Wealthy& Wise: Unleash the Power of Your Retirement Account!

About the Video: Unleash the Power of Your Retirement Account!

A Solo 401(k) retirement account is an invaluable tool for self-employed individuals and small business owners. Its importance lies in the flexibility and benefits it offers. With a Solo 401(k), individuals can save for retirement while enjoying tax advantages and the ability to contribute as both an employer and an employee. This versatility allows for higher contribution limits compared to other retirement plans, giving individuals the opportunity to build a substantial nest egg for their golden years. Moreover, the account provides the option to invest in a wide range of assets, including stocks, bonds, mutual funds, and even real estate. This freedom to diversify investments further enhances the potential for long-term growth and financial security. Overall, a Solo 401(k) offers the dual advantage of maximizing retirement savings and granting individuals greater control over their financial future.

Prefer to read? A full transcript is provided below.

Cort:

Hello and welcome to another edition of Wealthy and Wise. I’m your host, Cort Christie. And today we’re going to be talking about how to untap your retirement money, how to use it for investments other than the traditional investments that we’re all quite familiar with, with our 401s and our IRAs where we get to invest in the stock market or a bond fund or just put it in a money fund. We’re going to get into how you go about unlocking the power of your retirement money to invest in real estate, to invest in precious metals, to even invest in your own business that you want to start. And I’ve got an expert with us, one of our top consultants at NCH. I’ve got David Chafkar, who’s been with us for 20 years and has been working with Investors and small business owners, helping them unlock their retirement money to help them really maximize the output and the value of that money. So, let’s talk about it broadly, David, and thanks for being here first of all.

David:

It’s a Pleasure, Cort. Thank you.

Cort:

Absolutely. So, you have worked with thousands and thousands of people, and I know that one of the specialty areas that you have is working with them in their retirement accounts and how to unlock their retirement account so they can use it for real estate investing and even investing in their own business. Can you talk about what that is and what some of the terminology is that goes along with it?

David:

Yeah, you know, that’s always a question a lot of individuals have. I mean, so many folks, individuals, maybe myself or anyone else that have worked for corporate America for so many years, we dedicate our lives to really create something substantial for ourselves, our family. And then all of a sudden comes time retirement, 30 years in the organization, time for retirement. And we start to realize there’s not enough really, in this day and age, based on rates of return that we get from the market to really support the retirement the way we thought, you know, what we were hoping for anyways.

Cort:

Yeah.

David:

And so, you know, we had to start looking for different alternatives, different concepts. And a lot of individuals started looking at self-directed retirement accounts, which are just amazing vehicles, especially for those that are either supporting a business or going into investments. Whether it be trading a real estate, you know, any type of investments or growth you’re looking for to be able to tap into past retirement dollars, moneys that I’ve put aside in. You know, corporate America, 401ks, IRAs, to be able to take those dollars and roll them over into a vehicle that I can now use, leverage, borrow against to hopefully get the kind of gains that I’m looking for. So, they’re absolutely incredible vehicles, but they’re limited and you’ve got to really understand how to use them properly.

Cort:

Interesting. So, when you talk to somebody about this, what kind of like is there a fear like, well, we’re talking about my retirement money and, you know, am I going to be risking it? You know, how do you explain it to them in a way so that they understand that it’s no more risky to untap the power of their retirement funds than, you know, investing in the stock market?

David:

I think there’s always a fear, you know, when you’re an individual, that worked so many years for a company and you’ve worked really hard or put a lot of diligence towards really creating some formal retirement account for yourself and family, there’s got to be a fear in tapping into it. I mean, if you’re like me, I grew up, my father served 32 years in the army, you know, and he was one of those guys that always taught me goes, you never touch your retirement no matter what in business. Use your own capital, use your own cash. And that’s how I was, I grew up. And many of the most…

Cort:

Like most people listening.

