In this episode of Executive Connect, Melissa Aarskaug sits down with Kaaren Hall, founder of uDirect IRA Services and author of The Self-Directed IRA Handbook, to explain how self-directed IRAs can give investors access to alternative assets such as real estate, private equity, private lending, precious metals, and other investments outside traditional Wall Street offerings.

Kaaren breaks down how these accounts work, how retirement funds can be transferred or rolled over, and why greater investment flexibility also comes with greater responsibility. She discusses prohibited transactions, liquidity, capital calls, due diligence, account monitoring, and the importance of understanding an asset before committing retirement money to it.

The conversation also covers Roth IRAs, retirement diversification, technology, and why education should come before opportunity.

For investors looking for more flexibility in how they build their retirement strategy, this episode offers a practical introduction to the responsibilities that come with taking greater control.

Chapters:

(0:13) Rethinking traditional retirement investing

(1:35) What is a self-directed IRA?

(5:41) Alternative assets investors can hold

(6:54) How an IRA can buy real estate

(9:44) Capital calls and investment risk

(11:42) Why greater control means greater responsibility

(15:30) Managing liquidity inside the account

(17:13) Why due diligence matters more

(20:23) Understanding prohibited transactions

(22:13) How to open and fund an account

Kaaren

(0:00) Open a Roth IRA now because in order for the Roth dollars to be tax free, you have to have five years of a Roth. (0:06) It’s called the Roth clock. (0:08) You have to have had a Roth of any sort for five years in order for that money to be tax free.

Melissa

(0:13) When most people think about retirement investing, they picture the same familiar options, stocks, bonds, mutual funds, maybe a target date fund they selected years ago, but they barely have looked at since. (0:28) But what if retirement could look differently? (0:31) What if it could also invest in real estate, private lending, private companies, promissory notes, or other alternative assets?

(0:40) Today’s guest has spent years helping investors understand an option many people don’t even know exists. (0:47) Karen Hall is here to explain how self-directed IRAs work, what investors need to understand before they get started, and why gaining more control over your retirement money also means accepting more responsibility for how it’s invested. (1:03) This conversation isn’t about chasing the next best hot investment.

(1:06) It’s about understanding your options, asking better questions, and making more informed decisions about your financial future. (1:15) Welcome, Karen.

Kaaren

(1:17) It’s actually, I got to tell you, I have an unusual name, okay? (1:20) It’s actually Karen. (1:21) So I call it Karen with an attitude.

(1:23) So it’s Karen with two As. (1:25) I love it.

Melissa

(1:26) And thank you for correcting me because nobody ever gets my name correctly. (1:30) So Karen, I’m so excited to have you here today. (1:33) Thank you so much.

(1:34) Yeah. (1:35) Now, many people spend decades contributing to their retirement accounts without realizing they have more options than they think they do. (1:47) What exactly is a self-directed IRA and how is it different than the traditional retirement accounts?

Kaaren

(1:53) Yeah. (1:53) I mean, you’re so right. (1:54) We get out of college and maybe we get a job and then the job gives us a 401k.

(1:59) It’s like, all right, great. (2:01) And we’re busy doing the job. (2:02) We’re not really thinking about that 401k.

(2:04) That’s not top of mind maybe because we’re focusing on our work. (2:08) And then this is growing over time. (2:10) Maybe you get in there and you rebalance your fund or something, but then maybe you’d leave that job.

(2:14) And when you leave that job, you have that money in that account. (2:17) And so when you leave it, what are you going to do with it? (2:20) What are you going to invest in now?

(2:21) And the thing of it is most people do not know that you can take that money, roll it into what’s called a self-directed IRA. (2:29) And I’ll explain more as we go on, but move it into a self-directed IRA and invest outside the stock market into things like multifamily buildings, things like private equity, cryptocurrency, precious metals. (2:44) You can just invest in so many different asset classes, raw land, mobile home parks, self-storage buildings, alternative assets.

(2:53) And so the self-directed IRA, I’ll get into that, but it’s all about, so it’s a self-directed IRA together with the alternative asset space together. (3:01) This is how that works. (3:03) So it’s everything outside of Wall Street.

(3:05) So if you want, I’ll explain what the self-directed IRA is. (3:09) Yeah, definitely.

Melissa

(3:10) I think just explaining, I think a lot of times, you know, investors are unfamiliar with this option. (3:16) It’s not something that’s talked about. (3:18) So when should you typically begin exploring these self-directed accounts?

