[00:00:00] Speaker A: You're listening to the Preferred Way, a.
[00:00:02] Speaker B: Retirement podcast brought to you by Preferred Trust Company, the preferred custodian for all alternative investments.
[00:00:10] Speaker A: Welcome to the Preferred Way. This is going to be a very interesting one. I have Alicia Ball here with me today and we are going to talk about how long does it really take a self directed IRA investment to occur, from the accounting to the execution. Maybe you're ready to sell it, but Alicia's gonna tell us all about it today, so welcome, Alicia.
[00:00:31] Speaker B: Thank you.
[00:00:31] Speaker A: Thanks for joining us.
[00:00:32] Speaker B: Thanks for having me.
[00:00:33] Speaker A: So this is your intro podcast. It is. This is the best part right here. Okay. Is to have the first. Be on the first podcast, get it all the jitters out, because then you can just take over my hosting gig. Oh, okay.
[00:00:47] Speaker B: Sounds great.
[00:00:47] Speaker A: You sound so excited about this, but. No, seriously. So you have been in our investment department for quite, quite some time now.
[00:00:55] Speaker B: Yep.
[00:00:55] Speaker A: And boy, have you seen a lot of different types of investments, I'm sure.
[00:00:58] Speaker B: Yes. Things that I did not even know that you could invest in.
[00:01:02] Speaker A: Well, there's only a couple things you can't.
[00:01:04] Speaker B: Right, Right.
[00:01:04] Speaker A: Okay, what are the things that you can't invest in? Let's. Let's just get those out of the way.
[00:01:08] Speaker B: So you can't invest in collectibles? Art you can't invest in.
[00:01:14] Speaker A: Why not?
[00:01:15] Speaker B: Because we have no way to track that investment. You can't invest in art. How are we going to know where that art piece is at? And custody and art piece.
[00:01:23] Speaker A: And you're not holding on to that?
[00:01:25] Speaker B: No, we don'. Have a closet full of art.
We don't.
[00:01:29] Speaker A: All right, we'll get the collectibles out of the way. Yeah, but wait, you said. Did you say coins?
[00:01:34] Speaker B: No, you can't invest in coins.
[00:01:36] Speaker A: You can't invest in coins. So they actually like a certain purity or something?
[00:01:39] Speaker B: They do. There's certain qualifications that the IRS says that they are allowed to be held in your IRA.
[00:01:45] Speaker A: 99.9%.
Okay.
[00:01:48] Speaker B: Yeah.
[00:01:49] Speaker A: But even my 1910 penny is not part of my IRA.
[00:01:54] Speaker B: Probably not.
[00:01:55] Speaker A: We'll get all those out of the way. All right, Got it. What else?
[00:01:58] Speaker B: You can't invest in bottles of wine.
[00:02:01] Speaker A: Okay.
[00:02:01] Speaker B: You can't. Same reason for the art.
[00:02:03] Speaker A: Because I might drink it.
[00:02:04] Speaker B: Yes.
[00:02:05] Speaker A: Okay.
[00:02:05] Speaker B: How are we going to know as a custodian if you drink the wine or not?
[00:02:08] Speaker A: Okay.
[00:02:09] Speaker B: So type those types of things you can't invest in.
[00:02:11] Speaker A: Okay.
[00:02:12] Speaker B: But there is almost anything else you can.
[00:02:15] Speaker A: Plethora of other stuff. Okay. All right, well, let's talk about that for just A second. I open up my IRA.
I have moved $50,000 from my big box custodian IRA over into an alternative self directed IRA.
Okay. It takes what, three days, three weeks to get my funds over. Kind of give me an idea there of how long that takes.
[00:02:40] Speaker B: So it's going to depend on the custodian that we're receiving the funds from.
[00:02:43] Speaker A: Okay.
[00:02:44] Speaker B: Everybody is going to have different processing times on our end. As soon as we get your transfer form, we send it to the other custodian next business day. But depending on their processing timeline.
[00:02:56] Speaker A: True.
[00:02:56] Speaker B: It could take a couple of days, it could take a couple of weeks.