David:

Right. And most of us were raised in the same, you know, same manner. And, you know, when you start to think about using retirement, it’s a little scary process. So, sometimes we end up falling back on cash reserves. We have savings accounts, credit lines, which could sometimes put us in a very heavy bind, you know, in over leveraging our personal capital or over leveraging our personal credit, which could then really cause a real hardship on our overall credit. When we have this amazing, amazing dollar amount that we’ve worked hard for to build in this retirement account. The old concept of not tapping into retirement worked well when retirement accounts, you remember back in the day when they were actually yielding high dollar amounts, you know. It was common to get 5, 6, 7% in the market. Nowadays, what’s considered good is 2 to 3% rate of return, if you’re lucky, you know. So, we’ve had to, as business owners, we’ve had to learn how to adjust. We’ve had to learn, you know, at looking at different options, not only to raise and grow our retirement, but what can we use them for? What can we do to not only support our endeavor, whether it’s investing or growing a business, but really put our retirement in a mode or manner that can actually outgrow or outgain the traditional market that we’re all accustomed to investing in? And without the volatility that we see in the market today.

Cort:

Well, I think for some people it’s like, I don’t have any control over that.

David:

Right.

Cort:

I know it’s outside of my ability to redirect the stock market or, impact the interest rates on bond funds that might be declining right now. And when do you think of investing in real estate or funding your own business start-up. Now, all of a sudden it’s, I can manage that. That’s now in my hands. And if it succeeds, fantastic. If it fails, that’s horrible. But less likely to have a decline if it’s in my own hands and I can control it. So, let’s talk about a self-directed IRA, which is a certain type of a term, I guess, and versus like a Solo 401k and how they differ and what some of the functionality are between the two.

David:

Okay. Yeah, that’s a great question because, you know, I think if you are talking to a lot of financial professionals out there, many of them will direct you to use a self-directed IRA. Why not? Because it’s the best vehicle to use, it’s because that’s what they’re commonly used to recommending. Maybe they’re working for a company that doesn’t offer any other vehicles or options out there. And, you know, they’re licensed requires that they got to stay with sort of the inventory or recommendations of the company that are currently working with. Does it mean that that’s what’s going to be the best for you as a client, especially when we understand what your objectives are, when you’re looking to invest, what’s our growth potential, what type of investing we’re going into? Those are a lot of considerations we have to really look at. One of the benefits of the Solo k, you know, because really you have two primary retirement types of self-directed retirement accounts. You have your self-directed, traditional IRAs. Sometimes they’re Roth IRA or you have a self-directed Solo k. My opinion, of course, Solo k’s are superior across the board. Why? Well, the way I look at that, you know, especially when we use the term self-directing. Self-directing, what does that really mean? It means that I have, I should have the ability to control my retirement dollars to go into investments that I really want to go into and be able to leverage it in the manner I need to. The problem is the custodians who we’re with don’t really look at the term self-direction in the same manner we do. They look at the term self-direction in that you get to make a decision as to what traditional investment you want to go into stocks, bonds, mutuals. Typically, those are the basic investment types in the market and we will allow you to pick and choose, you know, what you want to invest into. But as we know, as an investor, you start to learn about different ways to really aggressively grow your rate of return by leveraging into real estate. You know, you know, even other traditional investments that you can leverage and use, they can be very, very beneficial for, not only for ourselves but for the growth of our overall retirement account. But to do that, there’s three qualities that we want to make sure, whether I’m using a self-directed IRA or self-directed Solo k or any self-directed vehicle. In my opinion, there’s three qualities that you absolutely want to make sure your retirement account has. Number one, full self-direction. Full self-direction means, again, I can go into any type of real estate or any type of investment that I so choose to go into. There is a list of qualified investments that the IRS and the feds have come up with. You know, real estate is on that list. Traditional investments on the list, stocks, bonds, mutuals, private lending. I mean, there’s a wide range of different qualified investments. And I want to be able to pick and choose what I can go into. You know, that’s you know, that’s the first thing. Full self-direction, not just limited to what my custodian says I can do.

Cort:

Okay, that makes sense.

David:

Second benefit, I want to make sure and this and to me this is one of the most important benefits is power of trustee. What a lot of folks don’t realize, and this is what you commonly see in a lot of traditional self-directed IRAs is I can’t make the comment that there’s no IRA company out there that will grant you power of trustee. I just in the years I’ve been doing this, I haven’t seen one. But typically, when you have a self-directed vehicle, there’s a requirement for someone to be named as power of trustee, that’s commonly your custodian or administrator. They are the ones that will determine what you can and cannot do utilizing your retirement dollars. You know, and when they have, when your custodian has power of trustee, this is why many times you want to go into a real estate transaction, whether it’s a buy and hold, whether I’m flipping a property, going into a syndication, whatever that is, typically I have to pick up the phone, I have to call my custodian. I have to ask their permission if it’s okay to do so and only if they approve it. Then I have to literally turn around and wait for them to send me the money to authorize that transaction to be done. That doesn’t really sound like self-direction to me, right? I mean, I lose that control.

