Updated: Jul 29
This LIVE podcast episode will host an amazing guest, Kaaren Hall, CEO of uDirect IRA Services, LLC.
Register Here : https://zoom.us/webinar/register/7015949347966/WN_bm11W3dIR1y9mURs2MURYw
We will discuss new rules since the COVID-19 that allow IRA holders to pull from their IRA with no tax penalties. We will also discuss Unearned Business Income Tax, Changes to IRAs since COVID-19, Withdrawal exceptions up to $100k, Contribution changes and how there is No RMD in 2020.
U direct IRA Services LLC has $500MM+ Under Management.
Kaaren Hall : Despite being in the midst of a recession and mortgage market collapse, Kaaren Hall founded and made a resounding success of uDirect IRA Services. She discovered a strategic way to put her 20+ years in mortgage banking, real estate and property management to use. The solution was an untapped market for both her skills and for investors – self-directed IRAs. Through uDirect IRA, she has guided tens of thousands of Americans through the process of diversifying their investments using self-directed IRAs. Learn more about Hall and her thriving company at uDirectIRA.com
0:00 - Intro
5:14 - Rules have Changed
10:05 - Investments
12:50 - IRS publication 598
14:35 - Tax Depreciation
18:00 - Rich Dad, Poor Dad
20:00 - Pay yourself event
21:00 - Self Direct IRA
23:00 - Contact Kaaron and Aaron!
The Passive Cash Flow Podcast is for beginner or experienced investors. Subscribe today to learn how you can diversify out of the stock market, own a part of an apartment building & start earning Passive Cash Flow!
Peoples Capital Group has been helping passive investors build wealth in NJ real estate for 10 years. Visit www.PeoplesCapitalGroup.com to find out if you qualify to start earning passive income and pay less taxes via investing in real estate. IRA's and 401K's are accepted.
Aaron: We are live now on the stream yard and here with the Passive Cash Flow Podcast. Kaaren.
Aaron: Sorry about that. I'm sure you get that mix up all the time, right?
Kaaren: My whole life, yes.
Aaron: [laughs] Thank you for coming on here at the Passive Cash Flow Podcast. We are live now on Facebook. I haven't been yet approved for LinkedIn. I put my application in, so hopefully I get approved. Tell us about yourself here, and what you do over there with your company.
Kaaren: I help people take their retirement money from where it is, and put it into alternative assets like real estate primarily, private placements, notes. Different things, precious metals, performing and non-performing notes and things like that. [unintelligible 00:01:00] all different kinds of things. I'll turn it into assets.
Aaron: That's super hot right now. I am in a real estate business. One of our webinars we're doing Saturday is how to diversify out of the stock market into real estate. The signups we're getting, the amount of interest and excitement about webinar is cool. It's really good for business owners like us. I think people are getting a little tired of the volatility in the stock market, and just looking for alternatives. You find that?
Kaaren: Absolutely. That's what we offer. We don't sell anything. We're not selling any assets, but what we do is give you the opportunity to choose. We're the catalyst, if you will, to take your retirement money and move it into those asset classes. Otherwise you can't [unintelligible 00:01:44] or something like, they'll only let you invest in the stock market, but we help you invest outside the stock market.
Aaron: Exactly. So many people think they don't have that option. I talk to people sometimes and they say, "No, it's illegal to self-direct your IRA."
Kaaren: [inaudible 00:02:00]
Aaron: My guy at Merrill Lynch said, "Sorry, you got to leave your money here with us. You can't do anything else with your IRA." [laughs]
Kaaren: That's what they want. They make money on their assets under management, I get it. They'll even call them the self-directed accounts, because you can choose any stock that you want. It's not truly self-directed, because you can't invest in any asset you want. You can't invest in a private placement.
You know what? This is what it is. It's like grassroots, it's people helping people. My IRA invests in your business, in your real estate project. Then you build up a community, and it's person to person as opposed to institution to institution. It's pretty cool.
