SPECIAL GUEST HOST: how to get the IRS to APPROVE Your Self Directed IRA Strategy AHEAD OF TIME! | Episode 132

You don’t know my voice… but as a listener to this show, you know my work, as you’ll soon see!  I’m filling in today for Bryan while he’s ill, but we’re not going to miss a beat. Today you learn how to confirm beyond any shadow of a doubt that the latest, greatest self-directed retirement account strategies you’re hearing about are officially kosher with the IRS before you ever take the plunge.  I’m Carole Ellis.  This is episode 132.

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Hello, listeners in America and the world over!  It’s so exciting to be with you today!

I’m sitting in for Bryan today, who is, despite his stubborn insistence to the contrary, still quite ill.  He’s been struggling with some rather severe respiratory illness, and hopes to be back to full health soon.  But you folks should feel honored:  Each day, for the past 2 weeks, he’s only been able to work about 2-3 productive hours per day before being too exhausted to continue, and each day, he’s given that time to you guys, because he LOVES doing this show.  It really makes him very happy to spend this time with you.  But last night, I through down the gauntlet and demanded that he actually rest until he’s better, like the doctor ordered.

By the way, my name is Carole Ellis, and I’m Bryan’s wife and business partner.  And before you’re tempted to think that I’m behind the SDI microphone today only because I’m Bryan’s wife, well let’s go ahead and dispense with that now, shall we?  Bryan encouraged… insisted, actually, that I brag on myself a bit – he actually called it “establishing your overwhelming credibility to my listeners” – so here goes:  I’m currently involved in over a dozen active real estate investment projects as I speak to you.  Additionally, in just the last 30 days, Bryan and I have flipped 2 houses, both profitably; we have done hard money loans and sold a real estate note.  It’s Bryan’s role to find great deals… it’s my role to be the voice of reason and make sure he doesn’t miss anything on the due diligence side.  And by the way, I’ve written books and training programs for famous investors; I just wrote an article about the business of Private Lending which is featured in this month’s edition of Personal Real Estate Investor Magazine and is on newsstands right now; I’ve got another article coming out in a few days in another national real estate magazine about the research we’ve done into one particularly promising real estate market out west; and I’m the editor of a real estate investing newsletter with nearly 700,000 subscribers.  And by the way… nearly all of the hard data that Bryan shares with you on this show comes from my research.  So let’s just say I’ve got my finger on the pulse of the investing world in a pretty big way.

Ok, enough of that.  Let’s talk about something that’s important today… AVOIDING trouble with your self-directed retirement account.

But first, Bryan wanted me to tell all of you that he’s really in the mood to buy some first-lien real estate notes.  And honestly, people, I hope you’ll sell some to him.  He gets pretty moody when he’s in the mood to buy, and I’d like to see that be resolved as quickly as possible.  Hehehehe.  Seriously though, if you’ve got first-lien real estate notes against residential property, and if you actually own those notes – no brokers, please – then reach out to Bryan via text or online.  You can reach him by text by sending the word SELLNOTE to 33444.  That’s spelled S-E-L-L-N-O-T-E with no spaces.  Text the word sellnote to 33444.  Or you can go to SDIRadio.com/sellnote.  Either way works just fine.

Let’s talk about something that’s near and dear to my heart:  Due Diligence.  Like I told you, in the deals Bryan and I do, a big part of my role is to make sure that he sees the big picture.  He’s a numbers guy, and is incredibly good at it.  But sometimes, there’s more to a deal than just the numbers, so let’s look at that today.

When it comes to self-directed retirement accounts, it feels like the sky is the limit because the tax advantages one receives through them can be so very large, and because there are so few practical limits to how one can invest their capital.

But even though those limits are few, they are important… and those limits sometimes conflict with the creativity of you people as self-directed investors.  I hear Bryan talking about the wildly imaginative ideas some of you have come up with for making profit through your self directed IRA’s or 401k’s, and… wow!  There are some smart people who listen to this show.

But here’s the thing:  With self-directed IRA’s, it’s very nearly true that the sky’s the limit in terms of the kinds of investment strategies you can use… but it turns out there’s another limit, too:  The foundation.  What I mean is this:  The foundation of every self-directed IRA or 401k investment is the LAW.  You see, while there aren’t a lot of restrictions, there are some, and they’re very important.

To run afoul of those restrictions can be a very, very bad thing.  You’ve certainly heard Bryan talking about the issue of Prohibited Transactions, a circumstance in which you unintentionally break one of the rules concerning IRA’s or 401k’s.  The ramifications are staggering and scary… it’s very, very plausible… normal, even… for a very substantial portion of your portfolio to be absolutely destroy by taxes, penalties and interest as a result of a prohibited transaction… and there’s no easy way to fix them.

So what can you do to avoid that fate?  Two things:  One of them is that you should NEVER do the obvious things:  Don’t do anything with your IRA or 401k that will benefit you or your lineal family members in any way.  Don’t borrow money from your IRA.  Don’t treat your IRA like your personal bank account.  You know… the basic stuff.

But the other way to avoid that fate is this:  When you come up with the latest, greatest strategy to use in your Self-Directed IRA or 401k… do two things:  First, consult with a competent, experienced attorney about whether your strategy has any supporting case law to suggest that it will pass muster if the IRS chooses to take a closer look.  And second, if there is NOT clear case law to support your concept, that doesn’t mean you shouldn’t use the strategy, but it does mean you should seriously consider the next step:  A private letter ruling.

A private letter ruling is when your attorney provides information to the IRS about the strategy you’re considering IN ADVANCE of your use of the strategy.  The IRS takes a look at it and gives you their impression about your idea’s level of compliance with the law.  In most cases, doing this results in having a very, very clear indicator of whether the concept you’re considering is legally solid from a tax perspective.  Furthermore, doing so makes it virtually impossible for the IRS or anyone else to ever suggest that your strategy was intended to be fraudulent or abusive in any way, since you sought official clearance ahead of time.

Getting a private letter ruling can take time and cost some money.  But it could EASILY be worthwhile, because remember:  If you commit a prohibited transaction, the real problem there is that it usually takes several years before you and the IRS realize you’ve done so… and when they do, they start the meter running on taxes, penalties and interest as of January 1 of the year you committed the error.  And the effects of those mounting taxes, penalties and interest can be staggering… literally wiping out much or all of your entire IRA.

So, just as I advise Bryan, I’m advising you:  Be careful on the FRONT END.  It’s a great thing that there’s so much flexibility available with Self Directed retirement accounts.  And it’s just as a great that through private letter rulings, we have a way to make sure that our creativity doesn’t actually cross a line it shouldn’t.

That’s all for today!  But I’ve got a request… if you enjoyed my stint as guest host today, please let Bryan know, ok?  Send him a note at [email protected] and tell him what you thought.  Thank you, I’d really appreciate it.

And like Bryan always says:  Invest wisely today, and live well forever!

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