[00:02:59] Speaker A: Yeah.
[00:02:59] Speaker B: It just all.
[00:03:00] Speaker A: We can't determine when they release the funds, but eventually they do.
[00:03:04] Speaker B: Yeah.
[00:03:05] Speaker A: And the funds get here.
And now I have identified an investment.
What do I do? Like I know what I want to invest in. My funds are here.
What's the next step? Do I go to your website? Do I call you?
Do I talk to the investment sponsor? Where do I go from here?
[00:03:22] Speaker B: I would say the best course of action would be in that initial conversation that you're having with our client service team. You let them know what you're interested in investing in. Even if you have the company information, company phone number, if you have all that information, we are happy to reach out and get the documents that we need on our side ahead of time. That way, when your account's open and we have the funds, we're already ready to go with the investment.
[00:03:48] Speaker A: So how do I know what I need? So I have filled out this direction of investment.
My plan is to invest in a promissory note. Let's just take a promissory note as an example. Kind of. Walk me through. I've checked the boxes. I filled out the information. I sent you the form.
Is there certain criteria for every single type of investment? We'll take promissory note as an example. Give me a rundown of how that would work.
[00:04:12] Speaker B: So for a promissory note, for example, you're going to want.
And any investment honestly has to be in the name of your ira. So it has to be Preferred Trust company, fbo, your name.
We have to know the percentage of ownership that the IRA is going to hold.
It has to be listed under rein number.
[00:04:30] Speaker A: Okay.
[00:04:30] Speaker B: Promissory notes have to be signed and notarized by both the borrower and the lender.
[00:04:35] Speaker A: Okay.
[00:04:36] Speaker B: So those are some things that we'd be looking for on our end.
But we try to start that compliance process pretty early so that when your funds get here and you're ready to invest, we're ready to go also.
[00:04:48] Speaker A: Okay. So during the process of transferring the funds, I will be asked a question. As far as, you know, what is your plan? You know, what do you plan on investing in, et cetera, so that the investment department can start their gathering process more than anything else. Because once the funds are here, people are like, yay, let's time. Let's do this. And you're like, okay, hold. Time out. Let me finish getting all the paperwork together. So promissory notes could be unsecured, they could be secured.
What if. Can it start as unsecured? Is that how it works? And then the funds are transferred, and then it becomes secured. Because now we can record against a property or asset or.
[00:05:22] Speaker B: Yeah, so they're all going to be unsecured to start with.
[00:05:25] Speaker A: Okay.
[00:05:25] Speaker B: It becomes secured when we get the recorded deed.
[00:05:27] Speaker A: Okay.
[00:05:28] Speaker B: Showing that your IRA is, is on that recorded deed. That's when it becomes secured.
[00:05:32] Speaker A: What about if I'm investing in a trust deed? What does that look like?
[00:05:38] Speaker B: So a trustee does kind of similar.
You know, a trustee is a secured promissory note.
[00:05:43] Speaker A: Okay.
[00:05:44] Speaker B: So your trust deed is secured by property most of the time in trust deeds. It's like a crowdfunding type platform. So there's multiple people on the deed. Yeah, but it's very similar as okay. To a secured promissory note.
[00:05:59] Speaker A: Can I use my IRA in a crowdfunding platform?
[00:06:03] Speaker B: You can.
[00:06:03] Speaker A: Okay. How would I do do that? Because I know crowdfunding platforms, you know, they're big on. You know, you have a wallet and your funds go in the wallet and all this other stuff, but really, this isn't cash.
So does it need to come in and out of the IRA then?
[00:06:18] Speaker B: So if you were trying to do crowdfunding, it would be very similar to, like, a trustee.
[00:06:23] Speaker A: Okay.
[00:06:24] Speaker B: We can't send money to, like, a company, and then you just utilize that money and reinvest into different items. We'd have to know exactly what those investments were.
But you can invest into a crowdfunding platform if there's specific investments listed.
[00:06:40] Speaker A: Okay. All right, so it's investment to money, money returned revenue, and then reinvest and reinvested back and forth, back and forth, back and forth. Why does it need to come in and out of the ira?
