Countersignature Investor Rights Agreement Made Easy

Countersignature investor rights agreement

i'll go ahead and turn it over to you and let you take it away all right sounds awesome let us share the screen all right let's get that over to presenter mode all right now we're looking good i don't see it yet don't see the screen the on the uh on the the the bar of zoom there should be a green button that says share and it'll have you choose the actual powerpoint on your screen all right do you see that now i do all right let's see if presenter mode will work all right is that presenter mode right now it is but we see the presenter mode screen instead of the main screen all right do you have two monitors absolutely and it's clearly enough change the share to the other monitor where the other one is we got that there you go that's it that works take it away awesome okay i'd like to begin just with uh thanking dan and the mfin summit staff stacey brandon thank you so much for hosting this and thank you to all the attendees uh the first event that we did about half a year ago was awesome i love that presentation and that was focused very much on much broader and deeper focus on syndication tax uh and this checkbook ira checkbook qrp was just a subset of that so i'm really excited today about taking a deep dive um into this topic as a cpa i just got to put this up here my attorneys require it so of course this is not legal advice we're going to give you the best advice and info that we can possibly give you but it's no substitute for getting information about your specific scenario uh in just a minute about my background i'm a cpa with unique background that spans multiple disciplines and so my focus is integrating tax and legal we're bringing all the components together to put you in control of your investments and reach financial self-determination so as an introduction to today's subject checkbook iras using trusts and llcs i think it's good to give a an overview of the various tax sheltered account types i'm sure that by this point many of us in the audience are familiar with various tax shelter structures uh but to ensure that everybody's up to speed and to get some definitions in place uh let's kick it off with this broadly speaking there are three types of tax sheltered accounts some of them are retirement accounts and that's strict sense um however others are not so as we can see we've got them broken up as iras qrps and other plans so ira as you can see stands for individual retirement arrangement and so although many of us are familiar with traditional iras and roth iras there are actually several other there's a sep ira which is a simplified employee pension ira and then there's a simple ira and these are all ira based accounts however traditional iras can be created by anybody but set by arrays of simple iras must be tied to a business a spousal ira is not technically is not technically another type of ira you're not getting but it's a spousal ira lets you create an ira even for a spouse that has no income so if you're married um you can create an ira for a spouse even if that spouse has no income so again we've got four types they're all ira based another group of plans known as qrps which is short for qualified retirement plan and again there are many many types of qrps we've just highlighted a couple of them here profit sharing 401k defined benefit solo 401k and money purchase some of these are really distinct types of plans solo 401k is not technically a distinct type of plan but rather a 401k plan that only covers an owner only business so qrps are qualified retirement plans governed by a totally separate set of rules vis-a-vis iras and then there's other plans a coverdell ira also known as an education savings account and there are health savings accounts and as you may notice 529s are absent from this slide 529s belong to a totally separate group of plans and those cannot be checkbook controlled so anything that we discussed today can be applied to any of the accounts that we discuss here so any type of ira can be checkbook controlled any type of qrp can checkbook controlled as can an education savings account and a health savings account so we'll take a deeper dive into each one of these but it's important to understand the various groupings ira the key word is individual qrp the key word is that it's tied to a business okay so the question is why would you want to use self-direction and especially checkbook control and we'll define those more clearly a little later why would you want to get control of a tax sheltered account uh for investing in a tax advantaged manner you know why would you not be satisfied with the options that are provided to you by your 401k provider or your brokerage well the key thing the top obviously is the ability to invest in so-called alt uh a question that i get all the time is uh what what is different about this account i know my ira chase is a self-directed ira well it's self-directed in the sense that you can choose from anything that they make available to you they give you a menu they give you a large menu menu stocks mutual funds and bonds and you can self-direct and choose so long as it's something that they make available to you but if you want to get into an alternative asset which for we'll just define is something that's not available on a brokerage platform you need to get you need to get self-direction true self-direction and for total control you're going to want that checkbook control now why would you want to get this control why would you want to get into an alternative asset the key things are in