Cort:

Somebody is making a decision sort of alongside me, but I’ve got a sort of a person who can stop me from doing what I want.

David:

Yeah, absolutely.

Cort:

Slow down the process.

David:

Absolutely. Which can many times diminish my rate of return. I mean, so many times we go out there and find amazing investments, even for those of you that are in real estate, you know, you see opportunities every single day through amazing organizations to find a great real estate deal. But one of the things you commonly find is a lot of great deals out there. But what you also find as an investor, especially a new investor, that all those great deals, they don’t necessarily sit around and wait for you to find money to fund the deal. There’s ten other investors that want that same deal, and sometimes whoever can come up with the money first, wins. You know, this is why it’s important to be able to make a decision quickly. So, I want power of trustee so I now can find a transaction or a deal I want to do as long as it’s under the qualified list of investments. I want to be able to determine that’s an investment for me and actually authorize it myself. And then the third quality I want to make sure I have is, checkbook control. Now, the ability to not only go out there and find a great deal, now I can sit down with the homeowner, negotiate the rate or the deal and if I like the deal, imagine me before you even get off the table, being able to open your checkbook and physically write the check yourself. Now that’s control.

Cort:

Absolutely. So now you know, with a Solo 401k, you’ve got full control.

David:

Yes.

Cort:

And you can also fund it with the success that goes on. Or if you have a side business, you can continue to fund it just from the business operations that you have it as well. So, you get to grow it. And I know there’s some borrowing opportunities to talk about that.

David:

Yeah, borrowing is amazing because with IRSs there’s no way to borrow money. I mean, some I’ve heard some people say, well, you can sort of borrow money from an IRA as long as I whatever. Let’s say I take $50,000 out of an IRA, as long as I can guarantee I will pay it back within 60 days. Not 61, 60 days, then they will not consider that to be a distribution. I don’t know how many of you out there have ever tried to get money back through an investment and be able to pay it off within sixty days. It’s not always easy to do. Right? But what happens when you don’t pay it back? Well, it’s considered a full distribution, which means many times I’m stuck with a 10% early withdrawal penalty and I’m stuck with state and federal taxes. In fact the state and federal taxes many times can range from 28 to 30%. You throw on another 10% early withdrawal penalty. Now I’m at a 40% tax bracket. You know, if I borrow 50 grand at 40%, 20,000 of that 50,000 is now going to the state and the IRS at the end of the year, which means that 50 grand’s only worth about 30,000 to me. Not great money to use. I never recommend that. See, that’s the problem. Well, with the Solo 401k, I have the ability to authorize myself to borrow money very similar to most standard 401k plans where if I’m currently employed with a company, I can, you know, I can elect to borrow a certain dollar amount from my retirement account. There’s a, you know, keep in mind there is a ratio there that we have to stay within. Typically, the maximum amount I can borrow is about $50,000, but it’s based on, you know, not over exceeding 50% of what my fund value is. But can that be beneficial? Well sure. Imagine this, if I’m an investor, let’s say I’m an investor that’s flipping properties. I’m going to buy rehab, sell. Commonly, I’m out there looking for a good real estate deal or transaction to take on. Let’s example. Let’s say I need 200,000 to buy and rehab the property. Wouldn’t be uncommon for me to go to maybe a hard money lender, you know, commonly used by investors that are flipping properties because they’re quick to come up with funds if they like the transaction, if there is a, you know, if there’s profit in that deal, they’re the first ones to be willing to lend you money. Sometimes a little higher interest rate, but that’s okay. It’s all factored into our dollars, our investment. But you know, let’s say they commonly will owe me about 80% of what I need. So, if I need 200 grand, that means they typically will write me a check for 160 to put towards that 200. Now that means I, now as the investor, are then required to cover that 20% difference, what we call gap funding The gap between what essentially with the lender covered and what we still need to do the transaction. So, I need 200,000 to buy and rehab it, lender gave me 160, 20% means I have to cover the remaining $40,000. Now the question is, do I have $40,000 in my bank account? Do I have $40,000 of personal credit I can tap into? You know, that may be difficult to come up with. Whereas now imagine I have, let’s use the example. Maybe I have $100,000 in my Solo k, remember, I can authorize myself to borrow money. Who’s authorizing it? I am. I’m authorized to borrow money, so I need $40,000 to cover the difference. I’m going to borrow the $40,000 as a personal loan. Now, remember, if I borrow money, the only requirement is I have to pay it back.