(3:23) Ready to lead smarter and invest wiser? (3:27) On the Executive Connect podcast, we unpack executive strategies for wealth and influence. (3:34) Hit the subscribe button now.

Kaaren

(3:36) Don’t just watch, act. (3:38) Yeah, you’re so right that people just, they say, people say, well, what do you do? (3:42) It’s like, okay, I’m going to explain it and they’re going to go, I have no idea.

(3:46) So you, okay, first off an IRA. (3:49) All right. (3:49) These things were created in 1975.

(3:51) So longer than you’ve been alive, right? (3:53) So 1975, the ERISA Act, the Employment Retirement Income Security Act. (3:58) Isn’t that fascinating?

(3:59) Gerald Ford signed into effect, created this IRA. (4:03) It’s an individual retirement arrangement is what it means. (4:07) Okay.

(4:07) There it is. (4:08) We know what an IRA is. (4:09) We put money in there.

(4:10) We have a cap of how much we can put in. (4:12) It can be a traditional Roth, a SEP, simple, a spousal, an inherited IRA. (4:16) We put money in it and we save for later.

(4:19) That’s what we’re going to do. (4:20) So it’s like, but what do we want to put in that account? (4:23) And what is later going to look like?

(4:24) And what do we want our, like, we want to create later. (4:27) We don’t just want to be surprised. (4:30) We want, we want to create it so we can do that.

(4:32) So you’ve always been able to self-direct an IRA ever since they were invented or created in 1975. (4:39) They’ve always been self-directable, but then the stock market, you know, the big financial companies got involved, created ultimately mutual funds, and then you could take your IRA and invest in some mutual funds. (4:51) Great.

(4:51) Balance your portfolio, whatever, without really thinking you could do more because our entire industry is so minute in comparison with the entire financial industry. (5:04) But I’ll tell you what, the whole retirement industry, including us, is $49.1 trillion this year. (5:11) It’s enormous.

(5:12) It’s larger than the national debt. (5:14) That’s how big it is. (5:15) Okay.

(5:16) So you’ve always been able to self-direct. (5:18) An IRA is an IRA. (5:20) The rules for your typical IRA are the same as the rules for your self-directed IRA, same rule book, everything.

(5:26) The only difference is that the self-directed account can invest outside of Wall Street. (5:33) That’s it. (5:34) So, you know, we were talking off camera about various alternative assets and all those can go in a self-directed IRA.

Melissa

(5:41) So talk to me a little bit about which of those classes tend to generate the most interest. (5:49) And can you maybe walk us through a simple real estate example as well?

Kaaren

(5:56) Right. (5:56) So I have to kind of little one for the lawyers. (6:00) We don’t recommend assets.

(6:01) I have to say that. (6:02) And so we’re not advisory, we’re not fiduciaries or anything like that. (6:06) But the number one asset class for our whole industry is private equity.

(6:11) And I mean, somebody raising capital for a big project. (6:15) So it could be like a Reg A, Reg B, C, D offering. (6:19) You know, you go to private placement, you got subscription agreement, you invest.

(6:23) And typically, you have to be an accredited investor to do that. (6:26) But that is the number one asset class for our industry. (6:29) The number two asset class is notes.

(6:31) So it would be maybe buying, performing and non-performing debt. (6:36) Maybe it would be your IRA being the bank and lending it to someone else. (6:39) There are rules.

(6:40) We could talk about the rules, but you know, and those are huge. (6:44) Precious metals shot up like a rocket recently. (6:47) And then now it’s kind of moderating.

(6:49) But precious metals can go right in the IRA. (6:52) So these are some of the top assets. (6:54) So like, say, for example, how do you get a house in an IRA?

(6:57) OK, because you can your IRA could buy a house just a straight up. (7:00) Here we go. (7:01) We’re going to pull in the driveway kind of house.

(7:03) Now, first, it has to be one that you don’t live in because that’s a prohibited transaction. (7:08) That’s the whole self-directed IRA rulebook is like we call it keep away from prohibited transactions. (7:14) So you can’t have personal use of your assets.

(7:17) You own them. (7:17) You own your IRA. (7:18) Your IRA owns the asset.

(7:20) That’s how it works. (7:21) So you find a house. (7:23) This is going to be the house that my IRA is going to invest in.

(7:26) Great. (7:27) So you write up a contract. (7:28) Well, who’s the buyer?