alternative assets you can leverage your knowledge your experience and your relationships uh and not only yours it's those of other investors so if you're a passive lp and a syndication effectively leverage the knowledge experience and relationships of the lead on the deal of the syndicator and investment sponsor the stock market is a dictator sport there's really nothing that you can do to improve outcomes scholarly research has consistently shown that when putting on the stock market the best thing you can do is just sit back and watch you'll ride the waves the volatility and just take what the market gives and the market takes whereas in alternative assets that are not passive that are not inherently passive you can leverage the experience your experience your expertise and that of the deal sponsors and sometimes you'll get some kind of resistance that alternative assets are risky uh well on the contrary in the alternative space you can get lower risk and higher returns when you put your money in a in a deal with a sponsor that knows what they're doing or if you know what you're doing or at least you've done the due diligence to vet the sponsor you can control the risks to end up with an optimized risk return portfolio and a risk return and adjusted you know risk adjusted return so in the stock market um that old corollary holds true risk is directly correlated risk is directly correlated with return i'm in contrast you get into real estate you work with the right folks risk goes down and return goes up so you can invest you can get true true diversification you can invest in non-cartilated assets and you can be directly control your investments so these are things that are featured that are available with any type of self-direction with checkbook control and what we focus on at resure is getting your money into a bank account that you directly control and that's what's known as checkbook control so you retain the tax filtered status but you have direct control over the money and you can you got a deal you write that check you send that wire or ach and what are the benefits that you're going to achieve um using this kind of structure you're going to get increased asset protection um you're going to get anonymity you're going to get be able to more easily consolidate all your funds in a single place so if you use a reshur checkbook ira um you're going to be able to invest quickly you're going to reduce your fees you're going to reduce your paperwork you're going to be able to get into deals fast and quick and when you get at the alternative space you have to start thinking like an investor when you use wall street investments then you're kind of passive you go in you click that mouse you click you buy you sell and you move on but when you're getting direct control of your money to be able to put it into alternative assets i'm using an ira or 401k to recognize that you've just made your ira 401k a real estate investor so just as any real estate investor is cognizant of the requirement to move fast get into deals asset protection anonymity and be able to to move fast and reduce your fees and think like and use it as a business when your ira's invested in real estate it's got to take on that perspective i'm going to use a checkbook structure giving you llc protection you get all those benefits so the next thing is why would you use a checkbook qrp a checkbook qrp vis-a-vis a checkbook ira the checkbook qrp will allow you much higher annual deductions it will not require a custodian [Music] it will not require an llc an llc is an option so again if you choose to you can add an llc to enhance your asset protection and ease of transacting but you can get that checkbook control c uh it's free and it's one account that will include roth after tax and pre-tax components but the ability to put 122 thousand dollars in there does not mean that you have to so you've got total flexibility and of course one of the biggest benefits is the ability not to think about udfi when investing in real estate so now that we kind of get a high level view of what the benefits are what you can achieve using either a checkbook ira checkbook qrp or checkbook 401k let's kind of dive into the nuts and bolts and see how these are structured and the structure will vary uh depending on your objectives and your financial profile so the key thing to think to be aware of is when structuring these things a starting point is distinguishing between trusts and llc's because we use both trusts and llc's for these for these structures but they each have pros and cons and what you can do the legal protections that you'll get your ability to navigate ira and 401k law varies based on the entities that's used so what is an llc not much that we've got to say here i think we're all somewhat familiar with llcs an llc is a limited liability company which is a statutory legal entity that is brought into existence through filings with a jurisdiction secretary of state so llcs are a statutory entity that's a key component that we want to bring out it is an entity it stands apart an llc can exist without having a manager an llc can exist without having a member it's a legal entity that is brought into existence um through a filing with the secretary of state and we've got 51 domiciles in the united states so we've got 50 states and dc um each one has an each domicile has an llc law and an llc is brought into existence through a file link with that state fiction secretary of state it's not a contract it's not something that i create with you investors create amongst themselves you go to the secretary of state and