084 | How to Beat Wall Street Using Your IRA and 401(k) – Insider Tactics from Adam Bergman

Patrick: [00:00:00] Have you ever wondered why it seems like the wealthiest people you know are playing by a completely different set of rules, especially when it comes to taxes and investing. What if I told you that the dollar sitting in your IRA or 401k. Could be the key to building real lasting wealth, not just through stock market returns, but by investing in real estate, private businesses, even crypto, all while keeping the tax advantages.
Hey everyone. Welcome back to another episode of the Vital Wealth Strategies Podcast. I’m your host, Patrick Lonnergan, and in today’s conversation we’re diving deep into a strategy that most people have no idea even exists. I’m joined by Adam Bergman. He’s a seasoned tax attorney, the author of nine books on self-directed retirement accounts, and the founder of IRA Financial Adam has helped clients unlock over four and a half billion dollars.
Of retirement assets and redirect them [00:01:00] into investments that truly build wealth. Today we’re talking about how entrepreneurs like you can break free from the traditional Wall Street box, gain control over your retirement accounts, and use those dollars to invest in the kinds of opportunities that actually build long-term wealth.
You’ll learn how to self-direct your IRA or 401k, how to legally invest in your own business, how to take advantage of Roth conversions and why. Peter Thiel’s $5 billion Roth IRA. Might not be as out of reach as you think this episode is packed with practical strategies and real world examples, and it just might completely change how you think about your money.
So stick with us until the end. This is one of those conversations that can shift your entire financial trajectory. And when you’re ready to start building your own tax optimized strategy, head over to vital strategies.com/tax. Not only will you find powerful resources to help you understand the tools available to you, but you’ll also have the opportunity to connect with our team.
We’re excited to [00:02:00] work with you one-on-one to craft a custom strategy that minimizes your taxes, accelerates your wealth. And turn your tax strategy into a true growth engine. Let’s get into it. Adam Bergman, thank you so much for joining us here today. I am really excited about this conversation. Uh, we’re gonna get into what it looks like to truly build wealth, uh, and how to do that inside of your, uh, IRA and qualified dollars.
But before we get and dig into that, thank you so much for, for joining us here today. Oh, Patrick, thanks for having me. Super excited. Uh, so I, I think there’s, there’s a number of things that we think about our entrepreneur clients that they really want to, to build wealth. And I’d like to just start off and, and identify what wealth building looks like versus financial security.
Wealth building, in my mind is owning a business owning real estate. We look at the Forbes list and that’s where most of the people on that list come from. They come from those categories. Where they don’t come from is a stock and bond allocation. Uh, there’s not people on that list that. Built a better mousetrap when it [00:03:00] comes to picking stock and bond investments.
And so, uh, when I think about combining these ideas of, uh, taking the tax code and combining it with wealth building, I think this conversation’s going to be fantastic. And, uh, really when it comes down to it, I don’t think there’s anybody else that we should be talking to other than you’ve literally written a book, um, on this topic.
You’ve got nine books out there actually, and billions of dollars of, of assets under. Um, I’ll say advisement invested. So yes, I think this is, uh, this is gonna be great, so thank you.
Adam: Yeah, no, it’s, I’m super excited. This is my passion and, and I 100% believe about creating your own luck and creating your own wealth by investing in assets, you know, and trust.
Patrick: Mm-hmm. So I think entrepreneurs in general are frustrated by the, the limited investment options typically found inside of their, um. Their retirement accounts and they’re tired of underperforming and being [00:04:00] overexposed to, to Wall Street. And then we also think about they, they feel powerless. You know, they’re just boxed in.
They, they don’t have any control to take their dollars and, and really, uh, build their wealth. We, we look at our clients that, you know, might be in their mid to late thirties and they’re worth a hundred million dollars and they didn’t do it through, uh. You know, building a stock allocation, they’re like, I’ve taken this business and I would love to be able to take these dollars and do more of that.
And then it’s just not right that, you know, the entrepreneurs that are driving the economy have fewer tools, tools and less flexibility to build true long-term, lasting wealth with, with tax protection. So. Right. Um, I would love to hear Yeah, go ahead. Sorry.
Adam: Yeah, I’m just saying they’re being lied to. I mean, ’cause in fact, these things all exist.
So when, I’ll just take a, I’ll double click on that and just kind of take us through a bit of a, a history lesson here. So, when IRAs, individual retirement accounts were created by ERISA in 1974, Congress did not distinguish between IRAs that invested in traditional investments like [00:05:00] stocks and alternative assets like real estate or private businesses.
In fact, there’s only three things you cannot do in an IRA and these. Three items are found in section 4 0 8 and 4 9, 7 5 respectively. Here they are. Can’t buy life insurance in an IRA you can in a 401k. Can’t buy collectibles like art. And thirdly, in the broadest category found under 49 75 is you’re not allowed to do anything in your IRA that in any way, directly or indirectly personally benefit to you, your lineal descendants, your parents, your children, your spouse, daughter-in-law, son-in-law, or any entity, 50% or more.
Controlled by such persons. So for example, you can’t buy a house in your IRA and live in it. You can’t take your family to Disney and your I Rra. You can’t buy yourself a Porsche in your IRA, otherwise you can do it. Mm-hmm. So these rules are in place since 1974. The problem is the large financial institutions that are selling the securities, they’re selling investment advice.
They don’t want to educate you and they don’t want to open your eyes to the fact that you can do other things [00:06:00] in your IRA in 401k. So they limit you on what you can buy, and that’s their Right, that’s their business model. They have every right to do it. But my passion and my story is to let people know that, hey, I’m a tax lawyer, right?
I, I, I have a master’s in taxation. Mm-hmm. Some background. I worked at some of the largest law firms in the world for eight years. I had no idea that you can use your irate investment alts. I was fortunate enough to have been asked to research this question for a client of the firm, a hedge fund client that wants to use his IRA.