Aaron: We buy inter-city properties. Newark, New Jersey, Paterson, New Jersey and people put their IRAs into it and actually make a difference. In inner-city areas their IRA. I think people appreciate that more than ever sometimes, [unintelligible 00:02:57] just sitting in an index [unintelligible 00:02:57] going up and down with the stock market, you find that?
Kaaren: Yes. When you can touch your asset, when you know you're making a difference in a community, it's a great feeling, yes.
Aaron: The self-direct space is so incredible. There's so much opportunity there. I think it's a great space to be in. There's also a lot of competitors now as well, so how do you guys set yourself apart from other self-directed IRA custodians?
Kaaren: Lots of ways. One of the ways, first off is our pricing. You'll find our fees are really low and people love that. We have a flat fee, so it's not a percentage of your assets. It's not that. It is a flat $275 regardless of the number of assets, and regardless of their value. Our fees are great. I think what also people like is the service. When you open up a self-directed IRA account, you're trying to do a deal. You want to be able to talk to somebody, to talk to a person and get that same person when you call on the phone. We assign our transaction coordinators alphabetically actually.
Wherever your name falls in the alphabet is the transaction coordinator you get. Then you work with that person, not some call center. Our people have been around a long time and they really know real estate. That's been their lifelong background before we hire them, so they understand your deal. You're not going to have to explain your deal to our transaction coordinators. That's just great. We're accountable and with you every step of the way. People love that.
Aaron: It's funny people contact us about self-directing their IRA, and they're like, "It must cost thousands of dollars." We're like, "No it's actually pretty cheaper. Usually a few hundred dollars, and you start an accountant and get your assets moved." I like that how you don't charge based on the amount of capital they're moving. I'm always a fan of that. It never made sense to me. It's almost like you get penalized for moving more money.
Kaaren: Having your account grow in value. That's what we want. We want you to be successful in your retirement. There's a huge deficit between what we have and what we need to retire. It's enormous, and so we want you to succeed. We're not going to try to take some of that away. It's just as much work to move a million dollars as it is to move a hundred thousand dollars. It's a wire. Maybe there are a couple of little steps of verification, but at the same time it's pretty much the same thing, so we don't penalize you.
Aaron: I like that. That's great. Let's talk about some of the topics we are supposed to talk about here on this podcast. We were talking about how the rules have changed with the COVID now, for your IRA and in a good way. Talk to us a little bit about these changes.
Kaaren: The CARES Act came out. With the CARES Act a lot of things changed. First off early in November we had a change in the amount that you could contribute to your account. That increased. For example for a traditional and Roth IRA, it's now $6,000 if you're under 50, $7,000 if your 50+. That's one. The contribution limits were increased. You can see all contribution limits on our website which is udirectira.com.
That with the CARES Act and with other things that have been going on ever since, required minimum distributions for 2020, they are waived. A lot of your listeners may not be 70+, but if you are just understand that if you don't need the money and you were being made to take it. Now you don't have to. You don't have to have that tax hit for the 2020 tax year, it's wonderful. If you need the money you can take it, but you don't have to. That is one thing that was waved this year.
Also with the CARES Act we've got something called the CRD. Everything is an acronym.
It's the Coronavirus Related Distribution. What this means is, and there are two different ways. One is 401k one is IRA. Two different sets of rules.
Let's talk about the IRA. If you have an IRA with the Coronavirus Related Distribution, you can take up until December 31st of this year. You can withdraw $100,000 out of your account without a penalty, all right.
Aaron: Wow that's the big one.
Kaaren: Yes, it's a big one. You've got one, two, three tax years to pay the tax on that, because you're going to get a 1099. You work with your tax advisor, you've got three years to pay. I am not an advocate of taking money out of your retirement account. I'm telling you what, you need a lot of money to retire. I just calculated that given the current average cost of living per year, multiply it out times 20 years, which is about the average length of retirement. That you need at least 1.2 million saved to be able to say, "I don't need to earn another dime. I'm set for retirement."