[00:06:53] Speaker B: It has to be tracked that way. That's for auditing. You know, that's what we're required to do is, you know, those funds from an investment have to go back into the IRA so that we could show that One was paid off.
[00:07:04] Speaker A: Yeah.
[00:07:04] Speaker B: And then redeployed to another investment.
[00:07:06] Speaker A: I remember a couple times we've received statements from clients. I always think this is hilarious. And they show all these assets and the client is moving over to preferred Trust. Coming from another self directed custodian. We're not going to throw anybody under the bus because we don't do that here at the Preferred Way.
But when those come through, it's super ironic. Sometimes those assets don't even exist anymore. How does stuff like that happen? Is it from them not accounting correctly for it? How, how do, how does that happen? Like, how do we end up with assets in an account that they're trying to transfer over that don't exist anymore?
[00:07:43] Speaker B: Most likely that other custodian didn't do their auditing or didn't do proper auditing on the asset.
[00:07:49] Speaker A: Yeah.
[00:07:50] Speaker B: You know, we look at our assets once a year, all assets are audited and we're making sure that they are still in good standing, that they are paying, that there's interest being received and then following up with the client or the investment sponsor to get an update.
[00:08:04] Speaker A: Yeah.
[00:08:04] Speaker B: So most likely those investments probably weren't audited very well by either the custodian or the client.
And since they are still being held in an ira, they can be transferred.
[00:08:17] Speaker A: Yeah, but we can't transfer something in that doesn't exist. Right. So if, if you're looking to move an account over and you have assets in it, how are we going to transition those assets to preferred trust?
[00:08:32] Speaker B: So typically what I do is I'll reach out to that investment sponsor, whoever that investment is with, with the other custodian ahead of time. So I'll reach out to them and ask them for the correct documentation, all the documentation that we need for our records, because we also need to ensure that they retitle that asset into preferred trust from the other custodian. So usually I'll reach out ahead of time.
[00:08:55] Speaker A: Okay.
[00:08:56] Speaker B: So that we can get all that stuff determined.
[00:08:57] Speaker A: Okay.
We've seen a couple times other custodians do not re. Vest into their name.
It kind of blows my mind a little bit, if I'm being honest. It's kind of like, let me go to bank of America, sorry, bank of America, close my account and go over to Wells or vice versa. I don't really care who we pick, but Big national bank from Big National Bank. Could you imagine if our bank account that we move over to Wells starts with bank of America?
[00:09:27] Speaker B: Yeah.
[00:09:27] Speaker A: Like, it just doesn't even make sense. Right. So Retitling shouldn't be an option for any custodian. So all of your assets with your self directed custodian should be titled under the custodian's name for the benefit of the individual.
[00:09:40] Speaker B: Yep.
[00:09:41] Speaker A: Right. So we can't just like flip flop around and pretend like those assets aren't. Aren't vested properly. So make sure the investment's properly vested.
[00:09:51] Speaker B: Correct. Ein number first and foremost.
[00:09:53] Speaker A: Right. We want to make sure so that we'll re report to the irs.
The IRS knows that there's been a transition of those assets from one custodian to another, which is important. And also, you know, with property, I mean, think about property for just a second. If you have the wrong custodian listed on there, you might send it to the wrong address, you may send the tax documents to the wrong address, you may send the insurance documents to the wrong. Lots of things can happen if the best.
[00:10:18] Speaker B: The wrong owner.
[00:10:19] Speaker A: Yeah, you just, you don't know.
Okay, so that's, that's helpful. Now I've got my funds. Okay. All right.
I filled out my form.
You have all of the documentation you need. How long does it take?
[00:10:35] Speaker B: If you can turn around the documents quickly, it could take two business days.
[00:10:38] Speaker A: Okay.
[00:10:39] Speaker B: Yeah. If we have all of the documents ready to go ahead of time, which is our goal to do, as soon as your accounts opened and the money's here, we get those documents out to you to sign up. And if you can get those back in same day, next business day, our processing time is two to three days. I would say more like two days.