Two investors hedge fund. And lo and behold, I found out you can do it. And I was blown away and I couldn’t believe, I had no idea this was possible. I just couldn’t imagine that people wouldn’t wanna do this. So I quit my job within three months, started hiring financial about a year later. And you know, fast forward 15 years, we bought 25,000 accounts over four and a half billion in assets.
And all we do is unlock people’s money. We don’t give people investment advice. We don’t tell you what you should do. We wanna empower entrepreneurs, empower [00:07:00] people to build their own wealth by investing in alternative assets and things you trust, like real estate, like private equity, venture capital, private business, stock, Bitcoin, right?
Whatever you want, you can do it. Other than those three things,
Patrick: this is fantastic. I, I, I love this. So I see you, you’re working with thousands of clients. You know, some people out there have, have been able to crack the code through IRA financial, and we think that’s. That’s fantastic. Can you give us a, a framework?
’cause I think most people are just lost as to like, yeah. How do I self-direct my dollars? How do I go find an opportunity and pursue it? What, what’s, can you give us step one there?
Adam: Yeah. So generally what happens is the, the clients come to us with the deal. So it could be, Hey, the house for sale for Nextdoor is for sale.
I think I can flip it. Or I want to, I travel to Florida. I wanna do an Airbnb in this area. I have a lot of money in my IRA. It would be great to use it to invest it to get tax free returns. Hey, my buddy’s starting a new AI company. It’s not publicly listed. I can’t buy it [00:08:00] through Schwab. I wanna invest in it.
I mean, most people don’t realize, Patrick, but if you look at a hundred million dollars plus companies in America, 80% are private. So that means if all you’re doing is buying publicly traded securities, you are losing access to 80% of the great American companies. So doing a self-directed IRA. If there’s no limitation other than life insurance, collectibles and self-dealing, making sure you don’t personally benefit or a family member, you can do it.
Yep. So there’s really a world of investment opportunities and for an entrepreneur it’s, it’s really perfect and it’s a perfect solution because you get to invest in what you know and what you believe in, and you have the ability to hit home runs. Whereas unfortunately, if you buy stocks, you can get some good, steady returns.
But as you mentioned, you’re not gonna hit any home runs.
Patrick: Yeah. Yeah. This is great. Not gonna, so I, I think one of the things that I’m, I’m interested in understanding, um, ’cause I, I’ll say that we’ve had some clients, uh, dabble in this. I actually [00:09:00] own a hotel, uh, in my Roth. IRA, some ownership in a hotel in a Roth.
IRAI had that set up many, many years ago. Uh, and I’m not sure it’s the best structure to do that. Can you, can we talk a little bit about. What are the opportunities? ’cause I, I think of some of our clients, uh, I look at things like the 401k cash balance plan. Some of those things that I can get sort of outsized dollars in more than just my traditional, uh, IRA contributions.
Can I self-direct just about any of those? Can, can we walk through that?
Adam: Yeah. So let’s walk through it. So an IRA, an individual retirement account, you 100% can self-direct because you are the mm-hmm. C trustee of, of essentially the, the beneficiary and trustee of the plan. You control it. So yeah, you could totally do anything you want in an IRA.
Same with the Roth ira, same with a step ira. Same with a simple ira. Let’s go now to the 401k world. The fine contribution world. You can have what’s called a SOLO 401k, which is a solo 401k for a business that has no full-time [00:10:00] employees other than the owners of their spouses, right? So sole proprietor, single member, LC, maybe even a partnership.
In that case, a solo 401k will let you self-direct. So you can do alts, buy, invest in a hotel, do Bitcoin gold, just like you could in an IRA. Now, if you work at a business that has a 401k, it’s more limited. So the 401k rules have ERISA requirements and they’re subject to some stringent fiduciary responsibilities on the part of the trustee.
So that means if you work at, you know, ge, uh, Ford, uh, apple, Tesla. They’re not gonna let you do alts with your 401k. Mm-hmm. It’s starting to change a little bit with the recent SEC guidance, but it, it’s gonna take a little bit more time to, to have that more, uh, prevalent just because, um, there’s still some litigation out there where, um, there there’s some attack on, uh, the, the ability to invest in alternate 401k.
So for the most part, how people get access to all this money is to [00:11:00] rollovers. So there’s about $700 billion rolled over from 401k plans mm-hmm. To IRAs each year. So most of the money in the IRA world, and there’s about $15 trillion, 15 to 17 trillion. So the entire retirement world is about $35 trillion, 17 or so in the IRA world.
Most of that comes from rollovers. Um, and I actually forgot to define benefit cash balance plan, which we actually, um, we have about 1500 of those plans. You can self-direct and do alts in them. It’s, it’s a little more complicated, but we allow that to happen as well. So rollovers cash balance plans is, is how to get money, a lot of money into a retirement plan and then through, ultimately usually ends up in the IRA world through rollover.
And in the IRA world, you have very, very flexible self-directed rules. So that’s where you can then invest in a hotel or private business. The next great AI company, uh, Bitcoin Gold, whatever you want, essentially.
Patrick: Yeah, yeah. No, this is great. So [00:12:00] one of the things that, uh, we don’t see a lot of, but I’m, I’m just thinking through this and, and I’m, I’m speaking from a position of, of ignorance on this topic, so please correct anything that I say.
A lot of our, our clients set up the 401k so they can set up the rules of the 401k ’cause it’s a pretty flexible tool. And when we think about that, you know, there’s a few things like 4 0 1 Ks. The minimum age can be zero. So if your kids are on payroll, they’re providing value to your business and they’re a teenager, they can be in the 401k plan.