If you don't have that, don't take the money out of your retirement account, you're going to need it later. If really this is the last hope that you have, and you've got to take it out, you can. Just don't think of your retirement account as some piggy bank you can break at will, you're really going to pay for it down the road. Guess what? You can't just go stick another $100,000 back in your retirement account. You can't do that.
You've got contribution limits. You could take it, use it for 60 days and put it back. Three years later you can't just stick a hundred thousand in your retirement account. You could do it, should you do it? It's your call, right? It's available to you and it's something that's happened since the CARES Act came out.
Aaron: That's incredible. One of our investors she recently did take advantage of that, and she has enough tax write-offs, I believe to write off the game over the next three years. She sat down with her accountant and she did meet the capital and her IRA is very, very well funded. At the age of 70 as well, she's looking to start moving some capital back over into her [unintelligible 00:08:36] there.
Kaaren: That's so smart. She did it the right way. She had a plan, she worked with her tax advisor. She made it work to her advantage, kudos to her. That was great. That was fantastic, but just make sure you go in with a real plan.
Aaron: Exactly, because of your age or where you're at, everyone's tax situation is different. It's funny, tax is one of the hardest things for us to explain sometimes or predict to our investors, depending on when they exit or how they invest. Whether it's an IRA or cash. Just your IRA is such an amazing tool. Now, to be able to really self-direct it, [unintelligible 00:09:16] put it into the things you have passions for is even more fun. It used to be a boring part of investing, and now it's a lot more interesting by self-directing it.
Kaaren: It's so great. By the way, just have to go back to CRD for just one quick second, because I should mention. You have to be eligible to do it, you can't just take it out. You have to be diagnosed with COVID or experienced adverse financial consequences. I just have to throw that in there about the CRD.
If you take the Coronavirus Related Distribution, you're going to have to prove not to us, but to the IRS at some point that you were truly eligible. Thanks for letting me throw that little [crosstalk]
Aaron: No, no absolutely that's important little nugget there, absolutely. I would imagine a lot of people could say they've been affected by COVID.
Kaaren Hall: Sadly, sad but true. 40.7 million unemployed.
Aaron Fragnito: We were going to talk a little bit about, I think Opportunity Zones and UBIT. I don't know how much we want to get into this here.
Kaaren: Ozones are off my radar because, you can invest in them with an IRA, but you're already getting tax benefits. People use IRAs to get the tax benefits of investing, so you can invest with your personal cash and the Ozone. Your IRA could invest in an Ozone fund, but the only tax benefit you're going to get is the fact that your proceeds come back tax-free [unintelligible 00:10:38] Roth or tax deferred. I think it's really interesting to talk about UBIT, unrelated business income tax, and UDFI unrelated debt-financed income tax.
That's interesting, and the reason because when you're an IRA investor you-- I always say self-directing, it's like a game of keep-away, right?
You got to keep away from prohibited transactions. Got to know the rules of the game to win the game and UBIT or UDFI especially can really come up and just bite you in the bum, because you may not realize hey you just invested in this private placement. You're so excited, you're going to buy some commercial building with your IRA you're going to be part of an owner. You got an equity share, your IRA is in equity shares in this commercial building. Here's the asset sponsor doing their job, and they borrow money they bring in leverage into the deal.
The percentage that your IRA earns that came from that leverage is subject to that you UDFI tax, boom you didn't know that. They didn't tell you that when you invested. Now a couple years go by and you get a little knock on the door from the IRS saying, "Hey, you forgot to pay your UDFI." Then you talk to your tax advisor and you file a 990-T, it's called. Now you may end up owing no tax at all, but you're still going to have to go through the process. Know that, know that if your IRA takes on a non-recourse loan it's a special loan like a commercial loan. It's a loan not made to you, the person, but made to the IRA
If your IRA takes out that loan, the profit that your IRA makes because of leverage, the percentage. That percentage of income is taxable, so talk to CPA about it, your tax advisor, just like you're telling me about this other woman. She got together, she sat down, she goes, "Okay let's make a plan." That's what you always want to do when it comes to investing anyway, so make sure you do it now. It may turn out that you don't owe any tax at all, but you still need to file if your IRA has taken on leverage.