based on the state law a legal entity is created very much like a corporation so an llc is a distinct legal entity and once that legal entity is brought into existence it can get an owner what you call a member and it can have a management structure so can have managers and owners of that legal entity similar to a corporation of course it's not exactly alike but for our purposes the concepts are very very similar in contrast a trust is fundamentally different than an llc here we've got lots of words that's because llc's you know kind of broadly recognized however trusts are a bit more mysterious a bit more mystique associated with trusts so let's elaborate here just to talk about what a trust is how a trust comes into existence a trust comes into existence primarily through an agreement a trust agreement a trust again will have a settler or a granter a trustee and a beneficiary so there are three parties to a trust agreement a trust is not created by filing something with secretary of state a state may have trust law to figure out how to apply you know how to govern these contractual agreements but a trust is inherently a contract it's an agreement it's not an entity and as you can see here a trust is created when a settler transfers assets to a trustee to hold for the benefit of one or more beneficiaries so in a trust the one that puts the property into the trust is called a settler or granter and then that asset is held in trust by the trustee for the benefit of a beneficiary and these can generally will be three separate parties but they don't necessarily have to be in all scenarios so the beneficiary has what's called equitable title usually and the trustee has legal title so the trustee is the one that can sign contracts that can convey for legal purposes they're on title but the rights to enjoy the property the rights to all the benefits of the property and the assets that are held in trustee belongs to the beneficiary so to kind of outline how this would come into play in an ira and how we would determine what to use let's move into the ira structure figure out what your traditional self-directed ira in qrp is and what you can how we can get checkbook control for you so with a self-directed ira we'll get back to these later and we'll focus on iras first and transition to qrps if we have time iras are brought into existence by the tax code and the tax code requires that iras have a custodian it's something that's in the tax code it's got to be a financial institution that's regulated by banking authorities now once congress created created these these tax incentives for creating ira accounts various industries emerged to help people take advantage of them so in this diagram we've got the one hand the brokerage custodians and on the other side we've got the self-directed ira custodians and a reshort checkbook ira exists within that realm uh so this is a high level kind of bird's eye view of the industry and to talk about the evolution of the industry let's focus for a moment on the brokerage custodian custodians so the most well-known ones among those are your schwab fidelity vanguard and with these custodians you can go ahead and you get a free account but you may find in that free account that they're going to restrict you to investing in whatever assets they make available however are these accounts truly free very seldom is anything ever free so we kind of know that if we're offered something free it's to pull us through the door um where we can actually engage in some sort of business with them that will generate fees and the brokerage space the wall street space has a plethora of visible and hidden fees which are very very difficult to decipher in particular if you've got a company 401k plan you're probably paying between one to three percent of your assets and fees uh whether or not you know that we've got a link on here it's an sec page that gives you some insight into some of the fees you'll be paying however when you want to buy stocks it is very easy it's all automated and the key to understanding what this business model is about is recognizing that these brokerages are in the investment business they make money on investments so whether you're going to buy a mutual fund that they provide and they created and they're going to make fees there or you're going to buy somebody else's mutual fund on their platform they're going to get trading fees they're going to get 12 b1 fees they're going to get kickbacks there's a range of fees that they're going to be getting through the investments and the administrative component of this is really easy it's automated um the liquid security space has been phenomenal and making it just easy to do things you click the mouse it happens it doesn't require any human intervention so it makes it really easy but that is also why there's not that much opportunity on these platforms because anybody can invest there and everybody can analyze the stock and anybody all over the world wherever you may be you can click and buy and sell and analyze that market so in order to provide people true ira services a self-directed ira industry emerged and these are custodians that are not in the business of providing investments they don't make money on your investments and what they do is administer assets so they'll let you invest in a much broader array of asset classes uh generally not the full gamut of investments are allowable but nearly everything and as you can see here the way the structure works the traditional work version of it i did get the custodian and if you want to have a tax lien investment a syndication investment