Uh, and so they can contribute. The thing we like about that is the Roth 401k, they can start getting lots of dollars in, you know, maybe they’re at the 0% tax bracket, but they’re their max funding, their mm-hmm. Uh, employee contribution piece of the, uh, the Roth, which is pretty cool. Um, so. With that being said, the flexibility inside of the 401k, is it possible to set your 401k up so you can do in-service distributions?
So, um, where I’ve got my 401k and [00:13:00] I set it up where I can just do an in-service distribution to my IRA and then I can take and self-direct that. Yeah. Even though. I’ve got other employees. Unfortunately,
Adam: no. The ERISA rules are quite strict when it comes to what’s a trigger event in order to get money out of a 401k.
So a lot of people don’t realize, uh, when they work in a 401k, you don’t have, uh, unfettered access to tho those funds. Generally, the three most common triggering events are you leave your job, you reach the age of 59 and a half, which you then have freedom to move the money into an IRA or the plan terminates some other popular ways.
You can do what’s called a rule of 55. When you hit 55, you can take money out. Over a period of time, you still have to pay tax on it. So it’s not really a rollover, it’s more of a distribution. So unlike an IRA where you have freedom of flexibility, 4 0 1 ks are quite limited in terms of in plan distributions.
And it’s just more difficult to get money out of a 401k. Um, and the, the two most common, again, are age 59 and a half, or you leave your job.
Patrick: Mm-hmm. Got it. Okay. Perfect. I, I didn’t know if there was some, you [00:14:00] know. A little bit of nuance there that I was unfamiliar with that would allow us to do that at an earlier age, but, um, so that’s great
Adam: there.
One wrinkle. Yeah, there’s one wrinkle. If you have what’s called a, a solo 401k, you can do what’s called a mega backdoor Roth. And, and this is an unbelievable strategy, not a lot of people know about it. Where in 2025 you can put away $70,000 dollar for dollar in a Roth, and then you can literally move it to an IRA the next minute and then have it in a Roth.
Um, IRA, so let me, I probably should, should, uh, just. Explain this in 20 seconds for your listeners. Mm-hmm. What, why, why are people looking to invest in a retirement account? What’s the advantage? So, number one, the tax benefit, right? If you have a pre-tax IRA or 401k, you get a tax deduction for your contribution.
What’s the tax deduction or reduces your, your taxable income, which is great, reduces your tax liability. Number two, you take advantage of deferral your money grows tax free in the plan. All the income and gains generated by the IRA of 401k is tax free. Now a nutritional IRA or 401k. When you pull the money out, after 59 and a [00:15:00] half, you do have to pay income tax.
Okay? But in a Roth IRA or Roth 401k, it’s an after tax account, so there’s no deduction for the Roth contribution since it’s after tax. But here’s the catch. Once you’re 59 and half and the Roth’s been open at least five years, whatever you pull out, tax free, zero tax, zero capital gain, zero ordinary income.
Tax free. So for example, if you bought Bitcoin at a thousand and now it’s 110,000, so long as you’re 59 and a half and the Roth bid open five years, pull out whatever you want tax free.
Patrick: Yeah, I think that’s beautiful. And, and when I think about the different tax buckets that I can have my money in, there’s essentially three.
There’s the, we’ll call it the traditional brokerage account, and I’m gonna call that the sum tax bucket. You know, we, we’ve paid tax on those dollars that we’ve earned, but we’re gonna pay capital gains and dividends and. Tax on dividends and that type of thing. So we got the sum tax bucket, we’ve got the, I’ll call it the all tax bucket.
This is the IRA, uh, dollars that goes in pre-tax and [00:16:00] every dollar I pull out, I pay income tax on. And then we have the no tax bucket, uh, which is going to be our, our Roth IRA. And every dollar I pull out, it’s going to be tax free if it’s been in there for, for five years, and I’m over 59 and a half. So when I think about that, it’s like I want as much money as I can get into the no tax bucket.
Uh. Right. It, it just seems like it, it, it makes a lot of sense to start shifting dollars in, in that direction.
Adam: Yeah.
Patrick: So with that being said, isn’t, wouldn’t it make sense to, um, especially if I’m thinking about this wealth building idea, right? I’m, I’m not looking for seven to 9% returns, right? I, I’m looking for exponential returns that, uh, really can help me accelerate my wealth.
And so when I, when I think about that, whether I’m investing in a business or crypto or real estate. Um, if I could do that in a tax free bucket, like that’s the way to really compound my dollars. Yeah. Is there, it, it would probably make sense for me to do some Roth [00:17:00] conversion. Maybe pay a little bit of tax now.
So when my account is 3, 4, 10 x what, you know, I started with, I, I’m, I. Recognizing those dollars tax free. Is that a fair assessment?
Adam: A hundred percent. I, I wrote a book and, and God would trust in Roth we prosper. Yeah. All my retirement money is in Roth. And how did I do that? I converted, ’cause again, I worked at three law firms.
Mm-hmm. So I had 4 0 1 Ks and pre-tax. And the way I thought about it is I did conversions over a period of years. So I didn’t wanna do everything at once because I didn’t want to hit the highest tax bracket. So what I did is I looked at my tax bracket and let’s say I was making a hundred thousand dollars a year.
The tax bracket allowed me to go another 30 or 40 grand without hitting that higher tax rate. I would do that amount of conversions every year, so I stayed it within my tax bracket. So there’s also some other really, really cool tricks that we help our clients with, such as discount valuations, right? If you buy mm-hmm.
Instead of converting cash, you convert an in kind asset. Let’s say you bought real [00:18:00] estate, you bought private stock. There are. Many appraisers that we work with that will get you anywhere from a 20 to 50% discounted valuation. So what does that mean? That means you bought the stock for a hundred K, but because there’s lack of marketability, there is limit.