(7:29) It’s the custodian for the benefit of the IRA. (7:32) It’s not you personally. (7:33) It’s the IRA.

(7:34) And that’s how the vesting works. (7:36) So you submit the offer in the name of the IRA gets accepted. (7:39) The IRA pays the earnest money.

(7:41) It comes right out of the IRA account. (7:44) Maybe you need, you know, whatever. (7:46) There are always a few little doodads you need when you’re closing on real estate.

(7:49) But then you you go to the closing table and you fund the money to finally close directly from the IRA. (7:54) You give us the wire instructions and you give us written permission. (7:58) We disperse the money from your account.

(8:00) Now your account owns a house. (8:02) And this when real estate is on fire sales, especially when people are running to that for their self-directed IRAs. (8:08) So now you’ve got this house, but it has to be a rental.

(8:11) So you get renters, of course. (8:14) And now the renters move in. (8:15) Well, who did they pay their rent to?

(8:16) You know, they pay it to the IRA. (8:18) So they make their rent check. (8:20) You know, if they’re going to write a check or they, you know, whatever, however they send it, it’s never to you personally.

(8:26) They’re not going to Venmo the money to you. (8:29) It must go into the IRA that owns the asset. (8:33) And that’s a hundred percent.

(8:33) You never take the money personally if it’s your IRA, because that’s at best it’s like a distribution, but at worst it’s a prohibited transaction. (8:41) So I will go into the rules, but that’s how you buy a house. (8:45) You, you open an account, you put money in it, you find the house, your IRA pays the closing costs.

(8:51) And then, you know, and you could partner with somebody else. (8:54) So like maybe you and a friend 50, 50, you could do that. (8:58) Your IRA can actually borrow money.

(9:00) We could go deep on that in a minute. (9:02) So there are different ways to get into that deal. (9:03) But once the deal closes, your IRA share of those proceeds go back in the IRA.

Melissa

(9:09) And I love that. (9:11) I think one of the things I always think about when I’m doing investments is diversification. (9:16) Am I diversified enough?

(9:18) Do I have too much in real estate, too much in stocks, too much in other things. (9:22) And so talk to me a little bit about what role can the diversification, you know, what role can private investments play in diversifying your portfolio? (9:33) And then kind of the second piece is, is, does it create problems?

(9:39) Like, is there, like, are there investments people assume that is going to create a problem when they do this?

Kaaren

(9:44) Hmm. (9:46) I mean, two different questions. (9:48) So let’s talk about the problems.

(9:50) Let’s talk about that. (9:51) And then, but some, some problems that want to, again, you and I were talking offline and we were talking about how somebody had an asset and that asset had a capital call. (10:01) So sometimes when you invest in a private, in a private equity deal, and maybe someone’s building a building, they have a capital stack.

(10:10) We’ll call it some, you know, some of their own money, some, you know, people have come in as debt partners. (10:15) Some people have come in as equity partners. (10:17) They may have taken on leverage, you know, so this whole capital stack, well, maybe they took on leverage and that leverage is resetting.

(10:24) So in other words, those loans have matured time to get a new loan to keep the project going. (10:30) Well, sometimes you can’t get the same rate. (10:31) And that happened a big time in 2022, when just a massive black swan, nobody really expected rates to triple and they did.

(10:39) And so that created a lot of problems. (10:41) And it was very common at that time for asset sponsors who had adjustable debt to have to reset that debt. (10:49) And then the IRA owners had to do in order to retain their same ownership percentage had to respond to a capital call by putting more money from their IRAs into the deal.

(11:01) So that’s what that would look like. (11:02) That could be, that is, that is a risk of any investing. (11:05) I mean, investing is all about risk, right?

(11:07) Yeah. (11:08) You know? (11:08) Yeah.

(11:09) So that could happen.

Melissa

(11:10) Well, that’s a great point. (11:12) So let’s talk about risk. (11:15) You know, most investments can create more opportunity, but they could create more risk to your point.

(11:19) And so what should investors understand before they assume they have greater control automatically handed to them because it’s, you know, self-directed. (11:30) But I think the way I’m thinking of it as well is like, you know, do we have greater control or, you know, talk to me a little bit about the risk reward piece of it.

Kaaren

(11:42) Yeah. (11:42) Yeah. (11:42) Well, it’s great power comes great responsibility, right?