you know every single one of those assets is so to speak custodied by the custodian and the way they do that is they sign all the documents all investment documents have to be processed by them every investment transaction is processed by them money goes out they send the money out money comes in it goes to them and logically in this space accounts are not free because they're not making money on your assets and they actually are doing something that's very labor intensive they're reviewing reams of documents to process and sign in order to get your money into the deal that you want so this was a great benefit uh to folks that want to get into alternative assets and recognize the great value that they present however um you can see i mean it's just evident the inherent limitations in this space and how cumbersome it is um if you're going to have somebody else processing every single one of your deals it's going to take time they're not going to give you a one-to-one relationship so they're working with thousands of investors and they've got a small customer service team that has to process every single document and they're looking for those t's to be crossed and eyes to be dotted and if that's not done correctly they kick it back to you so everything takes time everything incurs fees and you can miss deals you can incur substantial fees so one of the ways they charge you is based on the number of assets you hold so every single asset that you hold will incur an additional fee if you want to do if you want to do one deal and you're going to forget about it then this model works well but if you think you want to do multiple deals or you're going to do something that requires you to move quickly this route is not going to work well for you and in fact we've had clients that have come over to us that have saved tens of thousands of dollars in annual fees um instantaneously they've gone from paying tens of thousands to paying two hundred dollars per year and they get greater control than they ever had so how do we give you how do we attain how do we give you that checkbook control structure how are we going to get that money into your hands but retain it its tax advantage status so there are couple ways that we do that but this diagram provides a really really clear model of how it's done as you may recall on the prior slide you saw that an ira custodian can invest in a private company on your behalf right so amongst the many asset classes that are available you can have real estate tax liens private loans hard money loans crowdfunding startup investments so all sorts of privately held companies are available so the way we get you direct control of your money is by creating a private company investment and we tell the ira custodian and we work with many of them very closely is we are going to make a private company investment take all the money that's in the ira account and move it into this private company now once the money is not private company that private company can do all the investments that it chooses to so rather than have the ira custodian uh put the control each asset from the custodian's perspective we end up with a single asset it's that private company and once the money is in there that company can be run like any other company and to kind of highlight how this works even in traditional account if you buy amazon stock amazon does what it wants uh if you buy tesla stock elon musk does what he wants um it's kind of out of the purview of the custodian the custodian um doesn't know when the custodian doesn't want to know so once the money is in your private company you're able to get direct control completely eliminate all those costs so with our relationships for example you can end up paying a low flat fee that's as low as 125 bucks per year no matter the size of your ira you can have 100 assets and your ira can be worth 100 million dollars it's just 125. and that comes along with the increased flexibility the ability to transact instantaneously because you're holding the checkbook you use you just wire the money out the ach money wire out no need to have custodian counter signature and one of some of the people that we work with most closely are investment sponsors and syndicators that recognize that when they need to get money into a deal and they need somebody to put things in place quickly and be able to repeatedly fund deals getting the checkbook structure in place is absolutely crucial for them to get their deal done and get funded in a timely manner and it's worth discussing a bit here some of the distinctions between a checkbook llc structure and a checkbook trust structure so you may recall the distinction that we had between trusts and llcs so when we do it as a private company investment uh we're generally gonna use a limited liability company and that's very important when you use when you're investing in real estate because when you're a real estate investor you have to start thinking about asset protection and an llc will provide you with asset protection in contrast trusts are contractual agreements and generally provide very limited to no asset protection trusts can be anonymous but they do not provide statutory protection which means that say somebody there is a some sort of liability event that occurs within an llc well the owner of that llc will be protected and vice versa if the owner of an llc has a liability event the assets in the llc may be protected because the llc is a distinct legal entity how in contrast a trust is a contractual agreement and it is not a distinct legal entity and in most scenarios a trust provides no legal