Tap into Retirement Plan Dollars for Alternative Asset Investing
Hosted by CAIA Seattle, John Paul Ruiz of The Entrust Group shows how you can unlock the power of retirement plan capital for investing in alternative investments. There are 33 trillion dollars in retirement plans. Whether you are an advisor helping clients or an individual investor learn about the platforms available, rules and regulations, and how to get started in a broader utilization of your retirement plan assets.
John Paul Ruiz, CISP, QKA Director of Professional Development, The Entrust Group
John Paul Ruiz has spent more than 25 years as a consultant and trainer in the retirement and financial services industry. Prior to joining The Entrust Group, Ruiz served as the Vice President of Professional Development for Integrated Retirement Initiatives, LLC. His responsibilities involved developing and delivering retirement plan training to financial advisors as well as compliance personnel to some of the largest institutions offering retirement products and solutions.
Learn more about how to use your retirement fund to invest here.
Transcript
Liz: [00:00:00] Hello and thank you for joining us for CAIA Seattle's webcast, tap into retirement plan dollars for alternative asset Investing. This event is being recorded and will be distributed to register and following the call, we encourage audience participation. So please use the Q&A or chat features at the bottom of your screen.
To ask questions to our speakers. Here to open up our call is our CAIA Seattle chapter. Co-head Chris Carlsey.
Chris Carsley: [00:00:26] Hi everybody and thanks for joining us. You know just want to take a little bit of time and for some of you that may be listening to this phone call or this call, sorry, I've been on the phone too much today.
About the CAIA it's a global organization of 31 chapters and it's about a little over 11,000 people. The all work in the alternative investment universe. So it's, it's something that everyone within this chapter takes in this organization takes, you know, heart to the future of alternative investments.
The CAIA organization better known as the Chartered Alternative Investment Association is focused on education, networking and research. There's a dedicated research division, that's run back in our headquarters and it's, it's a prized asset of ours . We always encourage all of our members to try to access that research for ongoing education.
If you're looking for more information of how you can join the CAIA, or are you going to access some of this information, you can go to www.caia.org. or you can actually reach out to your local chapter member, myself or any of the other chapters around the world. And you know, we look forward to networking with you.
Today, we're going to be covering something. It's an investment platform that's been around for, or two decades or more. But it's the thing that we realized recently. There's a number of people that really didn't understand it was available or needed more information to better understand this use of custodial platforms for the utilization of retirement funds for investing in alternate investments.
And, you know, luckily today, we have a veteran in this space. We have JP, Ruiz from the Entrust Group, that's going to walk us through rules, regulations, and the various options that are going to be available for us. So, JP, I'm going to hand it off to you right now so that you can kind of take us away and you know, educate us on what is available in this space.
John Paul Ruiz: [00:02:24] All right. Thank you, Chris. Thank you for having me. It's an honor to be able to speak in front of you folks today and offer you an opportunity to be able to tap into some funds for investing again. My name is John Paul Ruiz. I am the director of professional development here at the Enterest Group.
The Entrust Group is what we call a self directed retirement plan administrator. So in other words, we don't we not only do we handle some of your traditional types of investments, investments under retirement plans. Our niche is actually holding the alternative types of investments on the retirement plan, which requires a little bit more of a different infrastructure, which is a good fit for this particular group of people that are attending this seminar today.
A little bit about the Entrust Group before we get into the material, the Entrust Group has been around for 37 years, and that's a significant amount of time because ERISA a been around since 1975 with the passage of a tax law called ERISA. I don't want to bore you too up the technical stuff, but it's been around for awhile.
Self-direction has been available since 1975, but it's only been available to the high net worth individuals with high fees and so on and so forth. Our founder for the Entrust Group said this has got to be made available to the masses because the captive audience so retirement space are your security firms, as well as insurance companies, banks, credit unions the, the types of investments that can be held in a retirement plan is really broad.
And that's why this is a good opportunity for us to introduce you to a platform that does not offer investments, but instead offers the wrapper of a retirement plan. And the investor can actually bet out and chooses to investments that they would like to hold under a retirement plan instead of the retirement plan provider offering the investments that they actually sell.
Again, the Entrust Group is self-directed administrator does not offer investments, but again, offers the platform to maintain it assets ,tax deferred under a retirement plan, but it's up to the investor to choose whatever type of investments that they would want to hold under a retirement plan.
We have over 21,000 individual accounts and over $3.3 billion in investor assets to date. Since Chris talked about education, we not only do we educate our staff for regarding retirement plans, we also educate the industry. Our courses are eligible for continuing education credits for this CFP. We are continuing education provider for enrolled agents for the IRS NASB for CPAs and, and other major designations out there.
Not only do we do webinars . We also hold the local in-person events. If you folks are ever interested in something like that, let us know. We'd more than happy to participate in a program that you, you're hosting. But what we're going to try to cover today are four main things.
What is the retirement landscape today and how much are in retirement plans today? The significance about self-direction is that a lot of people it's like what Chris said. They didn't know that they could use their retirement plan assets, specifically individual retirement accounts, because those are controlled by the individual.
I'd like your 401k plans that have employers controlling the types of investments that can be held under those employer sponsored plans. IRAs are basically controlled by the individual. We'll take a look at how much retirement plan assets are available for investing today. Investors are not aware that their retirement plan assets could be invested in alternative investments.