(11:45) You know, Spider-Man, here we are. (11:47) So, yeah, yeah, it’s true. (11:49) So, but, but I don’t want to dissuade someone from the self-directed space because it depends upon your asset.

(11:55) And this is what you do. (11:56) First off, the very first thing you do is due diligence before you invest. (12:00) You look at the asset and hey, is this for me?

(12:02) Maybe it’s not. (12:04) Maybe, maybe loaning some, maybe somebody is doing like a remodel on their house, like a friend. (12:11) Okay.

(12:11) Someone who’s not disallowed. (12:12) Okay. (12:13) Now you’ll understand what that means in a minute, but somebody who’s not disallowed and your friend’s doing a remodel and oh my gosh, they don’t have enough money to finish their kitchen.

(12:19) Your IRA can lend them money and that could, that would be a loan and they would repay, you know, your IRA. (12:25) You, you could do that. (12:26) So there, there are some, you know, moderate risk assets, but you want to take a look at, at, at different things before you loan somebody money.

(12:34) Of course, like when we borrow money, we have to give them kind of everything right. (12:39) Every like 12 months of bank statements and they need our FICO score and where we live for the last 10 years and what’s our blood type, you know, that kind of thing. (12:46) So they’re doing our, when we borrow money, they’re doing their due diligence on, on us.

(12:50) Right. (12:51) So we do our due diligence when we invest too. (12:54) And if it is something that’s SEC regulated, like a private placement, you can go to this website.

(13:01) It’s FINRA, which is the enforcement arm for the Securities and Exchange Commission, has this great website and it’s called BrokerCheck. (13:10) So it’s one place to look to see if there’s been any fuss with this asset sponsor. (13:15) So you can put the asset sponsor’s name in BrokerCheck and see if they’ve ever had a complaint or an issue.

(13:22) But gosh, just Google them. (13:24) Now we have AI. (13:25) So just put, plug them into AI.

(13:26) Have there been any complaints against this person? (13:30) And plug it in there and see what you find, you know. (13:33) So do your due diligence up front, read the documents, understand the terms, because you may think, oh, well, you know, I’ve invested in this deal, especially with private placements.

(13:44) You’re kind of like sharing the risk when somebody is like, is building a building, your IRA invests as an equity partner and they’re building, say a ground up building. (13:52) Well, there aren’t going to be profits on that building until obviously it’s built and there are tenants in there, right? (13:57) So there won’t be any profit to give you.

(14:00) So you have to understand when should my IRA even expect the money. (14:03) It’s not tomorrow or is it a loan where I have terms and they’ve agreed to pay me monthly, you know. (14:10) So when it’s another, you know, due diligence question, when will my IRA receive proceeds?

(14:17) Definitely want to know that before you sign and before you invest in that asset. (14:21) And then once you’re in it, open your IRA account once a month, download the statement, take a look through, hey, did everything get paid as agreed? (14:30) Yes.

(14:30) Great. (14:30) No. (14:31) Call the asset sponsor, you know.

(14:33) So check out the asset and then just follow up on it. (14:37) It is self-directed, but even passive investments aren’t passive. (14:41) You have, you still have to double check and look up, you know, check up on them.

Melissa

(14:46) So what should investors consider when they think about liquidity? (14:51) Is there, you know, something they should consider if they need the money, say an X amount of years? (14:57) Today’s episode is brought to you by Renaissance, redefining success for modern Mavericks, a book I co-authored with Michelle Kine.

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Kaaren

(15:30) Yeah, liquidity is a really big deal with a self-directed IRA. (15:34) And the reason is because all the expenses of those assets, like a capital call, have to be paid for by the IRA, cannot be paid from your personal funds. (15:44) So maybe you’ve got a self-directed IRA here, and you’ve got another, like a brokerage account over here, like another IRA.

(15:50) So if you need a capital call, you can move money from this IRA into this one. (15:55) You could move rollover money from this old 401k into this IRA that has a capital call. (16:00) You can contribute because you can, from your personal dollars, put money in your IRA, but it’s capped based upon your age, your account type, and your income.

(16:10) So you can put money in there, but you have to understand that the IRA pays any expenses of the asset within the account. (16:18) So understand, hey, what are my risks? (16:21) Do I have a backup plan?

(16:23) What kind of idle cash am I leaving in the account in the event of some expenses? (16:27) Is this the kind of asset that will have expenses? (16:30) That’s another due diligence question before you even invest.

