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The #1 Account All Wealthy People Have (the $102 million secret) - YouTube
Channel: Wealth Hacker - Jeff Rose
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- What's goin on everybody?
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Today we're going to talk about
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what I'm holding in my hand right here.
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What I'm holding here is a
special type of an account.
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In it is an account that if you want
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to become one of the elite,
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one of the wealthiest,
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if that is a goal of
yours to become wealthy.
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Then this is an account
that you have to have.
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Today we're going to cover:
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what is this account?
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What makes it so attractive?
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What makes it so sexy?
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And why and how are wealthy people
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taking full advantage of it?
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That's what we're going to
find out in today's video,
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coming up.
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(upbeat electronica music)
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What's goin on everybody?
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Jeff Rose back with
another wealth hack tip.
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And today we're talking about
a special type of account,
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that all wealthy people have.
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And for those that are familiar
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with how to build wealth,
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you know, how do the rich get richer.
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You commonly here that they
are investing into real estate.
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They are entrepreneurs.
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They have their own companies
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or investing into companies.
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Private equity.
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You hear all these different ways
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that they're building wealth
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and all those are true,
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but the one thing that you have to realize
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is that it's not just
what they are buying,
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but it's how they are buying it.
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You always hear that
the rich take advantage
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of all the tax loopholes
and all those tax breaks
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and there is some truth to that,
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but for the most part,
like these aren't secrets,
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like these aren't tax principles
that you can only find
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if you know a guy who knows
a guy who knows a guy.
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These are all things that
are public information.
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It's just a matter of either
doing your own research
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or getting connected to a tax professional
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that knows what they are doing.
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And I share all that because
that is what to lead to me
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opening the type of account
that I referred to earlier.
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And what this account is,
is a self-directed 401K.
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Now you can have a self-directed 401K
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or a self-directed IRA.
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Now we'll talk about that
more here in a second.
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Now all this became very
popular whenever Mitt Romney,
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who is a former presidential candidate
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was running against Obama,
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and it came out that he had an IRA
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that was worth more than
102-million dollars.
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Yeah, let me say that again,
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an IRA, an individual retirement account,
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that was worth over 102-million dollars.
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When that came out, people
were scratching their heads,
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trying to figure out
how he exactly did that.
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'Cause if you know anything about IRA's,
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you can only put in so much per year.
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Right now, it's 5,500-dollars,
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so if he was putting in
5,500-dollars per year,
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how in the world did he grow that
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to over 102-million dollars?
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The average person,
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I don't care how great
you are at picking stocks,
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like that is not going to
work, you are not that good,
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that is almost impossible to
grow an IRA into that amount.
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I don't care if you are Warren Buffett.
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So many were asking how that happened?
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How was he able to do that?
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And the answer is, is a self-directed IRA.
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First, let's define what exactly is
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a self-directed IRA or a 401K
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and quite simply put, this
is a retirement account
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where you have full discretion
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in what you are putting into it
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and what investments you are choosing.
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Now for many of you
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that may already have a retirement account
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with an online brokerage
or a local investment firm,
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you might think that you have
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a self-directed retirement account
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because you have full discretion
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to choose your mutual funds,
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choose your stocks, choose your ETFs.
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And while that is true,
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you don't really have
what is considered to be
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a self-directed retirement account.
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So let's get more specific
on what that exactly means.
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So what exactly can you invest into
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and versus what you can't invest to?
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And I'm gonna start what you
can't invest into in an IRA.
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So the two things that
you can't invest into
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are life insurance and collectibles.
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So what exactly are collectibles?
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Collectibles are art work,
antiques, coins, gems, stamps
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and yes, even my Snake
Eyes G.I. Joe figures.
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Dang, I like my G.I. Joes.
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Those are the two things
that you can't invest to
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into an IRA.
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So what are the things
that you can invest into?
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And this is where it gets a lot of fun.
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So here is a list of the
things that you can invest
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inside your self-directed IRA or 401K.
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So what can you invest into?
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You can invest into real estate,
gold, options, hedge funds,
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limited partnerships,
tax leans, private stock
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and international real stock.
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Now if you notice, some of
the things that I mentioned,
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if you tried to do this
at your online brokerage,
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whether it be Vanguard
or Fidelity or ETrade,
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you're not gonna be able to
buy these type of investments
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in there, with them,
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because that is just not what they do.
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They are a custodian
that doesn't specialize
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into these alternative investments.