And that's where you come in. It's do spread the word. It's a good partnership for a self-directed administrator and advisors that are in the alternative space. We compliment each other. What are the trends or are the opportunities we're talking about things such as rollovers, as well as employer sponsored plans and last but not least, we'll take a look at what the customer's needs are.
Well, when it comes to retirement plan assets, according to the third quarter report by the investment company Institute of America, based on dollars that can be tracked. What does that mean? Because there are some assets within retirement plans that are not trackable, but the IRS starting 2015, started to have custodians report on what we call alternative investments that are inside retirement plan.
So at this point we don't have those numbers yet. But based on the trackable dollars in retirement plan assets, there's over $33.1 trillion of assets that are available for investing. And in the scheme of things, IRAs hold over $11.3 trillion in these particular accounts. Now keep in mind. Why, why is that important to, to know because these assets, if we can take a look at the 11.3 trillion is not just it's not just a limited to securities.
As far as investments are concerned, there are other types, there's a broad array of investments that could be held under a retirement plan available for investing for an investor. The types of retirement plans that we we currently service are your IRAs, your traditional IRAs, and Roth IRAs, as well as important sponsor plants.
A lot of our clients are also entrepreneurs that have businesses IRAs based employer sponsored plans for good means of making contributions to these employer sponsored plans. They can use it as a tax deduction and the assets that are contributed to these retirement plans can be invested in alternative investments.
There are other Non-IRA accounts, but also are serviced by a self-directed administrator. Those are health savings accounts, as well as Coverdale education savings accounts. And lastly, some individuals say is self-direction available 401(k) plan. That's generally for clients that have employees, it is very hard to get alternative investments inside the plant because of what we call ERISA 404 (c).
Given the fact that the employer is responsible for the investments that they offer within the plan, they try to limit it to investments that are broad in nature. In other words, prudent, there's what we call the prudent man rule. Well that 401k plans need to follow which, you know, basically the, conservative approach to offering those types of investments in our 401 (k) plan, limit the type of investments that could be offered in that plan.
However, there are, there is a growing population of what we call small businesses in the United States. I took, took a look at the last stats of schedule C filers as well as partnerships. There's over 27 million filings of small businesses. And those are your target profiles for the small business types of retirement plans, which not only includes your steps and your samples.
Stop. Sorry, what you call you? Simplified employee pension plans that are profit sharing plans. The maximum contribution this year is 57,000 and they're looking for some sort of investment that they could invest. A 57,000 in your simple plans are similar to your 401k plans, but the contributions are a lot lower 401 (k) plans for employers that do not have employees or what we call your individual 401k plans or solo 401(k) plans.
Well, the contributions are a little bit higher than your SEP and your SIMPLE, depending upon the income that is earned by an employer. But these are the different types of retirement plans that can, can be used for alternative investing. The great part about these particular types of of accounts is that the earnings grow tax deferred.
Meaning that the earnings that are earned by investments are not taxed until they take it out. So what's the moral of the story. Don't take it out. That's why there's such a huge amount of assets that are held under retirement plans. In some cases, depending upon the type of IRA or a contribution that is made into an employer sponsored plan, the earnings will eventually even be distributed.
Tax what tax free. In other words, that's a little bit different than your other types of retirement plans, which, you know, when, when the earnings grow, but if you distribute, it's going to get taxed, some accounts such as your Roth, IRAs, as well as your designated Roth accounts and individual 401(k)plans are eventually going to be distributed.
Tax-free I'm going to pause there for a second. Let you digest that for a second. Imagine somebody building wealth inside of retirement plan. Okay. And eventually those assets will be distributed tax free, not only for the individual that holds the account,. But also potentially as a wealth transfer strategy to the next generation or the remaining descendants of an individual who has accumulated wealth in these accounts.
And those amounts will eventually be tax-free as well. If it's a rock type of retirement plan. Alternative investments are again, the investments that you can hold under a retirement plan is broad. Here's some examples of what is held under the self-directed accounts at most self-directed administrators.
Of course, not only can you have securities and CDs and money market accounts, which a lot of people know about, you can also own real estate, such as single family multifamily owns commercial property improved or unimproved land. Individuals may have been an invest in what we call a limited liability company that actually either has a trader business income. That of course would be subject to a different set of rules for taxation, but they're, they're using the limited liability company to purchase real estate as an example.
Whereas the, you know, if, if assets that are used to purchase a piece of real estate, it was actually retirement plan assets originally. And in other words, if you wanted to buy a hundred thousand dollar piece of land and would your LLC, and later on you sell it for 200 grand, imagine your capital gains not being taxed. As long as the gains go back into your retirement plan. Changes the ball game a little bit. Apartment buildings, co-ops condominiums, Merch good mortgage notes, precious metals, certain precious metals with a passage of the small business job protection act of 1996 can be held under a retirement plan.
This case mainly an IRA raw land, private placements get also be held notes again, as mentioned earlier those all can be held as common investments under a self-directed account.
Now two to narrow down what. Yeah, you cannot have under a retirement plan. It's really simple. There are only two types of investments that can not be held under a retirement plan, codified under law. And those are your collectibles, collectible art and antique gems. Some metals can be held, of course, some their retirement plan as mentioned in the previous slide in Minnesota, where I used to live, somebody wanted to put a gun collection. You can't have that under a retirement plan. Because who knows how to value a gun collection and who wants to hold a gun collection under a retirement plan, right?