There’s a much more mm-hmm. Difficult market because not only is there a more difficult market, but you own a minority in that company. So it’s much harder to sell. They’ll get you anywhere from 30 to 50% discount. So instead of paying tax on a hundred k. Maybe you pay tax on on 70 or 50 K, which obviously means you have to pay Uncle Sam a lot less money.
So there’s different things to do. Maybe you have net operating losses from a business that will reduce your tax liability. Maybe Apple just dumped 20% and you really are bullish on Apple and you want to convert Apple. So actually converting assets or, or generally there’s more strategic opportunities than converting cash.
Patrick: Yeah, I, I love that. And we’ve seen [00:19:00] that, um, we’ve done some Roth conversions with oil and gas investments. Yeah. Where, uh, you know, I invest some dollars in, we’ll just say an oil well, and that oil well between depreciation and depletion, you know, is worth less. And then it starts kicking off some cash, you know, which is nice and starts to replenish my asset.
But if I can, like you said, if I can go from a hundred thousand dollars value down to a $50,000 value, um. That, that’s fantastic strategy when I start thinking about, you know, how to do this big picture,
Adam: Hey, I’ll give you another one with oil and gas. So we have a strategy we worked in with a partner where we can zero out your tax on a conversion.
So let’s say you put in 200,000 bucks, you wanna convert, you then take a certain amount of personal money, you buy an oil and gas investment. Mm-hmm. It generates the deduction needed to pay to, to reduce the liability, to pay the taxes on the conversion to zero out to conversion. So. There’s a lot of really cool stuff if you become a client of our financial that we do to kind of help you do conversions.
’cause I [00:20:00] agree with you, Patrick. The goal is to get all your money in a Roth IRA. Right? There’s a, a, a gentleman that’s like my idol called Peter Thiel and mm-hmm. Peter Thiel is the god of building wealth in a Roth IRA, he has approximately like $5 billion in a Roth. IRA guess what he started with? $1,300.
Patrick: Mm-hmm.
Adam: So I’m happy to tell the story. I, I don’t know if your listeners have heard the whole Peter Theo Roth story. Yeah. But it’s incredible. No,
Patrick: let’s, let’s absolutely talk about it because I, I think these concepts are so far outside of what most of our listeners are familiar with. Most of our listeners are familiar with.
Qualified money goes into, you know, stock and bond allocation at Schwab. And that’s just the way it goes. So I think the more ideas we have on how to get dollars. Into a tax advantage investment and then how to leverage that up and get tremendous growth are are absolutely worth our time.
Adam: Yeah. So here, here’s the Peter Thiel story real quick.
[00:21:00] So he went to Stanford Law, um, and around 1999 he founded, uh, PayPal with, uh, Elon Musk and a few other really smart guys. Um mm-hmm. And Alex Carrp, uh, and. He actually, we got in touch with a, a mentor of mine, uh, and Roth IRAs were created in 1997. Okay. And there were, there were income limitations on who can make contributions to Roth.
So at that point, he had very low income. He was investing a startup. And what he did is he decided since he was gonna own less than 50% of PayPal, he put in around 1300 bucks, uh, of Roth money. And he bought millions of shares of PayPal. So he owned some personally, but he also owned some in a Roth. Since he owned less than 50% and he paid fair value for the shares because it was a startup.
He paid par, it’s like less than a penny a share. And within a few years they, they, they got some liquidity and he, he made $27 million, right? So he went from 1300 bucks to around 27 million, all in a Roth [00:22:00] tax rate. But then what he did next, even smarter, he became the first investor in Facebook. So instead of investing $500,000 with personal money, he took $500,000 of Roth money.
Invested into Facebook and a number of years later turned out almost $500 million tax free. And he’s been able to do that with Palantir and some others, other companies. Now, listen, Peter Thiel is a brilliant, brilliant man. We may not always, mm-hmm. We may not be able to emulate those types of successes, but we can certainly do it on smaller scale stuff.
And I’ve done it personally, like two of my best investments I’ve made in my lifetime. My financial advisor told me not to do. One was Bitcoin in 2014. I put $50,000 into Bitcoin in 2014 in a Roth IRA. ’cause I had a number of clients that were doing it, that were brilliant people that I trusted my advisors to, said I’m stupid, I’m gonna lose it all.
And guess how much? That’s almost 30 x. And yeah. Invested in a FinTech startup. Put 40,000 from a [00:23:00] Roth IRA, and I 10 x that. Within five years. So the best performing assets, like you said, are, are the ones that were alternative, that my financial advisor told me not to do.
Patrick: Yeah. This is fantastic. And I think that’s, that’s a little bit of where we go when we think about wealth building.
Um, because I think about the role of most financial advisors, um, especially if they’re doing the stock and bond thing, their job is to get you from where you’re at today to. Somewhere in the future and have it be, uh, have a high degree of certainty that they can help you get there. Now, what happens with wealth, wealth building is there’s a high degree of uncertainty.
We don’t know what the projected outcomes are going to be. Bitcoin could go to the moon, it could go to zero, right? There’s plenty of Bitcoin’s, a unique opportunity, but there’s other cryptos out there that are not worth anything, and we see how hard business is, right. Business in general, uh, is defeated [00:24:00] against time.
There’s not business, any business that’s sort of, you give it enough time, they don’t make it. And so we, we have to take advantage of those opportunities we have to season when they show up. But at the end of the day, there is a fair amount of risk associated with, with wealth building in general. So, yeah, and I’m okay with that.
I just like to be clear on what I’m doing with these dollars. You know, these are for financial security over here. These are my wealth building dollars. Let’s, let’s take these to the moon. And do it tax efficiently. So a hundred percent. I think that’s what you’re highlighting here.
Adam: Yeah. And that the highlights diversification.