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Right, there are only 47 custodians
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that will allow you to open
a self-directed account,
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whether it be an IRA or a 401K.
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But what I can tell,
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there are less and less
that are out there.
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There are still some available,
so yes, you can do it,
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and there are some that
specialize in that.
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And even in the 47 that
are out there currently,
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some may do real estate, some
may do private company stock,
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but a lot of them don't do everything.
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So a lot of them have their specialties,
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their niches that they focus on,
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it just depends what exactly
do you want to invest into.
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Now let me tell you, Mitt Romney
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is not the only wealthy person
that is taking advantage
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of this self-directed retirement account.
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It's reported from the U.S.
Government Accountability Office
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that over 791 individuals
have IRA balances
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between 10 and 25 million dollars.
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And of those, 391
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have over 25 million
dollars in their IRAs.
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Now all these figures are from 2011,
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so I have to imagine that
these numbers are much bigger.
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So as you can see there are wealthy people
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that are taking full advantage
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of these self-directed
retirement accounts.
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Alright, we talked
about some of the pluses
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and some of the positives
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of having a self-directed
retirement account.
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But obviously with every
pro there is a con,
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so what are some of
the dangers or pitfalls
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when it comes to having
one of these accounts.
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Well, the first one I
can tell you is cost.
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If you're going to have
one of these accounts,
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it is going to be much more expensive
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than having an IRA at an online brokerage,
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where they may charge 10-dollars a year
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or maybe 50-dollars per year.
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You can expect to pay a lot more.
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I remember several years ago,
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I had somebody contact my office.
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They had a self-directed IRA
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that was held with some custodian
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that was changing the way
that they did business.
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And this person had some
sort of private ownership
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into some business, some private equity.
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And I think they were paying
about 100-dollars per year
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for them to have this account,
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but they're making some big changes,
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so instead of paying 100-dollars per year,
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their fees were gonna go up
to 275-dollars per quarter,
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so 1,100-dollars per year
just to have the account.
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And in their case,
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there wasn't a lot of activity
going on with that account.
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There wasn't any interest being paid,
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it was just this stake
in this private company
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that they owned.
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So try to justify paying
1,100-dollars a year
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was very hard for them
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and they were trying to find a custodian
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that they could transfer
out to to lower their costs
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and still have this
ownership in this company.
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Another potential concern
is IRS filing requirements.
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Now, if you have an IRA, you
don't have to worry about this,
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but in my case, I have
a self-directed 401K.
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So what does that mean?
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That means that I have
certain IRS regulations
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that I have to follow
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that are much more strict than an IRA
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and some of the more
simpler retirement accounts
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that exist out there.
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I have to file what's
called a 5500 every year.
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I have to file my amendment
with my TPA every year.
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And I pay anywhere between
500 to 1,500-dollars per year,
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just to make sure I am
good with the IRS on this.
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So once again, as you can see,
this is much more expensive,
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but as a business and the fact
of what I own in my account,
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which I'll share with
you here in a second,
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I can justify the expense
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because of the flexibility that I get
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by having this self-directed 401K.
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Alright, the third danger or pitfall
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that you have to be aware of
is prohibited transactions.
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So there are many of these
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and I don't wanna list them all here,
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you can do your own research,
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but since many of you are
familiar with real estate
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and that's something we all can relate to,
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let me give you two examples
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of what would be a prohibited transaction
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inside of a self-directed IRA or 401K.
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So a common question I hear from people
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that want to open one of these accounts,
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oh, well, can I just take
IRA money and buy my house?
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And you cannot do that,
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so if it's a property
that you currently own,
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you cannot use your IRA
money to purchase that,
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that is a prohibited transaction.
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Another example could be a vacation home.
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Let's say you want to
buy a home in Florida.
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Well, if you have wanna buy the home
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and use it as an investment
property that's one thing,
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but if you are using
this as a vacation home,
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where you're going there for
even a week out of the year,
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the IRS is not going to like that
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and it could be considered
a prohibited transaction.
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So what does that mean if you get deemed
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as a prohibited transaction
inside that IRA?
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Well basically, the IRA becomes
null, it's becomes void.
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Any tax shelter that you had
or that you hoped that you had
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with this self-directed
IRA or 401K is now gone.
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You just lost it.
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So you have to be very careful
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what exactly are you investing into
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and that's why it's important
to have a tax professional
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or somebody that specializes
in these type of accounts,
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so that you know exactly what you're doing
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and that you don't get burned.