Life insurance contracts, mainly term life insurance contracts. Individuals can hold annuities under a retirement plan. As a matter of fact, there's a special section of the internal revenue code when ERISA was passed in 1974, specifically for annuities. What do you call them? They're called IR annuities.
Another type of investment that can not be held based on a structure is what we call an S Corps. There's a revenue ruling, 92 - 73. That's the nerd part of me coming out right now, revenue building 92-73, says a grant or trust cannot be a shareholder of an S Corp and that's what an IRA is a grant or trust. Therefore IRAs cannot invest in an S Corps.
However, based on what is restricted, you can see that there's a broad array of investments that can be held under a retirement account. And the earnings on these accounts will not only grow exponentially faster because it's tax deferred.
In some cases, the earnings even would even be able to be distributed tax-free, if it's a Roth type of a a retirement plan . Keep in mind in these particular types of investments, prohibited transaction rules needs to be watched and followed. And that's where advisors could be the quarterback or help help the IRA holders that are investing in alternative investments. Not to run a file by, by being the advocate or being the sounding board for these retirement plan investors to make sure that they follow the rules associated with having these types of investments under our retirement plan. Again, the advisory role will be the quarterback investment strategies.
In other words, you start to source out the providers like the Entrust Group that can possibly hold a piece of real estate under the retirement plan. Or if the client wants to invest in a private placement, and broker dealers or other types of investment firms are saying we can't hold that under the retirement program that we have. Well seek out a self-directed administrator, because that's the, , the main benefit , of working with a self-directed administrators, because they'll, they'll handle as they under, she calls it the weird stuff, right?
The stuff that typically other providers will not will not hold. As your role for the, in your relationship with the investor, continue to provide other services as well. Self-directed administrators are just a good part of your toolbox as an advisor, as something that you could pull out. If the client is asking, I would like to invest in invest this. Can I do that in a retirement plan? Wouldn't it be nice to be able to say, yes, you can. And I do have the provider for you, and that's a self-directed administrator. Nice to be able to just pull that out of your toolbox.
Here's another illustration of of how a self-directed administrator works in this particular platform. What, what it is , it's an asset gathering tool for advisors. Why is that? Because if individuals do not have any money outside of a retirement plan, they may say, well, I'd like to invest, but I don't have any cash right now. A lot of them neglect the fact that they do have retirement plans and assets, because they've been saving a whole lot.
And those retirement plan clients that they have from employers or past employers. And I keep in mind those assets that are in these retirement plans could actually eventually roll into what we call an IRA. Once they reach a triggering event. The triggering event is what we call it. A distributable event.
There are over 10,000 people that are reaching age 60 every day in the United States of America. This demographic of people are people that were born between 1946 and 64. There's about 78 million of them. And some of you may be saying, Oh, you're talking about the baby , absolutely correct. A lot of them are the ones that hold most of the $11.3 trillion in retirement plans.
And some of them are saying, you know what? I can't handle another of the market crash. Are there any other types of investments that are available to be held under a retirement plan? Cause I really don't want to take a distribution and get tax on these assets. Can it be sheltered, continue to be sheltered and, and allow for me the investor to invest in alternative investments. And the answer is. Yes, you can. And that is true.
What we call through what we call a self-directed platform, you know, IRAs can be moved into a self-directed IRA or a direct rollover from an employer plan, such as a 401 (k) plan 403 (b) or a governmental 457 plan. According to law, those types of plans can be directly rolled into an IRA. I as an individual gathers all the assets that they had they been contributing to in previous years, those can all be consolidated if they want to, to invest in a particular investment that can not be held in other retirement plan providers.
What is a self-directed retirement plan provider. Again, in a nutshell, we provide the document to establish the specific type of retirement plan that they want to establish. We also provide custodial services. So in other words, somebody has to custody the assets. Why is that? Because the basic premise of a retirement plan is as long as it's under the retirement plan and the the IRA holders. An example, doesn't touch it. It's going to continue to grow tax deferred. However, the moment those assets reaches the hands of the individual, then that is what we call the distribution. And now it becomes taxable. So somebody has to hold to hold the assets, or in other words, custody, the assets. That's what that's one of the rules of a self-directed retirement plan provider provides.
As an example, the Entrust Group has a trust company chartered in the state of Tennessee. Along with that a self-directed administrator also does the record keeping because there are IRS required reportings on these retirement plans on a yearly basis, such as your fair market value through what we call an annual account statements, such as the IRS form 54 98.
If there's social distributions, 10 99, RS must be IRS form 10 99. RS must be issued. That's what a self-directed administrator or provider provides a self-directed administrator does not provide investments nor investment advice. And that's why advisors are a good match for self directed administrators, because that's where you come in.
Being charged and these particular accounts are typically flat, a flat fee or based out of a percentage of the assets with a cap. In other words, we can't make it too expensive because the lay person walking up the street will not engage in a self-directed account if it's too expensive, because in the past only a wealth management groups or trust companies that cater to a small group of people typically offered self-directed. Shouldn't because of the complexity of how to handle particular transactions so that self-directed administrators are, are cost-conscious. And offer either a flat fee or a base percentage based on the assets that are held under the retirement plan. Of course, with a cap.