(16:33) Am I just investing and that’s it? (16:36) Or am I going to need, like have a capital call or something in the future where it will require more capital? (16:42) Because it’s not always the case, but it could be.

Melissa

(16:46) And I think that’s the difference too. (16:48) I think with conventional accounts, people select the fund and then they rely on that institution to manage the platform, manage it for them. (16:57) So they don’t kind of like out of sight, out of mind.

(17:00) With a self-directed IRA, I think kind of to your point, how much more important does due diligence become in looking for the right one?

Kaaren

(17:13) Great question, because we go to a financial advisor and they put us in market correlated assets and they have securities licenses. (17:21) And so, and some degree of obviously credibility that they’ve been able to attain that status that they could do that. (17:28) But when it’s a self-directed IRA, you are that financial advisor.

(17:31) So it doesn’t have to, if you already are savvy and understand assets, then you’re the ideal self-directed IRA account holder, because you do need to understand your asset class already. (17:42) You don’t want to just be experimenting with your retirement money. (17:47) It should be an asset class that you already know and understand.

(17:50) Does that help?

Melissa

(17:51) Yeah. (17:51) And I think, it’s funny because I’m thinking about just kind of my understanding of investments over the last, I don’t know, 25 years. (18:00) Sometimes there’s certain assets that I want to set and forget, and there’s others that I want to be actively involved in.

(18:09) And kind of to your point, I love that you mentioned like printing your statements and looking through them. (18:13) I think a lot of times now with the paperless statements, I’m not doing that. (18:20) And so I think just making that habit once a month is a really good piece of advice.

(18:25) And so are there any common warning signs that people should be looking about or things that they should consider when investing in this capacity?

Kaaren

(18:36) Yeah. (18:37) I don’t think common warning signs, I mean, just not getting paid, that’s a warning sign. (18:41) Then you know that there’s some issue and you need to call the asset sponsor, or if you’ve lent money, you need to call the borrower.

(18:47) But there are different asset classes, say for example, your IRA invested in precious metals. (18:52) And then what you do is then you don’t keep those metals at your house, we custody them. (18:58) So they’re custodied.

(18:59) And so that is kind of a set it and forget it kind of an asset. (19:04) You’re not going to get an income stream from that, so you don’t have to check on it. (19:07) There’ll be some storage expenses.

(19:10) But otherwise, it’s kind of a set it and forget it kind of a thing. (19:13) That’s one asset class. (19:15) Cryptocurrency, your IRA invests in crypto.

(19:17) Now that’s there’s a lot of risk there because it’s still sort of Wild West. (19:21) So you have to obviously assess the risk for yourself. (19:24) But again, set it and forget it.

(19:26) But you always not really because it changes so fast. (19:29) That’s an asset class where you want to really be on top of it so that you if you need to move, you can move if you see something’s changing or some, you know, coin you’ve invested in is being discontinued or is transferring into something else. (19:43) You always want to be on top of that.

(19:45) You just need to understand your assets. (19:47) I mean, you can’t just fall asleep and expect to to really grow your wealth. (19:52) So what would another asset class be?

(19:54) I mean, like that house that your IRA has this rental, you got to make sure not only well, it’s like being a landlord now. (20:00) And I should say this. (20:02) Your IRA owns a property, not you.

(20:04) But you can do some landlord things like screen the tenants. (20:09) Then you can also hire third party vendors to do any work. (20:12) You can pay those vendors, obviously.

(20:15) And so there are some things that you can do to manage the property. (20:19) But as long as you just stay arm’s length from it. (20:21) And I haven’t mentioned prohibited transactions.

(20:23) So let me tell you what they are. (20:25) Some people are disallowed. (20:26) It’s you and your spouse.

(20:28) It’s your kids and grandkids and it’s your parents and grandparents, plus a 50 50 business partner and anybody who’s a fiduciary like your realtor, maybe or your CPA or an attorney. (20:40) They’re they’re disallowed to the deal. (20:43) So your IRA could own this house and your uncle could move in and rent it from your IRA, but not your dad.

(20:49) You know, your IRA could make a loan to your nephew to go to school, but not your son. (20:55) You know, if you if your IRA owns a house, your daughter could not mow the lawn, your niece could, but not your daughter. (21:00) So that’s that worse.

(21:01) Brothers and sisters are OK. (21:03) Nieces and nephews, cousins and some uncles. (21:05) They’re OK.