[00:10:58] Speaker A: Yeah. All right. What are you reviewing? So I. We're gonna stick with the promissory note. Just as an example. What are you reviewing when I provide you the promissory note?
[00:11:08] Speaker B: So I'm reviewing the timeframe.
Unsecured promissory notes have a different timeframe than a secured promissory note can have.
[00:11:15] Speaker A: Okay.
[00:11:15] Speaker B: I'm reviewing the titling. If it's correctly titled, the interest rate, it has to be within market standards.
[00:11:23] Speaker A: Yeah. So I'm not allowed to do a 40%?
[00:11:26] Speaker B: No, no.
[00:11:27] Speaker A: What about two?
[00:11:29] Speaker B: Two is a little low.
Usually I see them between like 5 to 15 ish. Yeah, that's usually what.
That's usually what they are.
[00:11:40] Speaker A: Okay.
[00:11:40] Speaker B: Yeah. So there can be other ones, you know, for different percentages, but we'd like to keep it in the industry.
[00:11:46] Speaker A: So when you see 2%, what's the first thing that pops into your mind?
[00:11:50] Speaker B: That they're loaning money to somebody without getting a lot of interest on it.
[00:11:54] Speaker A: Or they could be loaning to somebody they know.
[00:11:58] Speaker B: Yeah.
[00:11:59] Speaker A: And so that's the reason why that whole standard has been put in place.
Because if you're offering what bank rates are higher are not to be absurd, obviously, but that's usually what you would see with an unsecured promissory note. With a secure promissory note. Well, let's, let's talk about that unsecure for just a second because I think sometimes unsecured promissory notes can get a really bad rap. And they have in our industry because many times it's like, it's a way to circumvent the system. At least people think. But really the onus is on the custodian to make sure that that circumvention doesn't happen.
[00:12:35] Speaker B: Yeah.
[00:12:36] Speaker A: So do we put a time frame on unsecured promissory notes? And why.
[00:12:40] Speaker B: Yeah, two years.
[00:12:42] Speaker A: Two years, yeah. Because if not, we go back to the. Oh, the 2%. It may be somebody you know to the. Oh, we just have a unsecure promissory note for the next 30 years.
[00:12:52] Speaker B: Never ending.
[00:12:52] Speaker A: It's never ending. And therefore we as custodians could potentially be reporting inaccurate information to the irs. So we don't want to carry the liability of your investments. That's not the goal here. It's a self directed ira. They're your investments. But let's say two years comes and goes.
What do you do?
[00:13:11] Speaker B: So we're going to either request an extension or a payoff.
Typically, we'll request that past due interest is paid and an extension be provided.
[00:13:21] Speaker A: Yep. Because that's when you really kind of find out.
[00:13:24] Speaker B: Yeah.
[00:13:25] Speaker A: What we're in.
[00:13:26] Speaker B: Yeah.
[00:13:26] Speaker A: Because if the interest cannot be paid, even as low as 4% for two years, that can add up very quickly. And typically when we're not getting those payments, there's a reason it kind of goes back to the. We need to dig a little bit deeper. But if it's secure, is there a time frame and does the interest percentage matter as much as.
[00:13:46] Speaker B: Well, yeah, the interest we usually look, it's going to be the same. You know, you still want those industry standards as far as percentage. But on a secured note, it can be longer because it's being secured by something, by an investment property or buy some kind of land or real estate.
So those timeframes can be longer.
[00:14:03] Speaker A: Okay.
All right. I think I got the gist of the time frame.
I transfer my funds over during the transfer process. I understand that I will at least be chit chatting with you about what my intent is, once I understand what my intent. You understand what my intent is. You're doing some behind the scenes reviewing or maybe I'm helping as a client gather the information if I have it.
And then.
And then what?
So now I'm ready to fund. You've got all the paperwork two business days. Ish. Got everything I need.
We fund and then what should I expect? Do I see it in my account? Do I get information from the investment sponsor or the person I loan the money to? How does that transact? Do you communicate with me?