It again, focuses on holding non-traditional investments. They, this is a solution for alternative asset record-keeping. Whereas other retirement programs offers IRAs to have individuals invest in the investments that actually make money for them. We're the opposite. Self-directed administrators actually do not offer investments again, but in turn. How we make money is through servicing the retirement plan that is being, you know, serviced under our platform, whether it be a traditional IRA or Roth IRA, Self IRA, SIMPLE IRA, Ordinate, individual 401k plan, just as examples.
Self-directed retirement plan model again requires that the. Retirement plan holder or the taxpayer to be the one to source out their investment. And that's where you come in folks as the quarterback for the investor to seek out the, the next next latest and greatest of investments that you'll be held under a retirement plan.
They're going to need to seek tax and legal advice based on the investments that they're choosing as well as making sure that the investments that they're engaging in that does not run them a foul, such as what we call a prohibited transaction.
Sourcing alternative investment providers and choosing the right custodian requires a certain level of expertise. So these are some questions that you might want to ask. That's the custodian have advisors support. Are there people that you can actually run by certain scenarios, not to offer tax advice or make a determination for a specific situation, but they need to be knowledgeable enough. About the general rules so that there's a basis of where you know answers for questions can come from.
These are for your practitioners, such as your lawyers or CPAs as well as third party administrators, the record keeper must have a knowledgeable staff. So in other words, what is their constant education support for their, for their staff to make sure that they're always up to date and what's going on with laws and regulations that the treasury department, as well as the department of labor. Issues out there to make sure that the program is in compliance and last but not least who custody is the assets.
There are some self-directed administrators out there that, that hire an external party to custody the assets. The beautiful thing about, for example, the Entrust Group is that we do own a trust company out of Nashville, Tennessee. It's a completely separate company. The reason why that was done by design is too. Make sure that people are there's a check and balance. In other words, we get audited by the trust company. A record keeping shop gets audited by the trust, the trust company, as well as the trust company gets audited on a yearly basis by the state, the state that in which the charter is located.
Well, how, how does one establish an account that a self-directed administrator at the Entrust Group, it's just, it's a three-step process. When you open up the account, the correct account that you would like to establish that may be receiving a transfer. For example, if somebody has a traditional IRA at fidelity or Vanguard, and they wanted to transfer that to the same type of IRA, then you would open up a traditional IRA at the Entrust Group.
If an individual want to do a direct rollover from a 401k plan, then you would set up a traditional IRA and, or a Roth, depending upon the type of assets are that are in an individual 401k plan. And those can be directly rolled over to the appropriate IRA at the interest group. From there. Once the account is funded via what we call a transfer direct rollover, all you have to do is instruct a custodian to purchase just the particular investment.
It's as simple as that. Yeah.
The Entrust Group, you can actually talk to somebody if you have any questions. Whereas some of the providers have gone so automated that you can not talk to an individual anymore. The Entrust Group, you can still talk to somebody first step. We're going to open an account fund your account and last but not least purchase an asset. Well, I've kind of gone really fast. I know you have some questions out there. What I'd like to do now is open up the lines for any questions you may have in regards to what I just talked about. Chris.
Chris Carsley: [00:26:25] Yeah. Backing up. There was a, there was one question earlier on when you were talking about collectibles.
There was one person who asked, you know, if the collectible is say, let's say it's in a fund and that fund has a valuation methodology around that collectible. Is that something that would still not be allowed?
John Paul Ruiz: [00:26:45] That would be allowed at that point because somebody is actually managing those, those particular assets that are considered what we call an investment fund. Right, that's the business that they're in is purchasing those collectibles and the individuals are collecting to that or investing into that.
The collectibles was a practical was a practical issue from, from a Congress's perspective. A lot of custodians and trustees don't want to hold you know bottles of wine in their safety deposit box somewhere. So therefore those were eliminated as eligible types of individuals.
But, if an entity is in the business of investing in those particular types of collectibles and the investor is just basically investing in, in that particular fund that is being managed for somebody else. Yeah, that should be okay.
Chris Carsley: [00:27:37] And another one question that just came in, which I mean, of course it's incredibly timely because you can't pick up the news without hearing about crypto. I mean, obviously there, again, I, under that structure of you're in a fund that is managing crypto and they have, you know, their valuation process, then crypto would be allowed.
Is it something to where is his interest or, I mean, you can kind of step away from interest. Is anyone in the custodial realm looking at saying, Hey, we'll be able to custody crypto directly if you've heard anything on that front.
John Paul Ruiz: [00:28:13] There, there are organizations that do record keep crypto .
At the Entrust Group, what we do is individuals set up what we call an LLC and they invest in cryptocurrency from that perspective because the, cryptocurrency accounts cannot there's seems to be a disconnect for an IRA to establish an account at a platform that offers crypto. So, so in essence the route that people have taken us to set up an LLC to invest in crypto.
Now, keep in mind, the cryptocurrency provider must also understand how IRAs work, because if the individual has access to the funds, imagine if those assets went directly to the, the IRA holder instead of the assets, going back to the custodian to be reported properly. So there are some logistics that have to be ironed out in order for a crypto currency to be held under a retirement plan.
But yes let me, let me take a step back there.
The IRS, actually has a publication. I believe it's publication 31 25, if I understand it correctly, the IRS does not approve or disapprove investments. Yeah. So, so if somebody says, well, I have an investments that's approved by the IRS. You know what that tells you, they're lying to you because the IRS does not approve or disapprove investments.
