reviews. So we really want to get this up. We're in the 60s now in the episodes. We want to get those reviews up over 60. So if you guys could help us out with that, that would be amazing. Appreciate all you guys for listening, and we'll see you on the next episode.

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Corey Reyment

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