(21:05) It’s not just family members, but it’s up and down the family tree mostly. (21:10) So the IRA, certain people, they’re called disallowed people. (21:13) Your IRA does not invest with.

(21:15) I mean, does not benefit, I should say, because you know, I’m going to go another step further. (21:23) But the IRA can co-invest with a disallowed person. (21:26) And there’s a way to do that, which we could go deep on if you want.

Melissa

(21:30) Yeah. (21:31) And I think, you know, one of the things that I’m thinking of, like a lot of times when I’m making different investments, I call in, you know, an attorney, an accountant, an advisor or another professional to help me with different investments. (21:45) And so for someone who is interested in, you know, going about self-directed processes, what does that actually look like?

(21:55) Like, how do you open an account? (21:57) Can they transfer their money from an existing retirement account? (22:01) Is there specific documentation?

(22:03) How long does it typically take? (22:05) Like all those kind of, you know, actually doing the work. (22:09) Is there income requirements, that kind of stuff?

Kaaren

(22:13) Yeah, it doesn’t depend on your FICO score or your income to open an account. (22:16) It’s really, really easy. (22:18) On our website, udirectira.com, we have just, you know, click a button. (22:23) We have a digital application, maybe takes 10 minutes, maybe 15 minutes. (22:28) You plug in your information. (22:29) If you’re transferring an IRA into a self-directed IRA, it’s a transfer.

(22:33) You put that information in there. (22:35) If you have a 401k, it’s a rollover, and that’s a different process. (22:40) Takes a little longer, not very much, but a little longer.

(22:43) And if you’re contributing, well, then you simply, you know, contribute the money to the account. (22:48) So those are three ways to get the money in. (22:50) So you fill out the form, which is opening the account, you fund it in one of those three ways, and then you invest.

(22:57) So it’s after you’ve done your due diligence, after you think, yeah, this is what I want to invest in. (23:02) Maybe you went to a seminar. (23:03) Maybe you belong to a real estate investment club.

(23:06) Maybe you see an opportunity, you want to get into it. (23:09) How do you do it? (23:10) Maybe you don’t have the cash right now to do it, but whoa, wait a minute.

(23:14) I have money in a retirement account. (23:16) My retirement account could do this. (23:18) And that is often the case.

(23:19) That’s often how people open a self-directed IRA. (23:21) Like, I want to do this. (23:23) I don’t have the cash, but I have this account sitting over here.

(23:26) It can invest in this asset. (23:27) And in that way, like you mentioned, you’re diversifying, right? (23:30) You’re investing outside of the stock market.

(23:32) And mostly they’re tangible assets, like things you can see, feel, and touch. (23:37) And it’s different than a stock that you never hold in your hand.

Melissa

(23:42) I love it. (23:43) Now, are there, like who may be a disqualified person? (23:46) Is there anybody that cannot invest in a self-directed IRA?

Kaaren

(23:50) Oh, well, a disqualified person is somebody your IRA doesn’t invest in, but no, anyone can have a self-directed IRA as long as you have a social security number. (23:58) And I think if you’re not a felon, then you’re good, you know, just like check the box. (24:04) So, but if you, I think if you have a social security number, anyone can have an IRA as long as you’re entitled to do that.

(24:11) So yes, it’s a very low barrier to entry to have a self-directed IRA. (24:16) You just open an account. (24:18) That’s what you do, but you do have to have a social security number.

(24:21) It’s governed, overseen by the U.S. government, by the IRS, and to some degree, the Department of Labor and the Department of Treasury, where the IRS, you know, sits underneath it. (24:31) So those agencies kind of govern what self-directed IRAs do.

Melissa

(24:36) Yep. (24:37) I love it. (24:37) Now we were talking a little bit about at the beginning, like you mentioned, you know, you’ve really built a career around educating investors.

(24:47) And I love that. (24:48) I think a lot of times money is a difficult conversation. (24:51) People don’t like to talk about it.

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Kaaren

(25:38) Yeah, education. (25:39) I just, it’s a chance to tell you that I wrote a book on self-directed IRAs. (25:42) This is a great place to find some education.

(25:44) It’s called the Self-Directed IRA Handbook. (25:47) And so that’s, you know, one place to start, but no, you, you really have, I mean, you have to, you do have to understand things, but I’ll just talk about my own journey. (25:55) I didn’t understand, I was a radio announcer before I, you know, that was my first career.