However, cryptocurrency, there's no prohibition for cryptocurrency to be held under a retirement plan. So therefore, to answer your question, Chris, Yes. A lot of people have of a crypto currency under the retirement plan.
Chris Carsley: [00:29:46] Great. And one of the thing when you were talking about there are, there are a multitude of custodians out there.
One question came in was, does Entrust work with other custodians? Is there collegial work? Or if, and if there is, can you give us an example of, you know.
John Paul Ruiz: [00:30:01] Currently right now, the Entrust Group has not worked with any other custodian, except from a standpoint of if a custodian is moving assets from, from their platform to ours. But as far as a synergy with another custodian, no, we do not work with another custodian at this point.
Chris Carsley: [00:30:18] Yeah. And I would confirm, I mean, I've, I've worked with multiple custodians for the last couple of decades and, you know, th th they all tend to have their own buckets. Yeah. In my experience, you're, you're not seeing them work together in any way. So.
John Paul Ruiz: [00:30:32] There hasn't been a reason to, so that's, that's, that's one of the main reasons, you know, and, and working with somebody else, it gets, it gets a little bit, it gets a little bit tricky when it comes to, you know, who gets the business. If you're working with right.
Chris Carsley: [00:30:46] That's always the key who, who, who close and speaking of fees which everyone always wants to know.
We had one question come in, that's talking about I'll make this kind of thing. Two-part question. It was one, the first part is can you give us an example, you know, cost structures of what people are saying and walk through that. And the second part of that question is going after and sort of looking at.
As you're seeing investors come in and they're saying, Hey, great, thanks for JP for the information I'm going to move forward. I'm going to create a platform. You know, a lot of investors are used to the world where a lot of your brokerage houses are on the race to the bottom of the fees. And so you might have a little sticker shock.
And if you, and we'll talk a little bit about that. Because there is a cost to definitely using a custodial platform for alternate investments. There is work being done. But how have you guys dealt with that as somebody who may be a traditional investor for most of their life, all of a sudden wants to go into alternatives and realizes, Oh, wait. You know,
John Paul Ruiz: [00:31:52] I've got to pay for this.
Chris Carsley: [00:31:52] I gotta pay for this. Now my broker doesn't charge me anything for trading, you know? So if you can talk about sort of some of those two points of give us an example and a little bit of how you're dealing with some of the, maybe the sticker shock of someone new coming in.
John Paul Ruiz: [00:32:06] Well, actually what I find is that we, we just went through a survey with, with some people that are using our services. Let me. Let me cut down to the chase. Let's say an individual wants to invest in a half, a million dollar piece of property or a million dollar piece of property. How would you like it?
If you only got charged on a yearly basis, the annual fee would be $299. It sounds too good to be true, right. But, but that's typically the, the price structure. If, if it's on a per asset basis, you have 10 houses. Of course you multiply the 299 based on the number of houses you own under your retirement plan. Capped course at a certain level.
There's also another fee structure that you know, I can only speak for ours that could also also be based out of the , the size of the assets. In other words, it's a percentage. And the reason being, if let's say you're going to invest in a $10,000 note, right? If you're gonna invest in a $10,000 note, would you rather pay an amount smaller than the 299? You will. That would be the best route to take is based on, you know, base your fee structure based on the asset size, of course has a minimum to that as an example of maybe 199, not right.
So in other words, it's not an exorbitant amount of money. However, what we do charge for our ancillary transactions that that a taxpayer may want us to do. For example, if we're going to buy a piece of real estate and we're going to have work with a, with a title company as an example, and of course it takes people power. They may cost them a couple of hundred bucks to facilitate the transaction, but that's only a one-time fee.
Other transactions could be transactional in nature. So in other words, if an individual wanted us to overnight something to somebody, of course, we're going to have to pass on the fees to the individual. So as you can see, it's, it's not an enormous amount of, of fees involved in the self-directed world. If I could just speak to some of the some of the, you know, so some of the issues regarding, well, I never had to pay these fees before.
Yeah. The, the, client has never had to pay fees before, because some investment providers do remunerate whoever the finder is of a particular amount of assets that are being invested. So in other words, somebody's paying for that. It's not, it doesn't nothing ever comes for free. Somebody has to pay for it in a self-directed world. However, we do not get paid from the investments because the investments are chosen by the IRA holder. So we have to charge whatever it would cost us to number one, hold our trust charter because it doesn't come for free.
We do, we do have to keep, you know, keep regulate keep regulatory requirements from the state level. But again, as you can see, it's not an exorbitant amount of amount of, money.
Chris Carsley: [00:34:56] No, I, I agree. I mean, I guess the important note there is nothing's for free. If it's worth having, and even if you're getting something for free, somebody is paying for something somewhere. That's just the world that the world doesn't work for free.
John Paul Ruiz: [00:35:09] Think about it. If you wanted to buy an apartment complex as an example, how would you like it that the increase on your investment is not the only thing that you will be enjoying in the future?
But there's also possible rent that's coming in. The rental income in a retirement plan is not taxable because it's considered passive income. Two levels of increase in an investment. So you wait 299 and being able to do that under retirement plan.