If you even look at Larry Fink, who’s the CEO of BlackRock, the largest asset manager in the world, he recently just came out and said he thinks 20% of people’s portfolio should be in private assets. Right. So. Um, I’m not saying take all your money and go buy, uh, the next, you know, invest all your IRA money into Bitcoin or, or a private placement, but Yeah.
You want, I personally believe, my opinion is you should take mm-hmm. A percentage of your IRA, especially a Roth IRA and take risks. Mm-hmm. Because the, the, for me, the, the [00:25:00] rewards far outweigh the risks in terms of investing in the next rate company, um, or a real estate deal, hotel deal, whatever the case may be.
That’s where you can get the real alpha. Of course you still wanna buy stocks and do fixed income and, and ETFs and all that great stuff. Mm-hmm. That’s okay. But if all, if you all, if that’s all you’re doing, you’re also concentrating your risk really in like seven stocks. Let’s be honest, if you look at equities now, it’s seven to 10 companies.
That’s what we’re all investing in, that that’s just the truth. So if things go bad, it’s gonna go bad, a lot worse than it’s been historically. So just taking that on its face like you wanna diversify. You want to invest in, I think, assets that have a lot of, um, you know, upside and emerging asset classes, and it’s worked out for me and my clients very well.
Patrick: Hey, real quick, if you’re listening to this and you’re wondering how these strategies could apply to your specific situation, I want to invite you to visit vital [00:26:00] strategies.com/tax. We’ve put together powerful resources to help you understand the tools available to reduce taxes. Build wealth and create real financial leverage.
But more importantly, our team is ready to work with you one-on-one. If you’re serious about keeping more of what you earn and building a tax strategy that actually fuels your business in life, go to vinyl strategies.com/tax. Our team is ready to help you start building your own custom strategy. Alright, let’s get back to the episode.
Yeah, I love this. So I think this leads us into. Um, a another conversation that I think is interesting, and again, we had one client that had done this, um, they’d actually got it out of their ira, 401k before they got to us. But can you talk about the Rob’s concept? Yeah. Rob’s concept. Yeah. Uh, where we, uh, are taking a retirement savings account and, uh, buying a business with it.
Can you talk us through that?
Adam: Yeah. I wrote a book on it. The only book [00:27:00] on it actually. Um, so, uh, I’ve been doing the Robs for, what, 15 years? One of the few companies doing it in the country. What’s a Robs? It’s called a Rollover Business Startup Solution. It takes advantage of an exception of the tax code under 49 75 D 13 that allows a 401k to buy corporate stock, which is known as qualified employer securities.
So if you did the same thing with an IRA, remember what I, I said a few minutes ago. Your IRA cannot invest more than 50% of a business you control because that would deem prohibited. That’s found under 49, 75 C as in Charlie, the 49 75 D as in David. Those are the exceptions to C. Meaning if you can satisfy an exception in D, the C ed transaction rules are null and void.
The most common one is the 401k loan, right? That’s under D one. So D 13 is put in the code to really allow employees of, in the past, like GM or Ford, to use their 401k to invest in the company they work for. But over the last 30 years, it’s, it’s been applied to. Smaller businesses like startups. So we’ve done [00:28:00] thousands of these, um, over the years, and you know, it’s a great way to get tax free use of your retirement money.
So here’s an example. You wanna start a business, okay? You have a business, you want more money for it. Mm-hmm. You have money. No, IRA pre-tax IRA or a 401k. You’re leaving your job. You wanna start a business. If you pull the money out before the age of 59 and a half, you’re gonna pay tax in a 10% penalty. If you did the Robs.
You can then put all the money you have in that pre-tax IRA or that rollover 401k after you leave your job, invest it all into a corporation through this 401k, and now you can use those funds to start your business. You can be an employee. You run your business like any other. For-profit business, the only difference is you’re gonna have a 401k, which will be great for you ’cause you can put money in.
It’ll be great for your employees. And you ultimately have found a tax free penalty for use to use those funds for a new business that you’re involved in, that you earn a salary. And so it’s a great, great, great tax free strategy for [00:29:00] any entrepreneur looking to start a business, uh, using retirement money without wanting to pay any taxes or penalties.
Patrick: Yeah, I love it. Now, I, I think through a few of these pieces and correct any of this is, that is incorrect, is. We’re using a C corporation. And, um, then is it fair to say that all of the, uh, dividends that come outta that C corporation are ending up back in my IRA versus me personally, so I can take my wage out of the, the business, but, uh.
What about distribution or excuse me, dividends? Is that something I can take personally or do those back?
Adam: Back? No. So, right. So the way the the corporation tax rules work, uh, dividends. So dividends are paid outta retained earnings, right? So here’s an example, right? A C corporation makes a hundred dollars.
Okay, let’s assume no state tax. It pays $21 to the federal government, right? That’s the 21% tax rate. So it’s left with $79. Mm-hmm. Now, it could keep the money in the company and there’s no further taxation. It could and reinvest it, or it could send the money back to the shareholders, and that’s known as a dividend.[00:30:00]
So the way dividends go, they’re pro rata. We need to go based off allocation of percentage interest. So if my 401k owns 80% of the business, and let’s say I own 20% personally. And I’m gonna allocate the $79 dividend. 80% of that $79 will go to my 401k tax free. ’cause dividends to a 401k are tax exempt. And then I would pay income tax on the dividend I receive personally.
So yes, the Robs is a way to get tax free money out of the business into a 401k, which you can then reinvest into stocks, Bitcoin or real estate or something else. And if you sell your business and it’s a stock sale. There’s no tax, right? Because all the gain go back to the shareholders and the 4 0 1 Ks a tax exempt shareholder.
Patrick: Yeah, I love it. This is fantastic. I think there’s so many different opportunities we can explore here, but there’s a few things I want to just continue to, to touch on ’cause I think these are so fascinating and I feel like we should shed some light on ’em. And then [00:31:00] if people wanna learn more, ira financial.com is absolutely a treasure trove of data that and all of your books, and we’ll have links to all that in the show notes.