barrier it can help you with anonymity meaning keeping your assets private by the event that there is a lawsuit it does not provide a legal shield so that's one key distinction that derives from the distinction that we outlined earlier so when you're investing in a hard asset that can generate liability or if asset protection is important to you you generally want to use an llc another thing that comes into play is who can be the direct manager of the checkbook controlled assets well when we use a private company investment nearly all our clients have the ira owner being being the company officer that directly manages the assets but a trust is not a legal entity a trust is a contractual agreement and as we're all well aware and we'll take a deeper dive that a moment i just want to kind of cover the high level right now the ira owner is a disqualified person to his ira he cannot engage in any business directly be a counterparty to a transaction with his ira therefore we strongly discourage our clients from being the trustee of an ira owned trust so when using an ira owned llc we're very comfortable with the ira owner being the manager of that entity however in a contractual agreement a trust agreement which is an agreement between the ira and the trustee we strongly discourage the ira owner from being the trustee because that may run afoul of the prohibited transaction rules that do not allow an ira owner to be to be to contract to be a counterparty to a transaction uh with his with his ira so here is a more granular look at how a checkbook control structure is implemented and as you can see here we've got the custodians got to be here at the center of things money contributions flow to the custodian you consolidate all your funds at the custodian and then we send them to the llc bank account and of course there's nuance associated with each one of these steps and at reshore we're here to assist you from start to finish to make sure every single step of the way is done compliantly and smoothly and no discussion about self-directed and checkbook iras or qrps is complete without discussing the prohibited transactions we want to make sure everybody is aware of these limitations before they get involved with these with these accounts and the prohibited transactions makes it sound a lot more onerous than it is but at a very high level what these are telling you is you can get into any asset class that you choose however your ira or qrp cannot transact with certain disqualified persons and those disqualified persons as you can see here in the center column are the ira owner the ira owner's spouse parents and grandparents they are a owner children's and children's spouses and as well as any business entity um in which there's 50 ownership combined among those disqualified persons but as important as it is to know who is disqualified it's important to know who's not so not everybody that you've got a relationship with is a disqualified person to your ira siblings in-laws nephews nieces friends aunts and uncles and of course anybody else out there there's a huge world of opportunity but you've got to be cautious when using iras or qrps not to run afoul of these rules and not to transact with any of these disqualified persons i'm going to kind of move on past these rules in order to take some more focus more on today's topic so what would the pros and cons of a checkbook control be um so the pros as you can see here you can reduce fees ease of transacting reduce paperwork asset protection privacy you can participate in auctions and sheriff sales reos those are kind of deals that need instantaneous access to cash you can invest in assets that custodians can't hold directly so crypto serve currency cannabis or foreign assets so there are a range of assets that are not going to be directly available if you use the traditional self-directed model but if you've got the checkbook control then you can hold those because you're going to have the access to that money either in the trust or the llc but of course everything that has so many pros as a general rule there certainly are potential cons so biggest hurdles that people encounter are the initial setup fee it may cost a little more in the first year to get the checkbook control structure in place and then there's a whole new set of questions that you have to think about when setting up a checkbook control structure where should i put the llc as you recall there are 51 options and it's not one size fits all naturally any one size fits all approach i'm putting always putting the llc in one state is not going to be a good fit for everybody and in most cases won't be the best fit for an investor um how to get the bank account opened once you've got direct control of the assets there is a greater possibility of engaging in an inadvertent prohibited transaction so we spoke about those rules before well when the custodian holds the money you can't although there's no guarantee you won't engage a prohibited transaction you can't instantaneously write that check it takes time so when it takes you two to three weeks to process an investment you have time to pull it back and mull it over but if you've got direct control of the money you could inadvertently do something with the inability to retract that furthermore there is maintenance when you have a limited liability company or a trust um they'll each may each require certain kind of maintenance uh there are if it's if it's a limited liability company each state has different requirements to maintain the good status of that entity and for a trust while there are no state statutory