[00:14:50] Speaker B: Yeah, you'll see the transaction in your account the next day after we process it. But for updates regarding the specific investment, you would have to reach back out to the investment sponsor because we don't, we don't know, you know, what interest they're going to pay or how much they're going to pay or how often they're going to pay or if they're paying at the end of the term. Yeah, those are all things that you have agreed to when you decided to do the investment.
So those things you'd have to go back out to the investment sponsor to ask.
[00:15:21] Speaker A: So my communication about the investment does not come from preferred trust, it comes from whomever I've lent the, the money to correct or for.
So I should expect that I need to maintain active dialogue with them. So if I call you and I ask you questions about the investment during the process, you likely won't be able to answer them unless there's transaction detail.
[00:15:41] Speaker B: Correct.
[00:15:42] Speaker A: And at that point you can at least point me back to my account. What will I see in my account? Let's say we have.
I don't know. Let's say we have precious metals in our account. We'll switch it up a little bit. Okay, let's say we have precious metals in our account. What should I expect to see? Are there going to be fees along the way? Are there going to be costs along the way?
Do I have to log in my account to see them? Will you make me aware of them? Kind of walk me through precious metals. What does that look like?
[00:16:10] Speaker B: So for a precious metals account, you're going to see in your transaction history the exact precious metals that you purchased, whether it be a specific type of silver, specific type of gold. But when you're logging in to our main portal, you're going to see everything listed as gold, spot, silver, spot, platinum.
And that's just because we value everything based on the ounces.
[00:16:32] Speaker A: Okay.
[00:16:32] Speaker B: There are fees associated. You're going to have your Annual administration fee, but you also have a depository fee that you have to pay to the depository that holds your metals.
[00:16:41] Speaker A: Okay.
[00:16:41] Speaker B: So you'll have those fees annually.
[00:16:43] Speaker A: Okay.
So the depository that I'm with, I get to choose that depository, or is there only a select few that. That you work with?
[00:16:51] Speaker B: There's a select few that we work with. Okay. But out of those select few, you can choose either one.
[00:16:56] Speaker A: Okay. All right. Yeah, that makes perfect sense. So I know I'm going to have an annual administration fee. And that's for all accounts.
[00:17:04] Speaker B: That's for all accounts.
[00:17:05] Speaker A: Okay. Are there different administration fees for different types of assets?
[00:17:09] Speaker B: There are.
[00:17:10] Speaker A: Okay, talk me through that a little bit. And why.
[00:17:13] Speaker B: So Precious metals has a flat administration fee.
[00:17:17] Speaker A: Okay.
[00:17:18] Speaker B: And that's because the value on the precious metals doesn't fluctuate very much. Okay. And it's fairly similar process for all accounts when you're doing precious metals, the auditing and everything.
[00:17:30] Speaker A: A little easier to manage.
[00:17:31] Speaker B: Yeah. Easier to manage.
Now when you have, like a real estate, those fees are going to be a little bit higher because we also have to track insurance, taxes, make sure that those things are getting paid. Rent payments. Yeah, those. All things that have to come into the account or be paid from the account. So we're tracking those a little bit more diligently than the precious metals. And then you have digital currency, which, you know, the value on digital currency can fluctuate.
[00:17:59] Speaker A: So all over the board.
[00:18:00] Speaker B: Your fee could vary depending on what the value of your digital currency is.
[00:18:04] Speaker A: At that particular time.
[00:18:05] Speaker B: At that time, yeah.
[00:18:06] Speaker A: Okay, that makes sense. Is there anything I should be doing outside of communicating with the investment sponsors. Sponsor during the duration of that investment that you would recommend?
Because, I mean, let's be honest, we don't look at our retirement accounts that frequently or maybe as frequently as we should. Let's say I have a rental property. We'll switch up to a rental property.
If you don't receive rent payments for a couple months, are you going to reach out to me about it as the client, or again, am I responsible for reaching out with my property manager?
[00:18:40] Speaker B: Yeah, typically we don't reach out if we don't see rental payments coming in. It ebbs and flows. You know, you could be going through a couple of months where you're not getting rent because you're remodeling.
[00:18:50] Speaker A: Yeah.