But. I think the next thing I wanna talk about is, I’m gonna call it a checkbook, IRA and, and my thought process there is sometimes you, you, you, when we first started the conversation, you, you brought up like, Hey, I found this property. It’s a great deal. I need to act quickly on it. And. Sometimes if we can’t stroke a check pretty quickly, those deals can be gone.
Right. So can you talk a little bit about how a checkbook IRA works? It sounds almost too good to be true that I can have a checkbook tied to my ira.
Adam: I know, I, a lot of people thought that too. So we were one of the first companies back in 2009 that that started working with checkbook IRAs. Uh, there’s still a lot of self-directed IRA companies that won’t do it.
They don’t have the expertise. So what’s a checkbook? IRA. So let me explain what a real self directed IRA is. So a self tracked, IRA is just an IRA. That is allowed to invest in alternative assets. The word self directed IRA, you will not find the [00:32:00] tax code. You can call it a Patrick IRA Adam Ira. It doesn’t matter.
It’s just an IRA that can invest in alts. Self directed IRAs mean the IRA custodian IRA financial. We’re a regulated trust company. We would invest those funds into, let’s say business X, Y, and Z. And title to the stock would be IRA financial trust company for the benefit of the Adam Bergman, IRA. The checkbook control, all the, all it does is it sticks an LLC in the middle between the IRA custodian between IRA financial up here and the investment below.
Just think of a straight line. You stick the LLCA limited liability company in the middle. And why is the LLC works so well where an LLC is a flow through entity, it’s disregarded entity from tax purposes. Single member LLC does not pay income tax. So really the beauty of the LLC, it’s a special purpose vehicle that’s being used.
Allow you to gain limited liability protection. That means your assets outside of the LLC are protected, gives you as the manager of the LLC checkbook [00:33:00] control. Now, you know, maybe people don’t use checkbooks, so maybe you wanna call it like Venmo or Zelle Control or, um, you know, wire control probably should rename it.
Um, but again, the LCS Almighty IRA, so all the money flows from the investment through the LC as a disregard entity, no entity level tax, and then it goes all the way up to the IRA. And since the IRA doesn’t pay tax. Tax free. I get to manage it. We draft the operat agreement to allow the irate owners, the manager, and then the LCO have its own bank account At a local bank or any bank you’re choosing.
We, we have a relationship with Chase and, um, capital wants, we can open bank accounts there and ultimately you control the bank account, you make the investments, the IRA custodians outta the picture. So if a deal comes up quick, you can make the investment, you gotta pay the plumber, you can make the investment.
You get more privacy ’cause. It’s harder to find out who actually owns the asset, right? It’s an LLC versus my name. And obviously, you know, you get the limited liability protection. So, uh, we set [00:34:00] up, I dunno, 15, 20,000 of these. Um, over the years we do all the work. We set up the LLC, do the tax ID number, the operating agreement, we do all the administration.
There’s any tax filings. You can have multiple owners on the LLC. In that case it’s a partnership. We’ll follow 10 65. So we do everything A to Z for this stuff.
Patrick: This is fantastic. And one of the things that we’re huge believers in is who, not how, like this information is so valuable, but I don’t think anybody listening to this should go try to do any of these things on the throne.
No. Uh, engage with an expert that knows what they’re doing. And IRA financial, uh, you guys have been around the block, literally written the books on, on this topic and so this is great. Adam, I’d like to move to. Um, we’ll call it crypto Cryptocurrency is, uh, a hot investment. It’s actually pretty, it can be intimidating.
Like, how do I go invest in this thing through my IRA because it doesn’t seem like there’s [00:35:00] good, uh, easy channels to do that, right? Like there’s, there’s some ETFs that have now come out, but, uh, I don’t think those are necessarily the way. So can you talk to us a little bit about how I can get crypto into my IRA?
Adam: Yeah. So I actually wrote. I want the first book on how to do that back in 18. Uh, so it’s actually easy. We have a platform, uh, we partnered with Bitstamp, which actually was just acquired by Robinhood, and we’re one of the few companies in the country where you can actually buy hard Bitcoin or Ethereum, um, you know, XRP or, or any, any major crypto, and not through an ETF, where you’re actually just owning the shares in that fund, but you actually own the coins.
I think our platform’s very unique ’cause in the IRA space, and you can go on our, our app or website and just buy it. You can roll over money, you can make contributions through it, you see, do it all on your phone. It’s super easy. But unlike our competitors, what, what our competitors have done unfortunately, is they’ve tried to charge asset valuation fees.
So that means if you own a hundred thousand dollars of [00:36:00] Bitcoin, you’re gonna pay them, let’s say 1% asset valuation fee. To hold the Bitcoin on their platform, which you know, to me is crazy. So we just have a hundred dollars flat fee. So if you wanna hold and hoddle Bitcoin or Ethereum, it’s the best platform in the country to do it because it’s the most cost effective and easiest way to do it.
So we’re very proud of that. We believe in holding these assets. You can trade ’em too. Obviously there’s no tax you can trade ’em. Mm-hmm. But most of our investors actually wanna hold. Our platform is geared to that because the fees are super low and you actually can hold the actual crypto coin.
Patrick: Yes. Yeah.
No, and I think when you start thinking about crypto and why you own crypto, it’s for the fact that it’s, it’s somewhat similar to why I wanna Old Own Gold, right? Yeah. Um, I can, sure, I can look at it as an asset class, but really I like it because it’s, uh. Decentralized finance, right? Like I, I have control of this thing and it’s [00:37:00] not being tracked on, you know, any of these other platforms.