requirements of course you want to make sure your trust is being run properly on the up and up but you will not have any annual fees to the state however at resure when it comes to running these checkbook control structures we aim to completely eliminate and give you the pure upside of having a checkbook controlled ira checkbook controlled qrp or 401k so on the ira side uh we're there every component of the process uh from custodian selection leveraging our partnerships and relationships for attractive pricing and streamlined account setup uh we'll we're involved in this domicile selection we're involved in the bank account we're there to help you avoid those unknown unknowns uh where we see the greatest pitfalls um in this space especially with you know folks that may be taking a do-it-yourself approach is that there are just too many um unknown unknowns those gotchas that only people that are immersed in the space and experts in the tax code governing this are aware of a google search will not uncover all the information that you need and custodians information will not either guarantee that you'll avoid prohibited transactions so every single client that works with us gets a comprehensive education regarding the rules and what they have to do to maintain compliance with regard to the llc maintenance that's something we can assist with as well and our pricing is absolutely unbeatable so with all our clients um they're seeing savings in year one even though they're using a checkbook structure the pricing is so attractive um that working with us they're coming out ahead um and just in the pure dollars and cents perspective even in year one and with all that in place you get the pure upside and perhaps even come out ahead with regard to compliance control flexibility and cost of having a checkbook ira structure and to talk for a moment about a checkbook 401k now the checkbook 401k is a type of checkbook qrp and it's distinct from the ira because there is no tax code requirement that there be a custodian so a 401k qrp is essentially a trust that's what it is it's a trust that's created and you can be the trustee and likewise you get direct control of the money but the key thing to be aware of is that any type of qrp must be tied to a sponsoring trade or business and not every type of income generating activity can qualify as a trade or business and this is one area in particular where over the last year or so we're seeing lots of pitfalls people getting 401ks or qrps that do not qualify for them so while a qrp is generally has is preferred to an ira when applicable you've got to use the structure that is compliant from your perspective and based on your financial profile and as discussed within a qrp we can also create an llc and although you can have the checkbook control without although you can have the checkbook control without having an llc inside of a 401k you would want to use the llc for enhanced asset protection and anonymity so we don't require that our clients do that we offer as an enhancement we create an llc inside the 401k trust very similar to the llc that would be created inside of an ira and hold all assets within that llc and to cover some of the benefits of using a qrp 401k vis-a-vis an ira based structure and again we'll just do the bullet points today it's not the primary focus there's no custodian required you can get far greater contribution amounts into a qrp you can use advanced tax strategies incorporating pre-tax after tax and roth accounts within a single plan you've got a loan option so you can technically put in a contribution i get the tax deduction and then pull some of that money out for your own benefit totally tax-free and you will not have udfi on leverage real estate investments uh but something that's worth mentioning is that udfi on leverage real estate in an ira is never a factor in choosing what kind of structure you should have a qrp or an ira based structure if you qualify for the qrp based on your financial profile you would go with a qrp if you do not we would go with an ira based structure and the udfi while it's better not to have it once you understand how udfi actually works it has a very minimal impact on your overall investment outcome and here we've got a couple of those bullet points with some more detail why what some of the features of the qrp 401k versus an ira based structure however we do not want to run afoul of the requirements to have the checkbook qrp and while any kind of qualified retirement plan qualified retirement plan can be checkbook controlled um in practice these are only administratively feasible for owner only businesses the moment we have a business that's not owner only the fees to men maintain that um climb um incredibly so while our clients are paying 150 per year to maintain their checkbook qrps uh if they were to have employees or not business owners the cost would just be substantially higher so to qualify for a checkbook owner only qrp you've got to have an active trade or business which generally does not include real estate rental income so having rentals or having lp investments will not qualify you for a qrp and we've got to ensure that you do not have those full-time employees that are not business owners uh so i'd like to kind of conclude the presentation with this and then open it up for questions uh it was kind of a lot of a lot of legal nuance here um a lot of different stuff that we've tackled it's been broad and deep and let's take those questions let's bring them on great so we have about 15 minutes left able to take as many questions as we can during this time and for those