And if they, if they sold a piece of property, which was bought outright with IRA dollars, the capital gains is zero. As long as the assets come back to the retirement plan. And in some cases, if the asset is purchased via what we call a Roth IRA, right. Imagine if that imagine distributing that that asset in the future, whether it be the rent or the actual sales proceeds from that particular piece of real estate. Tax-free. Wow. That's, that's powerful.
Chris Carsley: [00:36:08] I agree. We did have a, we have a question here and I hope I get the, the, the nature of the question. Correct, someone was asking the various income limitations for Roth and you know, a second part of their, their statement. Viewers can two IRAs involving two people invest in the same real estate, say, I guess the same real estate investment.
John Paul Ruiz: [00:36:32] The , can in fact, just rephrase the question a little bit. Some people say, can I partner with another person to purchase a piece of real estate? And the answer is absolutely. As a matter of fact, some, some individuals are able to invest in typically large tickets by partnering with multiple individuals, whether it be an investment club or whatever, it may be that a, if somebody is interested in buying a commercial property and three people go together to. Purchase a, an investment commercial property that happens all the time.
Does that answer the question?
Chris Carsley: [00:37:11] I hope so.
John Paul Ruiz: [00:37:15] Make, just make sure that whatever percentage of investment that is used to purchase the investment property, also, the level of expense will be paid by each one of the partners, proportionately as well as the income that is received from that property must also be divvied out proportionately back to two, who would, whoever partners with who?
So in other words, if it's 50 /50 and say, let's say you and I, Chris decided to buy a piece of property because we go way back now, right? And let's say, you know, I've got 300,000, you have 300,000. We wanted to buy a $600,000 piece of property. We can do that. Let's say it earns a $20,000 at the end of the year.
Well, since it's 50/ 50, 10,000 will go to my IRA, $10,000 will go to your IRA. That's how that works.
Chris Carsley: [00:38:06] Okay. And why we're talking about. Yeah.
John Paul Ruiz: [00:38:09] Can I add something to that too?
Chris Carsley: [00:38:11] Yeah, definitely.
John Paul Ruiz: [00:38:12] What a lot of people, well don't realize is that IRAs can actually borrow money. That's what we call a non-recourse loan. Given the fact that the IRA holder cannot extend credit to the IRA, the credit, the IRA needs to be able to borrow money under its own merit. In other words, if the property that they're buying. It is is it revenue producing? There are what we call non-recourse loan lenders out there that do loan to individual retirement arrangements.
Some of them may own the underwrite multi-dwelling fam multi-dwelling properties. In other words, it kind of, it kind of mitigates risk because if there's more income coming in, the chances of them get paid, getting paid is higher. The loan to value on those particular types of investments may be a little bit higher. The down payment may have to be 50% of the actual property, a little bit more skin in the game for the IRA to allow for a lender to lend to it. All right. Now the income from that is what we call unrelated debt financed income.
As a matter of fact, that's a line item on what we call an IRS form 990-t, which is filed by a tax exempt entity. Why are we talking about this? Because an IRA is considered a tax exempt entity. Now keep in mind if an IRA borrows money every month that that IRA let's say pays the amortization schedule. A portion of that payment is going to which principle and a certain portion goes towards interest.
Eventually that IRA will own that piece of property outright. How would you like to build wealth, not using your own money? So in other words, separate from partnering with somebody else, an IRA could actually also use a non-recourse loan to purchase an investment. If there's not enough money under a retirement plan.
Chris Carsley: [00:40:03] No, we got a couple more questions that come in one actually is I'm gonna, I'm gonna, you know, kind of rephrase the question a little bit, but okay. The it was, what investments are you seeing that are in demand? You got a number of clients that are coming in and utilizing the interest platform to investments.
What are, where are you seeing most of the demand for those types of investments and you know, what, what, you know. What, why can you think or opine on why people are actually, you know, looking to use their retirement funds for that particular investment?
John Paul Ruiz: [00:40:42] We're real estate is a staple for a lot of a self-directed retirement plan investors.
Why is that? Because they're familiar with it, right? So some people are saying, you know what, I cannot handle another market crash, but I, I did see an apartment complex for sale and I have a couple of million dollars in my account. Can I buy that with a retirement plan? Absolutely. So the income comes back into the retirement plan, correct? Yes. Does that get taxed? The answer's no because rental income again does not get taxed that that's still very that's that that particular model is still very common.
Individuals are also investing in possibly the next Facebook. So private placements are becoming more and more popular as well because a lot of people are having more ancillary cash in their retirement plan accounts that they could play with a little bit gamble a little bit.
In other words, you know, private placements are, are another, another type of investment that is becoming more and more popular. Precious metals is, you know, holding its ground because there are those individuals that say, you know what? I'd like to be able to invest in something that's. Tangible stored somewhere. So precious metals in some cases may have an uptick in some seasons, sometimes it's flat, right. Notes are, are always a steady a steady type of thing, investment. Some of the notes that you may see in some custodians that have been around for 20 years.
Imagine if you wrote a note for 13% interest rate that's a pretty good investment. And if the, if the, if the note is actually back. Buy a piece of real estate that's even better, right? Because if the payments aren't made well, Re-possession of the piece of property that is backing or backing, that note would go into the retirement plan. It's really across the board, Chris. So but we, at the Entrust Group, we have what we call Entrust Connect, where we, we don't offer investments, but there are investments that our clients have invested in.