Now there's UBIT, and some people call the whole thing, there they call UBTI, UBIT. Where you can find all of this, is on the IRS website. I'm going to type it here in the chat bar irs.govpub598. If you're on Zoom, you can see that irs.govpublication598. You can read all about unrelated business income tax and unrelated debt financed income tax [inaudible 00:13:04] UBIT is when your IRA invests in an active business.
Say my IRA bought a, I don't know, bought a franchise like a Tommy [unintelligible 00:13:15] or something. That's an active business, maybe not today because of COVID, it's probably closed. Normally it's an active business. Then that active business is going to throw off this tax, but back in the day we may see these days again. In the day when you could flip properties, you could flip 25 properties a year, no problem, because they were available and you could do it.
That's running an active business in your IRA. That can throw off unrelated business income tax. What I'm saying is know that it exists, talk to your advisers. Do your homework, still invest. It could be the best deal you ever made. These taxes don't necessarily kill your deal, but you have to put pen to paper and do the numbers and figure it out.
Aaron: It sounds like you can also write off the UBIT if you have some other tax expenses or tax depreciation. [crosstalk] Now our buildings tend to produce more tax depreciation than cash flow. The investors stay invested long-term, or may be an equal amount. They can basically write off all their cash flow, and still have some tax depreciation left over. Now, in that case, can you use that tax depreciation to write off your UBIT?
Kaaren: Yes, you can, yes. Your tax person will do that, yes. You'll be able to take deductions, yes.
Aaron: Yes, ideally if you're [crosstalk] if you're invested in the right type of real estate that gives you good tax depreciation. You don't have a ridiculous amount of cash flow that you need to use your tax depreciation [unintelligible 00:14:53] down, then you should be able to write off that, any UBIT owed. From my understanding, it's a pretty small percentage at the end of the day, right?
Kaaren: It starts off at the same rate as the tax [unintelligible 00:15:05] I don't give tax advice, but I know it's around 40%, could be up to around 40%, so get tax advice.
Aaron: Absolutely, and when someone self directs their IRA through you, you can always maybe suggest some accountants or something like that?
Kaaren: Absolutely, we have a list of them. Yes, in fact we're having a couple events coming up with tax experts to talk about all sorts of things. We're always doing events and teach people, and helping people become financially aware. We've got one thing coming up, it's called, hashtag adulting [chuckles] for millennials.
Aaron: I saw that, yes.
Kaaren: You don't learn, you could have an MBA, you don't learn how to take care of your personal finances. You don't learn, how do I start a company. What do I do, what
is my responsibility? When you know you go, "That was easy," but you just needed to know. We're constantly providing that education.
Aaron: No, I love that. Don't even get me started about the education system. I think it's way out of date. I went to college, I paid $150,000 and let me tell you I learned-- [unintelligible 00:16:11] That was cheap, right? It was a good school and all, I enjoyed it. I learned how to show up on time and work hard, and--
Kaaren: Made some friends.
Aaron: -I made a lot of friends, learned a lot of other things, but I don't remember calculus two. I don't even know why I had to take calculus two, and all the stuff I learned, the accounting or like-- I have a CPA, I have a book keeping-- College teaches you a lot of important things in life, but it definitely doesn't teach you how to run a business. I was an entrepreneur major, so if doesn't teach you how to run a business thing well. I think College used to be hands-on learning. In my opinion, if you're going to be an entrepreneur major, half of your tuition should go back to you to start a business, that would have been awesome.
Kaaren: That's an education. That's what self directed IRAs do. Once you've self-directed your IRA, now you take the money from where it is, you put it in a self-directed IRA account. You find an asset, you invest. Now you're watching that investment, you're watching the return on your investment. Did my tenants say, if it's a house, did they make their payment? Do I need to have a third party vendor go out and do a repair? You really are watching this learning the whole time like, "I didn't know that, I didn't know that." Then you start watching podcast, and everybody who's learned from the school of hard knocks can advise you and tell you about how to actually manage your asset.