of you who uh might not get all of your questions answered you can on the screen there see bernard's contact information so go ahead and jot that down so that you can can reach out to him to have those those questions answered so let's uh take the first question here from david it says i have a checkbook solo 401k which i set up as an llc under my real estate llc i was told that i don't need to report the irs if my assets are less than 200k does that 200k uk refer to my investment dollars in the real estate i purchase within that solo 401k or does it refer to the value of the property i have purchased it's going to be based on the asset value so not on the level of your contributions it's going to be on the value of the asset so if the asset you did well and the validity asset increases um then you can hit that reporting threshold incidentally it's not 200k that reporting threshold was 250k great and let's see here press the button there um kimberly has a question about disqualified investors uh the business partners aspect confuses me i understand that i cannot use my ira to invest in a company based on ownership with unqualified people but can i invest with a company that is owned by an unrelated third party with both my taxable business and my ira unrelated investments of course one deal with the ira and one deal with my taxable business is that an issue so i hope i follow this question um and just ensure it gets answered um i'll try to answer it broadly um this is one area that i see tripping people up all the time so on the list of disqualified persons where everybody got the family members those kind of blood relatives or legal relatives covered however business partners uh folks that you have business ventures with outside of your ira are also disqualified persons and custodian questioners um custodians when they fund deals they try to also want to make sure that they don't fund any prohibited transactions and the standard questionnaire will ask is anybody is your mother involved is your father involved is your child involved business partners tends to fall between the cracks so if somebody is your business partner in a venture that you've got outside of the ira they are a disqualified person to your ira um i don't have any other further questions in here but i do have one uh myself that i wanted to ask you so if somebody let's say there's an offering out there and the minimum investment is say 50 000 but they only have 25 000 in their ira and they want to invest 25 000 in cash can they passively invest 25k of just regular cash in that deal as well as 25k from their their ira that is an excellent question and we would discourage that when there are hard minimums and there's benefit crossing between the ira and the individual uh if there's a clear benefit then we would discourage that and so what would be the benefit there the ability to actually invest in that because you're able to pull the resources that's right so of course it's very much facts and circumstances so if that person can demonstrate that hey i had the assets you know either i had 50k in my ira or i had 50k in my bank account but i thought that for my tax planning my long-term financial strategy that this is just a great deal for my ira and it's a great deal for me so i figured let's break it up that's that's cool but if they're really cast strapped and the only way they can do it is by pulling those assets and that's something we would discourage okay so that'd be a great question to make sure that you had you know had your cpa or something like that kind of make sure they're looking at the actual situation at hand and making sure it's all all up and up if you will yes it's one of the things that we want people to be aware of is that even when you've got that control um there are still rules that you've got to follow uh and it's you want to be cautious now when anything tax related you don't nothing happens unless you're audited uh but in the event that that happens the adverse consequences are not something you want to deal with so rather be safe than sorry is our approach so this next question is from david um my llc that owns the solo 401k has a house which it owns and is rented month to month to guests the company pays me and my wife a management fee is my 401k legal that is an excellent question and i'd probably prefer not to answer that on the year and live but this this is an issue that we are encountering um now there are ways um that you can structure things in order to kind of qualify for a qrp right 401k is just some version of 401k and a qrp is an employer sponsored business by its very definition it's written in the tax code in section 401 it's something that's a trust that's created by an employer and the kind of income that qualifies is going to have to be the kind of active trade or business so rental income is generally passive right there's no self-employment tax on a uh on passive income on on rental income so that generally does not qualify when you can take steps to create some sort of management structure with management fee management compensation but it has to be well structured simply calling part of your llc income management income management fee is not going to do it okay next question here is uh from uh troy it said he said isn't the uda fi tax substantial on a large gain from a sale okay awesome question so the udfi and the udfi can be meaningful it depends very much on the magnitude but one of the things that i've been hearing recently was udf5 rates are you know 40 percent uh the udfi rates on a sale are the long-term capital gains rates right so we're