Cort:

Yep.

David:

The IRS gives me up to five years to pay it back. So as long as I pay that back, you know, in a structured payment schedule, you know, that means as long as I pay it back within five years, there’s no penalties, no taxes on it. So, I borrow the money. Now I have the $40,000 I borrowed from my own account. I have the $160,000 the hard money lender gave me. There’s the $200,000 I need. I’m now going to buy it, rehab it. Maybe a few months later I’m going to list, sell the property. Let’s say I sell it for $300,000. Well, now I’m going to take from the proceeds. I’m going to pay off my hard money lender. I’m going to take the $40,000 plus a few dollars in interest and I’m going to pay back my personal loan. I took my own retirement account. Let’s say it leaves 60, $70,000 left over. Now, the question is, what happens to the profit left over? Well, now I can actually turn around and keep the profits for myself through my business almost, you know, to be able to give myself an income for the year.

Cort:

Sure, sure.

David:

So, I’m starting to generate income in my own investment business to support myself. So, what I’ve done is I’ve leveraged my retirement account almost like a personal line.

Cort:

Yeah, it’s like a line of credit. It’s like a loan. You’re like your own banker.

David:

Yeah.

Cort:

And that’s amazing. So, there’s a lot of versatility. If you set up a self-directed or should just call it a Solo 401k, which means one person, but then you get the flexibility of using that money to invest in investments. You can even buy a franchise with it.

David:

Oh yeah.

Cort:

There’s things you can do along that line. And then if you need some capital, you can access up to 50% of the value of that as a loan and pay that back over time. That’s powerful, you know, and people don’t understand. You’ve got a half million dollars sitting in a retirement account. You’re 60 years old. You’re thinking about doing something different with your life. You want to leverage it somehow. You can use it for investments. You can start your own business with it. There’s a lot of things that you can be doing as opposed to just sitting there in a balanced portfolio, let’s say, with the stock and bonds that you have. And you’re making 2 to 3% right now because somewhat they’re counteracting each other today, the bonds and the stock funds. So, here’s a way to leverage it and really set yourself up for the kind of retirement that you expected when you started to fund your own retirement plan. So, pretty cool stuff.

David:

Yeah, especially when you factor the money that you’re rolling over and now leveraging using. Where is it coming from?

Cort:

Right.

David:

It’s coming from an account that I just got done working. I retired now my current 401k or past retirement account with the old company I’m no longer working for, is now sitting there in an investment that maybe is going down, maybe not doing well, but I can’t borrow money from it. I can’t contribute to it any longer. I can’t leverage it. I can’t direct it, you know. So, it’s sitting out there at the mercy of the market, you know, where now I have the ability to now take it and move it over to not only help my growth in my current business or doing better investments or be able to control it myself so that it’s not, you know again, at the mercy of the market. So, it really puts me in a position where I can control my own retirement without the continual loss that we commonly see in today’s day and age.

Cort:

Yeah. Awesome.

David:

It’s pretty amazing.

Cort:

Well, thank you, David, for enlightening us on how to sort of take control of our retirement monies that we so preciously have grown over the years. And now this is a way to improve the return on it and plus get into some things that maybe you never thought about getting into.

David:

Right.

Cort:

So, fantastic. Thanks for supporting all of us here today. And for all of you listening to another edition of Wealthy and Wise, I want to thank you for being here with us. Please be sure to like and subscribe. And this helps us spread the word about everything that we’re doing here at NCH. And again, I’m your host. Cort Christie, CEO of NCH. And you’ve been listening to some great ideas around untapping your retirement funds. And if you have any more questions, please feel free to reach out to us. There is a link so that you can learn more about NCH overall and you can also call us and just talk to one of our consultants like David here who can help you untap the retirement funds that you have so that you can gain control over those funds. So, thanks again for tuning in.

DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.