Tangible Assets: The Inflationary Hedge (SELF-DIRECTED IRAs)

David Moore: Hello, David Moore with IRA Advantage, iraadvantage.com. And I just want to check in with you and talk briefly today about tangible assets as inflationary hedges. Also, I want to point out that if there’s changes, we’re trying to hire people right now, and it’s just like everybody else, we can’t get anyone in here to work. Can’t get people to come in to actually for the interviews, even it seems like. But it’s a crazy world, and a lot of people have been displaced, changed jobs or just walked away and taken a leave, and I would say if you’re looking at doing a self-directed retirement account, you can only do this if you’re talking about moving a corporate plan forward, there’s certain times you can do that.

So if you are under 59 and a half years old, for example, and you want to use a current 401K plan, current employer 401K plan, you’re not going to be able to move that money not without plan into a self-directed account at this point in time. So, if you’re 59 and a half, you can do an in-service distribution, and get access to that money, but what we’re seeing happen a lot right now as people are changing jobs. When you make that job change, you can actually get access to that money.

David Moore: So if you’re contemplating a self-directed account and you’re changing jobs or about to change jobs, this might be your opportunity. Now, understand it takes a little time to get this done. Years ago, I had a client that was changing jobs, and we started this self-directed process, started to try to get his account set up and money moved, and he took a new job before any of that work was actually able to be completed.

And the problem is the new job, had the same parent companies as the old job, therefore the new plan was the same as the old one, and we couldn’t get it done. So really understand when you have access to this money and any IRA can be self-directed, but if we’re looking at a 401K plan, once again, current employer plan, under 59 and a half years old, you’re stuck, if you’re 59 and a half or older, you’ve got access to that money, previous employer plans, we can always self-direct those. So, you might have an opportunity now or maybe in the near future where you’re changing jobs, and if so, that’s the time to move that money in a self-directed account.

David Moore: And I guess one other thing I’d like to say with respect to our self-directed retirement accounts, it’s not all or nothing, alright? You don’t move it all. You don’t have to move it all in a self-directed account. So I’m going to tell you, keep your Wall Street investments with your Wall Street advisors, only move the money you want to use in a self-directed capacity. And one of the big reasons for that is, well, number one, I want you to keep your money with the people that take care of you, as far as those investments. We don’t sell investments, we don’t give investment advice, we just provide the investment vehicle to get you where you want. So we want you to work with those financial advisors that you’ve been working with and only move what you want to use for notes, loans, crypto, gold, real estate, whatever that might be, whatever you want to do. Only move the money you want to use in that capacity.

David Moore: Now, the natural reaction is as money pulls up in the self-directed accounts, you want to do something with it. In today’s world, banks don’t pay anything, so you’re always looking maybe as the money pools up to get it back into Wall Street or do something else with it. And the reason I initially said you don’t want to, if it’s an IRA, do all or nothing, because with IRAs, one of the big issues with the checkbook IRAs is you’ve got total control of that account.

So with total control brings some vulnerability. If you want to commit a prohibitive transaction and cause yourself a problem, you can do that. So it’s really important when you look at a self-directed IRA to understand that in a prohibited transaction, you’re going to have a situation where all funds in that account are distributed as of the first day in the year in which the indiscretion occurred. So it’s really important with IRAs that we segregate funds.

David Moore: So once again, if you’re looking at self-directed IRA, keep your Wall Street stuff with your financial advisor, move what you want to use in the self-directed capacity into that new custodial account, ultimately, if you’re using a checkbook IRA in the IRA LLC. And by doing it that way, you’ve isolated those two accounts. If you did have a prohibited transaction event in the self-directed, it will not encumber the Wall Street stuff.

Now, the easiest way to actually further diversify out if you did move more money or all the money into the checkbook IRA or you just have that cash flow building up and you don’t want to have to move the money back through the custodian, back to the original custodian, the easiest way is always going to be just to open a trading account in the checkbook IRA LLC’s name and Federal Tax ID number, and that works well, but the problem with that is that that LLC account with your financial advisor is going to be encumbered by everything else you’ve got going on. So it seems like in life, the easiest way is never the best way, and this is yet another example of that.

David Moore: Now, with a solo 401K plan, that’s not necessary. Solo 401K plans, we’re going to move everything into that new plan, you’re just going to re-open your Wall Street account with your financial advisor and you’ll be set to go and you don’t have to worry about encumbering that money with the truly self-directed side, if you’re buying notes or buying real estate, whatever it might be, you’re not going to have that issue with conversion of the entire account because 401K plans, only the money involved with the indiscretion is treated as a distribution. Totally different thing, apples and oranges.

You can go ahead and ask me why it’s that way, and I’m going to say what I always say, some senator had a 401K plan, so don’t expect to reason and the answer to that, there isn’t really any logic to it, but it’s just the way the rules are, and the rules have been that way.

David Moore: So I hope this has helped. David Moore, IRA Advantage, iraadvantage.com, and I look forward to talking with you soon. If you’ve got further questions on this topic or anything, any other topic, IRA or 1031, please don’t hesitate to reach out. We’re always looking for ideas for content. David Moore, iraadvantage.com. Thank you very much, take care. Bye-bye.