With a self-directed IRA that lets you do it, and then you're saving for later. You're being your own bestfriend, because I'll tell you what, retirement comes at us like a freight train. You think "I'm young, I don't have to worry about it." The time to plant a tree is either today or 10 years ago, so plant that tree and save. Make a contribution to your IRA. We just passed the deadline for contributing for 2019 contributions, but pay yourself instead of the IRS. A lot of times you get a tax deduction for doing it, so that's another time, work with your tax advisor. Hey, if you're going to write that check may as well write it to yourself, right?
Aaron: That's so important. I read the book Rich Dad Poor Dad about a little over 10 years ago. I'm sure you've heard that. [laughs] Everyone [unintelligible 00:18:15] same story. Really did inspire me, and I can't believe after $150,000 college education that a two day read of a book, actually it's inspired what I do today. Taught me more about wealth and money, and how wealth is created by having wealth and how to have money, make more money. It's so interesting how we're really not taught that at all in college.
We're not taught how to do our taxes, we're not taught how to balance a checkbook. We're not taught why the 1% get richer, and the rest of us think we need to get more jobs and work more hours to become wealthy. That's not the solutions, to make your money, work hard and pay yourself. What you said there, pay yourself, there's so many Millennials not to knock-- I'm 33, I can make fun of Millennials all day long, [chuckles] but pay yourself. I bet you if you lined up 10 Millennials, and you said "Hey, do you pay yourself every year?" They'd be like, "Yes, I go on a vacation. Yes I go out to a fancy dinner, and yes, I have this BMW."
No, pay yourself, put it away, put it in an IRA, put it into real estate. Put it into an asset class that's going to make more money. That's it, whatever you could do, 10% I try to take 50% of my income, personally and put it into assets that make more money, which is heavily, heavily real estate. [laughs]
Kaaren: We love it, that's why we're here because we love real estate. All different asset classes.
Aaron: Yes, absolutely. I'm really not a stock guy, I don't really understand stocks, or have any passion for it. Whatever your asset class is, as long as it's creating cash flow, a dividend, tax benefits. Then that's what it's all about. I think you nailed it with. educating Millennials on what paying yourself is, what that means. When is that event?
Kaaren: That's coming up July 23rd, so it's right around the corner. It's next week. If you go on Facebook to udirect IRA on Facebook, we have a group and you can register there.
Aaron: I love it. That's a great market to be in. Whether you're a millennial or not, I just think we need to educate more on how to pay yourself, and what that means. All right, great. We covered then some new updates on COVID. Are there any other updates from COVID that you can think about right now that you want to breeze over as well?
Kaaren: We had the extensions for filing the 990-T extended, but now we're past that date so it's not really relevant. I think the CRD is really the big thing and also the RMDs. That's really super important. Let's just talk about self-directing a little bit. Don't be intimidated by a self-directed IRA. It's completely manageable. It's a three-step process essentially. Open an account, takes a day. [unintelligible 00:21:06] When we're waiting for the money it can take up to two weeks, but usually not that long. Then invest.
While we're waiting for the money to come over, we can be reviewing your documents and getting everything queued up to fund that investment. Then 100% of the proceeds go back in the IRA that owns the asset, and if there are any expenses of the asset, if it's a house there's nothing but expenses [unintelligible 00:21:30] real estate. If you need to [unintelligible 00:21:31] taxes or whatever, those expenses must be paid for by the IRA.
You can pay the fees personally, like the account fees, but the asset-related expenses have to be paid for by the IRA. Never you personally, because I told it's a game of keep-away. If your IRA commits a prohibited transaction, game over. Your IRA gets dispersed to you as though you would earn the money, may be penalties, excise taxes. I can get a little ugly.