So, and I think there’s a level of it, and I know there’s some level of tracking here with Bitstamp. Yeah. But, uh, I, I’m just thinking of like, I like to, to sort of have control of my, my assets versus. Uh, yeah. Or something along those
Adam: lines. Certainly the blockchain can, can help you track the wallet. It’s not gonna tell you who owns what, but it could help track the, the actual coin.
But for me, now, look, the last three, four months really, um, you know, re reinforce my belief in crypto, especially Bitcoin, because you know, if you look at our trade def, forget our trade deficit. If you look at our deficit, you look at our, our weakening dollar, you look at the fact that every year it was three more trillion dollars in deficit.
We can’t stop spending. The 10 year, the 30 year treasury, um, yields keep going up, dollars weakening. Um, Bitcoin to me, even better than gold, is a great hedge against a weakening dollar because of its limited supply. So it’s really reinforced my belief in, in Bitcoin more than any other crypto or, [00:38:00] um, precious metal and, and hedging my concern about our, um, deficit.
Patrick: Yeah, no, I. I think this is great. I, I love the tools that you and Ira Financial have built to just allow people to, uh, have control over their, their dollars and not be stuck in the, I’ll say it, the, the traditional, uh, route and really be able to leverage those to build, uh, tremendous wealth. I think this is, yeah.
Um, this is fantastic. So yeah. I’ve got a few other questions, but is there anything else from a I’ll, I’ll say a self-directed point of view that we haven’t touched on that, that we should be talking about?
Adam: I, I think though, the most important thing is to know that it’s easy. Okay. All you need to do is have an investment and the rest, the experts will do for you.
So you literally need to call us up and say, Hey, the house next door is for sale. I wanna buy it. Or, uh, my friend started this business, the next great [00:39:00] AI business, I wanna invest in it. We’ll do the rest. We’ll literally walk you through how to open the account. We’ll pull the money from your IRA tax free, and all you need to do is tell us where to send it.
I mean, it’s that easy. Yeah. So what I love about my industry and, and especially IRA financials, is we’re empowering people, you know, to take more control, doing it in a simple cost effective way where they can build their own wealth, their own way, and create their own luck. It’s to me, the best way of building wealth in a tax efficient manner.
I’ve seen it for myself and I’ve seen it for the last 15 years with clients and, and so many, so many clients have started with small amounts of money and built enormous wealth because they’ve had the opportunity to jump on an investment and do it in a tax free account.
Patrick: Yep, yep. I love that. You just set this up perfectly for me.
So I, I’m thinking of, we have a number of clients that. Uh, have friends that run successful businesses and are starting new ventures. Okay. And, and in my mind [00:40:00] I’m going, man, you know what would be fantastic is, and they all like to invest in each other’s opportunities. Um, you know, I’m doing, somebody’s taking dollars from a brokerage account, funding a backdoor Roth ira, starting to build up some, some cash in that, that account.
And then when the funding opportunities come up, they’re taking those dollars and putting ’em into the new opportunity. Now they might be putting some additional dollars in on top of it to get to it. To certain thresholds, but if, if you can get in at the, the, the ground floor of a operator that you know is got a great track record of running successful businesses, um, I don’t think I, I don’t know if we can get to $5 billion in our Roth IRA, but like that’s a fantastic way to blow up the value of a, uh, a Roth IRA and, um, I think it’s something that everybody should be considering.
Getting as many high growth dollars into those Roth buckets as as possible.
Adam: Yeah. And if, if all you’re investing in stocks, you’re mi you’re missing out on emerging assets, you’re [00:41:00] missing out on amazing private opportunities. So you would’ve missed out the last 25 years on the private equity boom, the hedge fund boom, the venture capital boom, the Bitcoin boom.
If all you did was just, yes, P 500, you would’ve averaged it would’ve got around 10%. Nothing wrong with that. Mm-hmm. But you, you probably could have got 30, uh, percent plus if, if you diversified.
Patrick: Yeah. Yeah. And I, going back to the, the blowing up the Roth IRA, like value in a huge way. Uh, I think we saw a little bit of this with Peter thi, but I’ve seen people successfully do it with, let’s say I have $5,000 in a, in a Roth, IRA.
I go tie up a piece of real estate, uh, that I, I know I can flip, okay? Mm-hmm. And I do that in my Roth, and I use that as, uh, we’ll just say earnest money. Uh, and I flip that deal and I get 30 grand from, from that. I can have those dollars go back into my Roth IRA. Right now I’ve, now I’ve taken that five and I turned it into 30 in pretty short order.
Yeah. Is that I’ve seen, is that strategy legit?
Adam: [00:42:00] Does
Patrick: that work? Yeah, yeah. Yeah. I’ve seen it multiple times on options. On properties. Mm-hmm. Absolutely. Yep. And, and we’ve got a client that is really good at flipping businesses and it’s like, man, we absolutely need to start having the Roth owned, you know?
Yeah. Uh, some of those opportunities so when they sell out, they, they can go. The cool thing is, is like, we don’t need to get into the details here, but I, somebody calls, your office, sets up a, a consultation and you guys. Talk through like, Hey, this is the opportunity. I see. How do I do that? You guys can walk ’em through.
The best way to get, get that structure.
Adam: Yeah. Yeah. We’ll, we’ll, yeah. We have a great team of tax professionals that will walk you through, we’ll ask what you’re doing, put you in the right structure, help you, um, you know, structure from a, a tax optimization standpoint, whether it’s a, so, okay, an IRA, A checkbook, a Roth, think about conversions.
Mm-hmm. Whatever it is. I mean, we will get you in the best place so you can generate the most tax, tax efficient wealth. [00:43:00] Possible. Um, so, and another interesting, um, strategy people are doing is just hard money loans, right? So if you lend people money with personal money, you pay ordinary income. Tax interest is taxed.