(26:00) So what do I know about finance? (26:01) I was not a finance major, but then as a radio announcer, I was on the air four hours a day, basically. (26:09) And then I had, I had time.

(26:10) So I got a real estate license when I was in my twenties and I sold real estate. (26:14) Well, I learned a lot. (26:15) I got a real estate license, learned a lot about real estate.

(26:18) And that really made me curious. (26:20) Then I got married and became the trailing spouse. (26:23) Like he would get promoted and transferred.

(26:25) So I would, I started working at mortgage companies. (26:28) I did loan servicing, learned so much about money because when you’re looking at someone’s somebody else’s tax documents, you know, their 10 forties and, and all their, you know, organize all their corporations and things like that, their tax returns, you really learn a lot about how did this person build wealth. (26:45) And that was a great education.

(26:47) Like how did somebody else do it? (26:49) Maybe I can do it that way. (26:50) And then I got a really good financial advisor.

(26:52) So ultimately I went from, you know, radio to real estate for a minute, like for, it was about a year loan servicing origination. (27:00) And so loan origination, I was in for a long time too and learned a tremendous amount, but then got in the self-directed IRA space. (27:06) So, so I had to look, well, what am I going to do for myself?

(27:08) So I thought, well, let’s just think about like, what’s retirement, right? (27:11) So we start off with whatever we have in the bank today. (27:14) We have maybe social security, maybe, you know, we, I mean, hopefully just the basics.

(27:20) Then it’s like, what assets do I have? (27:22) Well, you know, I have this asset, maybe have a rental property. (27:26) So you’ve got an, you’ve got an asset, but wait, I used to work over here.

(27:29) So I have a 401k. (27:29) That’s another thing. (27:30) And oh yeah, I remember that IRA.

(27:31) I’ve got another thing. (27:32) So then you start looking, oh, I totally forgot that I have this whole life policy that has cash value. (27:38) And then you start building and stacking these assets on top of each other.

(27:41) So self-directed IRA is really part of your retirement capital stack of the things that you’re doing now. (27:48) So that later you have money. (27:51) So it’s, it’s great to, to start that now and just take action in some way now so that later you can thank yourself for, you know, the whole life policy you opened even, I mean, for the self-directed IRA you invested in and what asset you got that, because maybe you’ll get in a massive return.

(28:08) The returns are tax-free in a Roth or tax deferred. (28:11) So tax-free money is the brass ring for retirement. (28:15) So the more Roth investing that you can do successfully, the better your retirement will be because you’re not going to be paying tax in retirement on those dollars that you save.

(28:25) So there are just so many ways to do this, but that’s why I love IRAs is because of the tax deferred tax-free status of the money and the proceeds. (28:34) And are there like specific fees? (28:37) Right.

(28:38) Every, every self-directed IRA company, and there’s maybe a 30 of us out there. (28:42) I mean, it’s not a huge industry, but the fees can be based on the value of the account, like a sliding scale, but we don’t do that. (28:49) We charge a flat fee.

(28:50) So it’s really good for high dollar accounts. (28:52) So regardless of the value of your account, it’s $2.75 a year, $50 set up fee, not a big barrier to entry for putting, you know, putting money in there. (29:01) And the other great thing about a self-directed IRA, when you have a typical IRA, every time they make a trade or something, they’re, they’re taking a fee out of, out of your, out of your proceeds.

(29:09) And you may not even see that maybe behind the curtain, you know, so maybe you’re not seeing all the proceeds you might have seen because there were fees for transactions, but with a self-directed IRA, of course, there are a couple of transaction fees. (29:21) Like if you need something FedExed, if you, if you have a tenant that writes a bad check, something like that, little fees like this, if you need funds wired, little fees, but not, not like that. (29:31) So you’re keeping a much higher percentage of your assets in a self-directed account than you are in a typical IRA and a typical retirement account that where a financial advisor or advisory firm is taking fees from, you know, from the trades.

Melissa

(29:47) I love it. (29:48) I think that’s very small fees and nominal fees to get these set up. (29:52) I always think about, you know, where is the future of retirement going?

(29:57) We hear about, you know, people are living beyond their means. (30:00) They’re not retiring. (30:02) Social security is going to disappear.

(30:04) But as investors look for more diversification and control and access to different markets, where do you see kind of the self-directed retirement, you know, accounts heading over the next several years?