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Alright, so let's talk a little bit about
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what type of account do I have
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and how it might differ and
what does that look like?
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So I've been talking a lot about
a self-directed IRA or 401K
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and while the investments
that you can choose in those
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is the same,
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the key difference is how
much you can put into them.
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You know, with the IRA,
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doesn't matter if it's
self-directed, traditional or Roth,
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you can only put in so much per year.
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You know, that's 5,500
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unless you have your income restrictions,
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but let's just kind of use
that as a general example.
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So 5,500 is the most
that you can put into it
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and if that's the case
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and you want to invest into real estate,
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you know, it's gonna
take you awhile before
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you're putting in 5,500-dollars
a year to get to a point
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where you can go out and
buy an investment property
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for 50-thousand,
100-thousand, 200-thousand.
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I mean, if you're starting at age 25,
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it might take 'til you're 45
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before you can do and make that
first investment transaction
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inside your self-directed
retirement account.
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So what exactly do I have,
what type of account do I have
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and how have I been able
to grow it much faster
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than the traditional or self-directed IRA?
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And as many of you probably know,
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if you didn't listen to the
beginning part of this video
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or watched any of my other videos,
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I do have a small business
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and with that, I have
established a retirement account.
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Now initially I just
started with a SEP IRA
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and then that grew to a solo 401K
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and then that grew to a traditional 401K
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when I added employees.
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But it was a traditional
401 with a little asterisk
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because it wasn't your
typical traditional 401K,
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it was a self-directed 401K.
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They gave me the flexibility
to purchase and buy
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whatever type of investments
that I wanted to.
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Now I wish I could tell you
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that I have made some amazing
private equity investments,
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some real estate deals
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and that I'm just on the path
becoming the next Mitt Romney.
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I'm not quite there yet,
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so I'm still trying to
figure out and learning
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what do I want to invest into.
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So right now, my self-directed
401K largely consists
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of mutual funds, individual stocks, ETFs,
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some of the alternative investments
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that I have made inside of that
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is peer-to-peer lending with Lending Club.
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And you can watch my
video on Lending Club,
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where I talk about what
that is and how that works.
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I've also invested into real estate notes.
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So this isn't your direct
real estate investment.
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I wrote a check to buy
into this real estate note,
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just like a real investment trust.
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This is a through a private lender,
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where basically I just write the check
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and they pay me the interest
that I collect on monthly.
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So that interest all gets paid directly
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back into my self-directed 401K,
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so I don't get that money,
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it's going there, but it's tax deferred.
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And those are the types
of deals that you can do.
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But because I have a 401K
and I am a business owner,
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I can put in a lot more
than the 5,500-dollars
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that most people are capped at doing.
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So there have been years
where I've been able to put in
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up to 50,000-dollars or
more inside that 401K.
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And plus my wife is an employee,
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so she gets paid, she gets her match
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and she maxes her 401K too,
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so we're able to put a
good chunk into our 401K.
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And I'm more or less just sitting back,
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waiting for these opportunities
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because I know they are going to come,
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I know that they're going
to be presented to me
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and the best part is
that I have a checkbook
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that I can write a check for
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on when this investment comes up.
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And that's what makes
these accounts so powerful
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because you can't do that
with your ETrade account,
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you can't do that if you have an IRA
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set up with one of these online apps,
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they just don't have that flexibility
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to be able to write a check
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if you come across an
investment opportunity
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that you want to jump on.
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And it's that flexibility that
allowed these wealthy people
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that have these self-directed
accounts established,
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where if they come across a deal
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that they can write a check
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and jump in faster than
most other people can.
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As they say, the rich get richer,
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but to do that, you have
to be set up properly
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and having a self-directed
IRA or 401K set up for you
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is just one of those ways.
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Alright, so I hope you enjoyed this video
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and I'm curious, have you ever considered
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setting up your own
self-directed retirement account?
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Have you even heard of a
self-directed IRA or 401K?
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Let me know in the comments below,
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if this is something
that you are considering,
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that if you could do it, you would do it
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or if you already have one established,
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let me know where you set it up
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and what you have invested into.
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I wanna hear your experiences
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and what you've been able to learn
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setting up your self-directed
retirement account.
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This is Jeff Rose reminding you,
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that's it your money, your life
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and only you can make it awesome.
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Until next time, peace.
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(light electronica music)
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