It’s not capital gains, it’s ordinary income tax. If you did an IRA of 401k, it’s tax exempt, right? So I actually, before we jumped on the podcast, I was speaking to a client who, um, was moving more money into his IRA because he ke, he’s basically, all he is doing is hard money loans, right? He’s been getting 12 to 14%.
Tax free and his IRA and Roth, uh, for the last three years, and he’s actually just moving the last of his, um, traditional money into this because he’s like, I’m getting 0% this year, or I’m actually down 2%. I can make it. Mm-hmm. Pretty much guaranteed. I know who I’m lending it to. 12 to 14% tax free. Like it’s a no brainer.
Patrick: Yeah. Yeah. I think this is, um. This is fantastic. I think there’s so many creative opportunities inside the self-directed IRA, uh, dollars that, uh, this [00:44:00] needs to be explored by anybody that’s serious about building wealth. So
Adam: every American should have a self-directed IRA, I mean, honestly, even if you have 30,000 bucks, you should have some exposure of Bitcoin.
You’re every American should have at least a hundred dollars into Bitcoin or some, or gold or some alternative asset because if not, you’re losing out. So it mm-hmm. It’s not just a matter of, oh, it’s only for the rich people. No, it’s not. You have, you can start small, right? You can do a $5,000 hard money loan and get 12%.
You don’t have to be a millionaire to do an alternative asset investment.
Patrick: Yeah. Yeah. No, I, I totally agree. And, uh, just disclaimer here, people absolutely should go talk to their professionals before making investments, but I, I think everything we’re talking about here is, uh, uh, has a lot of wisdom baked into it.
So. When I think about next steps, uh, I think a good next step for people is to go check our ira financial.com. We’ll have links to that in the show notes. There’s so many resources available there. Uh, it’s great if you wanna have a [00:45:00] conversation with Adam and his team. Uh, you can set up a free consultation.
And we also think that is, uh, a worthwhile opportunity as well. And when we think about what success looks like, you know, if we have home run opportunities and we have those built out inside of a Roth, IRA. The tax free growth there, like that can, that can have a generational impact, uh, on your family, your friends, the, the causes you’re interested in.
Uh, ’cause you can keep those tax free dollars and give all your tax away, full dollars away to charity. Uh, we think that’s, uh, exactly a good strategy. And then when we think about what happens if we don’t take action on these things, you know, we’re, we’re just paying too much tax, right? At the end of the day, our.
Our mission is to help entrepreneurs minimize their tax master wealth and live an optimized life. And so, uh, this strategy fits in just perfectly with, with all of those things that we’re we’re talking about. And we don’t want you paying too much tax. Like the government doesn’t use it well, uh, you know, a dollar goes into the system and a nickel [00:46:00] trickles out to the wrong people and the rest gets chewed up by the bureaucracy.
So. Adam, we think the work you’re doing here is, uh, important. It’s critical for, uh, being able to, to grow and develop wealth, and we, we just appreciate it. Any final thoughts before we wrap up?
Adam: Yeah, just my, my, my real final thought is, um, if you’re not doing this and you have the capacity, you’re missing out.
And again, I’m not selling investments. Mm-hmm. I don’t, I don’t care what people do. But if all you’re doing is investing in stocks and bonds and fixed income, you’re missing out on incredible opportunities. Some risk, of course, but the rewards, in my opinion, far away the risk. And just from a plain old diversification standpoint, again, it’s not the, the amount of publicly traded stocks have dropped like 40% in the last 15 years.
So in fact, if you, if you look at that and dissect that, it’s really seven to 10 stocks is, is what literally makes up most people’s portfolios. So that’s what it means to invest in [00:47:00] stocks. Now it, it means the significant seven to maybe 10 other companies. That’s okay for maybe a percentage of your allocation, but if that’s all you’re doing, in my opinion, you’re putting yourself at risk and you’re missing out on incredible opportunities and you, that’s on you because the government is not going to help us, right?
This is, there’s some social security. That’s all they can give us. Um, we’re in a private retirement system. It’s on us to control our future. Mm-hmm. And if you’re waiting on the government to help you, you’re, you’re gonna lose. So you need to take some action. And action may just be, you know, driving around your, in the community and finding out what you wanna invest in.
But just know that there’s things out there and if opportunities present themselves, you can use a tax efficient retirement account to make an investment. And hopefully, you know, you’ll hit a tax free home run.
Patrick: I love it. Adam, this has been fantastic. Uh, I love this thinking. I think your message needs to be out there in the world, and so I’m, I’m so glad that, uh, you joined us on the podcast here today, and [00:48:00] we’ll look forward to, um, you know, talking to you and your team, and, uh, hopefully a bunch of listeners are checking in with you too.
Adam: Yeah. Thanks so much for having me, Patrick.
Patrick: That’s it for today’s episode. Thank you so much for tuning into the Vital Wealth Strategies Podcast. I truly hope you found value in this conversation and that I gave you new insight. Into how you can use tax advantage strategies to build lasting wealth. If this episode sparked an idea or brought you clarity, do me a favor.
Share it with someone who needs to hear it. Another entrepreneur, a business partner, a family member, someone who’s ready to break outta the traditional box and take control of their financial future. And remember, you’re a vital entrepreneur. You’re vital because you’re the backbone of our economy, creating opportunities, driving growth, and making an impact.
You’re vital to your family, creating abundance in every aspect of life. And you’re vital to me because you’re committed to growing your wealth, leading with purpose, and creating something truly great. Thank you for being a part of this incredible community of vital entrepreneurs. I appreciate you and I can’t wait to have you [00:49:00] back.
Next time on the Vital Wealth Strategies Podcast. We help entrepreneurs minimize their taxes, master wealth, and optimize their lives. And if you’re ready to start building your own tax optimized strategy right now, head over to vital strategies.com/tax. You’ll find tools, resources, and guidance to help you put these ideas into action.
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