And we, if you're a client of the Entrust Group, we make those investments known, not necessarily to endorse it or promote it, but it just allows for other investors. Investors just to take a look at what other people are investing it. In other words, they vet it out themselves in CPAs or legal councils to them, that out a particular investment.
And from there it becomes an automated process of establishing an account, the interest group, if they don't have one already and investing in those particular types of investments, but real estate is still a, a staple private placements are on the uptick.
Some people are interested in crypto. Some, some individuals are still investing in notes precious metals. It's really across the board. As you can see if somebody really wanted to diversify their portfolio put a little bit of money in a brokerage firm, but a little bit of money in a self-directed account because you know, other, other custodians won't hold it. So , to broaden your , or to really diversify your portfolio, self-direction really plays a big part of that.
Chris Carsley: [00:43:51] Yeah, you kind of, you kind of hit a little bit on some of the other questions here. You know, some people were asking about venture and angel investing. Yeah. I mean, pretty much anything's available for the utilization of retirement accounts and, you know, with regards to, because you have such a long duration play.
In venture and angel style investments. See how, as, you know, at least, you know, I can only speak for me personally, but just looking at the duration of this type of investment vehicle, your retirement income. It, it has a longer term life than maybe something that you're going to be able to utilize for short-term needs protects.
So it's not a bad mix for something that's got a longer duration. Especially, you know, something like you were mentioning, you know, real estate, a couple of different times. And then you're obviously in venture and angel investing. So, I mean, hopefully that answers the question.
John Paul Ruiz: [00:44:45] Yeah, it definitely is the IRA holders, a choice on whether or not they could could stand illiquid assets for a longer period of time, but hoping for a gain in the future. Yeah. So again, that's where, that's where they're, you know advisors and practitioners come into play. You guys took it, the quarterbacks for the, for the investor , but then again, you know, it gives an opportunity to gain access to the assets that are sitting in retirement plans for those individuals that would like to dabble in some of the other. Investments that are available out there that, that a lot of other custodians will not hold. Yeah.
Chris Carsley: [00:45:20] You, you did mention, I mean, I, I, do you want to take that segue where you were mentioning, you know, extensions of new products and platforms i.e Entrust Connect and ask another question off that of, well, what else do you see in the future for self the self-directed investment space?
John Paul Ruiz: [00:45:36] What else do I see? As far as the actual investments are concerned? I mean, again, we don't offer investments, so
Chris Carsley: [00:45:43] what, what about products?
John Paul Ruiz: [00:45:45] We'd be able to react to whatever. Where our clients have have have discovered, you know, so I'm sorry. No, no.
Chris Carsley: [00:45:56] I was just saying, I mean, other other potential platforms that might enhance the entire investment platform, one of the things that I was that in my career I've always seen is sometimes as you get into these, self-directed a lot of the, as you're not helping choose investments, it sits either at an advisor or if someone's doing something individually, the hardest part of alternate investments is really getting in there and doing the due diligence.
And that was something you were seeing a lot of the custodians, because there's a lots of them out there sort of seeing, Hey, what else can we provide you, you know, to help investors on their journey to make alternative investments. And if that was, you know, I just kind of wanted to kind of take your segue. And I know that the, you know, you guys have a lot going on over at Entrust.
John Paul Ruiz: [00:46:41] Sure. What I'd like to see it. If I could answer your question, what I'd like to see is more advisor involvement.
Because the lay person walking off the street is. Well, half the time, you know, I wouldn't say all the time, but they have a deer in headlights look, and they really need that someone that they could actually speak with, especially if they have a CAIA designation that has a little bit more knowledge than, than the lay person walking off the street that is looking for. Something else to invest in besides the stock market or your traditional CDs and money market accounts, what else is out there?
I believe there's a big appetite for that because of the ebbs and flows of the stock market when the market was doing very well. I couldn't I couldn't imagine why people were hopping on board. And then the market, when it was at its peak. And what I mean by that is. Where was the invest? Where was the investment advisor to chat with that individual? The, that the, when you invest high, it's a longer fall. Right?
So what I'd really like to see, or is involvement of, of, of advisors in regards to working with self-directed administrators and their clients in regards to, you know seeking out that next good investment to do the due diligence, of course, for a small fee. And I assist these investors as they take on this journey in the alternative. I would, I would like to say that alternative assets be a household name in the future, because it becomes a viable option. It just, it just not a household name because a lot of people don't realize it's a viable option.
I hope I answered your question in a roundabout kind of way.
Chris Carsley: [00:48:32] Yeah, well, you're, you're, you're, you're speaking to our entire objective is the education around and alternatives and all of us believe I'll, I'll, I'll steal some thunder from a large wall street fund. They wrote a paper that alternatives going from you know, optional to essential.
And I see a lot. We're starting to realize that. So I, I I'm in agreement. I I'd love to see a greater involvement in education and then deployment of that education into alternatives.
John Paul Ruiz: [00:49:04] That's why we don't. That's why I don't mind partnering with organizations like CAIA to, to , to bring the expertise in the retirement space. This is another source of assets for investing, you know, so we don't even, I don't even mind if it's a large enough group to fly out there and present. On behalf of the advisor who may not be as knowledgeable in the retirements place, do a partnership together and you know, with, with more heads and more more knowledge that we can impart to our investors too, so that they can make an informed
decision.
I think the, I think we all win.
Chris Carsley: [00:49:43] Agreed. Does anyone have any more questions now would be the time to type those in raise your hand.