not looking at any of that 40 stuff we're looking at 0 15 or 20 percent so once we understand that that is the rate we're dealing with and then recognizing that the tax is only applied um based on the ratio it's called the debt basis ratio so it's not going to catch all your investment it's only going to be a percentage of it then you'll find that it is generally nominal and when i say nominal of course on a 100 million dollar deal it's going to be a big number but in the scope of your investment analysis it is not a factor so for people that are investing in real estate right if we're having somebody that walks through the door and he says okay should i have should i use my tax shelter accounts for real estate well the first thing we're going to try to see is okay can we qualify these folks for qrp if not then we're going to go to the ira based structures and if we have to use an ira based structure then the analysis becomes okay do you want to keep your ira in the stock market or put it in real estate and yes in the stock market you're not going to have udfi but you're not going to get leverage either so you try to go to your bank and say okay i've got 200 000 in my ira and i'd like to buy 800 000 of stocks let's see how that goes over whereas in real estate you actually get the benefit of using the bank's money you want to do an all-cash deal you can do it you can do all cash real estate or you can use leverage you will always come out ahead if you know what you're doing in real estate of course there are good deals on bad deals but anybody that's doing this is planning to do good deals and on the good deal you're coming out way ahead um even once the udfi is factored in so the udfi is never a factor in your decisions because you could not choose a qrp over an ira because of udfi you choose a qrp because you qualify for it based on your financial profile if you don't qualify for it then you don't want a qrp and of course if you do qualify for it then we get you set up with the qrp but once you're in the ira world the udfi is something you'll have to contend with potentially however it's generally not going to be something that's going to impact your decision or your overall better outcome that you're going to get with real estate visit v mutual funds so the next question here is is there a process one could follow if they have a checkbook ira invested in a syndication and are now able to meet the qrp rules could they migrate that to a qrp while it is still invested in the syndication yes they could that's called an in-kind rollover and it absolutely is doable requires paperwork but that's doable okay and let's see next question here is what is considered earned income to be eligible for a solo 401k contribution investment income interest etc right so those that are mentioned there are not considered earned income earned income is something that would kind of rule of thumb a way to understand it and to look at it is to know would i pay self-employment tax on this income that's a good rule of thumb to use and anything that's investment is generally not that kind of income so it's going to be something that's a business and now it's important to note say what is a business um and let me bring the slides back up for a moment am i still sharing my screen yes i am yes all right so let's take it back a minute okay this is actually the last one that we skipped if i only work part-time in my business do i qualify for a checkbook 401k the answer is yes there's no requirement that it be a full-time business however it's not something that you do once and then forget about it so it can definitely be our time question i have a w-2 job can i have a checkbook 401k for my self-employment income again yes to take it a step further i've got a w-2 job and participate in my employer's 401k can i have a checkbook 401k for my side gig myself employment income yes so as you can see what i'd like to what i say generally is with today's side gig economy more investors than ever qualify for a checkbook 401k because it can be a side gig it can be a side hustle it can be consulting it can be ride sharing it can be so many things it can be selling stuff on etsy and uber uh selling you know etsy and ebay amazon they're just so many options that are available and more americans than ever are engaging in these side hustles however it still holds true that most americans probably do not qualify for a cure for the qrp that's owner only because we're looking for the subset that have an active trade or business that's a true business not an investment not an lp investment not a syndication uh not having a duplex that they're renting out so they've got a business but it has no full-time employees so there are tens of millions of americans that definitely qualify but there are probably more that do not and i'd say a key focus and key benefit that we bring to people is say hey we do all plan types we're not here to promote one over the other we know all the pros and cons and the drawbacks and we're going to help guide you to the one that suits you best all right that is all the questions that we have for today for this particular session bernard i want to thank you so much for joining us and participating and and sharing a lot of this information about the checkbook 401k yes uh dan and the entire multi multi family investor nation um always great to be here um love sharing the knowledge interacting networking and everybody is welcome to hit me up with if you've got questions uh email phone number it's all right there uh wherever you are in the country or all over the world we'd love to talk to you