Follow the rules and that's what we do. We talk to people all day long. Tell us about your deal, what are you looking to do? Just to hear if it sounds like a prohibited transaction, because if it does sound like a prohibited transaction, we want you to know that so that you don't make a mistake.
Aaron: That's so important to work with the right IRA custodian that guides you properly with that. Not only is it required by law to work with an IRA custodian, because you cannot touch your IRA or you get taxed of course, but the guidance is priceless. I always find it funny when people tell me, "Can I avoid the custodian? Can I just go through the shortcut." I'm like, really it's worth the few hundred dollars you're paying to open an account. It's like going to a consultant or financial advisor of some type, and it's worth the weight in gold.
Kaaren: We're going to be looking at every deal. Every deal that goes through, we review it. We give it a compliance review. If you were your own custodian and you're doing it yourself, you wouldn't have the benefit of our eyes looking at your deal.
Aaron: That's exactly it. It's like having any type of professional look at an opportunity. It's a whole other set of eyes. I love it. How can people contact you?
Kaaren: The best way is to go to our website, udirect, the letter U, udirectira.com. Then boom, there's so much information. Sign up for our newsletter email@example.com is a great way to get a hold of us. Telephone 866-538-3539. All the regular ways. You can smoke signal, it doesn't matter. Just get a hold of us.
Aaron: Where are you located?
Kaaren: We have accounts in every state in the nation, but we are located in beautiful Irvine, California.
Aaron: Lovely, lovely.
Kaaren: [unintelligible 00:23:48] Irvine right there.
Aaron: It's always sunny there I believe, right?
Kaaren: It's pretty nice. I'm not going to lie. Why do we put up with craziness in California, it's because of this.
Aaron: That's why taxes are six times everywhere else. [laughs]
Kaaren: [unintelligible 00:24:04]
Aaron: No, no, no, we love California. We covered a lot of information today, ways to work with new rules due to COVID here. If COVID has affected you, it sounds like there's a lot of benefits now. You can pull from your IRA and work with your CPA to make sure you don't--
Kaaren: Yes. I put a link to that by the way in the chatroom, so if you want to see the CARES Act and how it impacts your retirement. I put a link in the chat box, so you can click on that there.
Aaron: Awesome. It's such an interesting space, because there's always new rules coming out and new opportunities coming out. I believe the IRS and the government is trying to make it easier to self-direct your IRA. It's becoming more and more popular and more common. It's a space right now that isn't overly regulated, at least in my opinion. I'm sure there's many opinions about that. It's a little easier than other things you can do. Definitely contact Kaaren, right?
Aaron: Kaaren here-
Kaaren: [inaudible 00:25:04]
Aaron: -and uDirect IRA they can help you out with self-directing your IRA. Us here at Peoples Capital Group, we can help you move that capital into an apartment building that's professionally managed in New Jersey, if we find that's a fit for your investment needs.
To qualify, to learn more about what we do here on the real estate side, once you self-direct your IRA and you're looking for a safe asset that's going to produce cash flow and long-term wealth gains. Then you go to PeoplesCapitalGroup.com. You can fill your information and learn more about what we do here at Peoples Capital Group. See if you qualify for a passive investment with us.
We're on the real estate side, but first reach out to your self-directed IRA custodian and check out these guys. They're great, Kaaren you put all your information[unintelligible 00:25:49]
Kaaren: Just don't call me Karen. I don't want to be a Karen.
Aaron: [laughs] No one wants to be a Karen these days.
Kaaren: Not today.
Aaron: [laughs] Man, there's so many Karens out there. What are they going to do? Oh my God.
Kaaren: It's because we're all moms.
Aaron: [laughs] Every Karen I know is a mom. Thank goodness for moms. All right. Thank you so much. Thanks for coming on here. I hope all our listeners enjoy the passive cash flow podcast. We went live today on multiple platforms. I'm going to check out here. I'm Aaron Fragnito with Peoples Capital Group. Check us out online for more information. Have a good day.