All right. Well, we're not seeing any more questions in if you have any, I mean, JP, if you have any final comments or remarks,
John Paul Ruiz: [00:50:10] I think, I think just one of the missed opportunities in times
Liz: [00:50:13] is, is what we call the Roth
John Paul Ruiz: [00:50:15] IRA. A lot of people just say, okay, what's a Roth IRA. Is it
Liz: [00:50:18] a. It
John Paul Ruiz: [00:50:19] It's tax-free at the
Liz: [00:50:20] end.
W what's the big deal about that? It's
John Paul Ruiz: [00:50:22] a big deal because because the, the individuals are individuals are, are, are not just planning
Liz: [00:50:29] for today, but they're planning for the
John Paul Ruiz: [00:50:30] future. How would you like it? How many, how many types of investment platforms can you have or in the growth in your investment will not be touched by the federal
Liz: [00:50:43] government.
Or the state government upon retirement. It it's, it's the power of a
John Paul Ruiz: [00:50:49] Roth, is it? It's huge. As a matter of fact, for people that are thinking about retirement, they're doing what we call a conversion. A conversion
Liz: [00:50:57] is not a spiritual experience, but it could be
John Paul Ruiz: [00:51:01] what it means is you're taking yeah. Assets that have never been taxed
Liz: [00:51:04] before and converting it.
Right. Now to an account that hopefully will never be taxed ever again. The reason
John Paul Ruiz: [00:51:10] for that is the retirement income sources that individuals do not look at today needs to be, you know, these, these individuals need to be pointed to that because whatever you want in the outcome is, is, is accomplished. In preparation.
And as part of preparation is to understand the different vehicles or platforms that an individual can invest in so that when they reach that distribution stage, they prepared and done the work already. And one of them is, is a Roth IRA. There are typically four different levels of taxation. A retirement plan goes through it's your federal and state taxes, as well as another thing called the federal estate tax, which a lot of people are kind of.
In limbo right now, because depending upon who's in power, we'll determine what, how we're going to do what we called it. The federal state tax, I don't know about you, but, but assets that people hold keep growing in some cases, without them wanting it to grow. And that they eventually would like to be able to hand that over to the next generation, with the least amount of taxes that would affect the amount that they're wanting to leave.
Another generation, in other words, wealth transfer in some of some accounts, you know, you're not only going to be subject to federal estate federal tax, state tax. And they're also wondering about this thing called the federal death tax. We're where are we going to be with that? Right now?
It looks pretty good based on the, the
Liz: [00:52:37] laws that were passed and
John Paul Ruiz: [00:52:40] You know, under the tax cuts and jobs act codified in doubled, but that could easily go away. Are individuals prepared for that, especially the ones who have accumulated a lot of wealth. Right? So, so there are strategic things that can be done in a retirement plan.
Some people are also looking at education. Some people keep continue contributing to education accounts for, for their children. And they haven't even maximized their retirement plan contributions. As a matter of fact, I was talking to somebody and they said, what do you mean by what shouldn't I be preparing for my child's education?
I said, You know, I asked him this question, is there a scholarship for retirement? And that actually hit home. They said, well, there isn't. Well, there is scholarship
Liz: [00:53:24] for education.
John Paul Ruiz: [00:53:26] Why not fully maximize your retirement plan contributions so that eventually in these retirement accounts, some of the retirement accounts can actually be used for education tax free.
So in other words, it opens up a world for a of conversations for individuals. It's it goes beyond just investing. Investing is just a part of that conversation, but the vehicles that you invest through need to be looked at as well. I hope, I hope that helps.
Liz: [00:53:57] I just got philosophical there for a second. So.
Chris Carsley: [00:54:05] No. That's great. No, I appreciate the time. We're all we got a few more minutes. There was one question that came in. We might as well take the time to answer it. We've got a few minutes. One investor, they were saying it does interest, give advice on what vehicles or what type of platforms to set up, you know, versus, you know, CEP, traditional, et cetera, given the clients situations.
John Paul Ruiz: [00:54:29] W when it comes to what plan, best suits and individual, we won't say, well, this is what this is. This is the plan that's best for you, but we will have conversations in a way that the you'll have. Enough information that the individual can make an informed decision on what
Liz: [00:54:45] plan best suits them.
John Paul Ruiz: [00:54:47] Right.
So in other words, we walked through the different types of plants that are available and at some point the client will go, Oh, that's, I think that's the plan I want for myself that, that, that exercise right there sometimes doesn't happen. With you know, a taxpayer, that's why they, they never even talk about it.
That's that, that's why talking to someone who's knowledgeable about the different types of retirement vehicles is, is helpful for them so that they can make an informed decision.
Chris Carsley: [00:55:20] Perfect. Well, JP, thank you for your time, everyone. Thank you for joining us. This has been great. I know that there's a, there's so much more to cover on this front. But you know, this is a great introduction and you know, please go do your research and yeah. If there's questions you can reach out.
To the CAI, you can reach out to JP. I actually put his email out there so you can reach out to him directly with further questions after this meeting. And like I said, thank you everybody. And have a good evening. Liz
John Paul Ruiz: [00:55:55] thanks,
Liz: [00:55:55] Chris. This concludes our webcast. Thank you all for joining us and we hope you'll connect with us again at our next event.
Thanks everyone.