Kaaren

(30:19) Yeah. (30:20) Looking back a little first, in 2019, we had Secure Act 1.0. We had a couple of changes to retirement accounts, like something called the RMD, required minimum distribution age, was changed. (30:31) So that means it used to be when you’re 70 and a half, you had to take some money out of a pre-tax account like a traditional IRA.

(30:37) And so Secure Act 2.0 in 2022 raised that to 73, but also, you know, created some other rules. (30:44) So what has happened with retirement accounts on like a federal level? (30:51) It sort of happened and they’re not looking to make any other changes.

(30:54) But what’s great is that what we’ve learned as a result as an industry is that both sides of that, you know, of the House, both sides, you know, politically are equally interested in Americans saving for retirement. (31:06) So there’s not a lot of fighting about retirement accounts. (31:08) Everyone agrees because they have retirement accounts too.

(31:12) They want, you know, our lawmakers also have retirement accounts. (31:16) They also want favorable treatment, but there’s not a lot of arguing about IRAs. (31:21) So it’s been great in that response.

(31:24) Lately, there’s this new thing where they’re, Senator Wyden and a couple of them are looking at maybe taxing super high dollar, like 10 million plus IRAs. (31:33) So it’s a proposal. (31:35) You know, maybe that’s the only thing that I’ve seen going on, but then something happens as a proposal and maybe five years later it just dies.

(31:42) But that’s a proposal that’s out there, something new. (31:46) But I don’t see any threat presently to American retirement. (31:49) Yeah, we definitely have to save for retirement.

(31:52) We have to do something. (31:53) So here’s like a takeaway from today. (31:55) Go make a contribution to your retirement account or open an IRA.

(31:58) Or if you don’t have a Roth IRA yet, as long as you qualify, ask your tax person. (32:03) Open a Roth IRA now, because in order for a Roth dollars to be tax-free, you have to have five years of a Roth. (32:11) It’s called the Roth Clock.

(32:12) You have to have had a Roth of any sort for five years in order for that money to be tax-free. (32:18) So go today, open a Roth IRA. (32:20) If you want to self-direct it, great, we’ll talk.

(32:22) But open a Roth IRA today, start that Roth Clock and start growing tax-free income.

Melissa

(32:28) Yeah, and I’m thinking as you’re talking, I know a lot of people are talking about leveraging different advice using AI and technology. (32:36) So do you think that technology will make these accounts and these investments easier to manage? (32:45) No.

Kaaren

(32:46) I mean, it makes these assets easier to research. (32:51) But managing them, we already have technology. (32:53) We have a really wonderful, robust platform.

(32:56) You log on, you can see everything. (32:58) It’s very user-friendly. (33:00) And that increases the speed at which we can do things.

(33:04) I mean, what we could do quickly before, we could do even more quickly now because of being able to log on to the platform. (33:11) So that’s where technology gets involved in our industry. (33:14) And also the ability, I still say, have your renter write a check.

(33:19) Who writes a check? (33:20) No one does, I realize, anymore at all. (33:23) So that’s not going to happen.

(33:24) So that’s part of technology that’s affected retirement accounts, but it doesn’t affect our need to save. (33:35) There’s nothing on the table right now that would threaten retirement accounts.

Melissa

(33:40) I love it. (33:41) So much good information. (33:43) Any final thoughts or anything that we haven’t touched on today that you want to leave with our listeners?

Kaaren

(33:48) Yeah. (33:49) I mean, again, it’s save for retirement. (33:52) Take that action step.

(33:53) Start a Roth account today, make a contribution. (33:57) And if you’ve been thinking about opening a self-directed IRA, I mean, it’s a great time to do it. (34:03) You can take a look at the market’s kind of medium right now.

(34:07) And so you could take the money out of the market and bring it into an asset if you know what that asset is, you know what you want to invest in. (34:15) But just continue to learn and invest and build your wealth. (34:21) And that’s the most important thing you can do for yourself.

Melissa

(34:24) I love it. (34:25) Thank you so much for being here and sharing your knowledge. (34:28) And if you’ve enjoyed this conversation, make sure to subscribe to the Executive Connect YouTube channel or wherever you podcast, where we unpack conversations with investors on wealth leadership and all the things.

(34:43) And just subscribe to the Executive Connect brief where we turn these conversations into practical takeaways that you can apply today. (34:52) Thank you so much. (34:53) That’s the Executive Connect podcast.