[00:18:50] Speaker B: So we don't typically keep track of that. It would be the client's responsibility to log into the account to see if the rental payments were coming in.
[00:18:57] Speaker A: Got it. We're not therapists, we're custodians.
[00:19:00] Speaker B: Right.
[00:19:00] Speaker A: So in all fairness, we're not reaching out to you, finding out what's going on with your life and how it's working out. And, you know, if your renters left your house trash like that, Those are details that we don't get. Would that be accurate?
[00:19:14] Speaker B: That's true, yeah.
[00:19:14] Speaker A: The only time we get those details is when the property manager says, hey, this bill is due because somebody, you know, poured concrete down the toilet. Yeah. Because they were mad for whatever. Whatever reason. Right. That's usually when we are like, oh, geez, looks like they had some. Some repairs they had to do. But really, that's between them and their property manager.
[00:19:32] Speaker B: Yeah.
[00:19:32] Speaker A: Is that.
[00:19:33] Speaker B: That's fair? Yeah.
[00:19:34] Speaker A: Okay. All right. So if I don't receive payments, you're not reaching out to me until a maturity date is hit, then you're going to probably knock on my door and say, hey, what's going on with this investment? We need to get this back into good standing. Good standing. Whatever good standing means. Now, that could be a trustee, that could be a promissory note, that could be an unsecured promissory note. That could be a private placement memorandum that has a three to five year time horizon. Like we're going to check in, I guess, is what you're saying.
[00:20:00] Speaker B: Yeah. Typically, like, especially with promissory notes, they get monthly interest. So we track those monthly.
[00:20:06] Speaker A: Okay.
[00:20:07] Speaker B: If we don't get an interest payment, we'll send you an email saying interest was missed for this month.
But typically at maturity date is when you're really going to hear from us because it hasn't been paid, maturity date has passed, and here are the options. What you could do.
[00:20:20] Speaker A: All right, well, let's say I have some costs in between.
Let's say I have a rental property and I have a renter that leaves, and I have some repairs that have to be made. You know, fresh coat of paint, change out the carpet.
And my property management company. Do they send you the bill?
[00:20:39] Speaker B: Yes.
[00:20:40] Speaker A: Are they sending me the bill? Who's handling the bill payments? And let's say taxes, insurance, all these things are coming due.
What happens at that point? Do you reach out to me? Do I reach out to you? How. How is that managed so typically?
[00:20:53] Speaker B: And it should be coming to your custodian. We should be receiving the invoices for payment.
[00:20:59] Speaker A: Why is that?
[00:21:00] Speaker B: Because we're the ones that are going to be paying them ultimately. Gotcha.
[00:21:03] Speaker A: So I can't pay out of pocket.
[00:21:06] Speaker B: We don't recommend it.
For emergencies, you can pay out of pocket and be reimbursed, but you only have a very little. Limited. Limited amount of time that you can submit for reimbursement.
[00:21:18] Speaker A: Okay.
[00:21:18] Speaker B: We just don't recommend doing that.
[00:21:20] Speaker A: Yeah. Why would you. If you have the funds in your Iraq? Yeah. Sometimes it's speed. Sometimes you have somebody at the house and they want to get paid right now. Right.
So there are circumstances that it happens, but if you can avoid it at all costs.
[00:21:34] Speaker B: Yes.
[00:21:34] Speaker A: You should just avoid it. Yeah. Okay.
[00:21:36] Speaker B: You know, if the air conditioner goes out and your renter lives in Vegas and it's 100 and something degrees and you have to get it fixed and preferred trust isn't open.
[00:21:45] Speaker A: Yeah.
[00:21:46] Speaker B: Then by all means, that's an emergency. Yeah.
[00:21:48] Speaker A: Fix the air conditioning.
[00:21:49] Speaker B: Yes.
[00:21:50] Speaker A: We don't want to lose renters, right?
[00:21:51] Speaker B: Yeah.
[00:21:52] Speaker A: We're not in this to lose renters. Okay. So when I have an expense, I send it to you, you guys pay it. How does that process work? Does it go to the accounting department? Does it come to the investment department? How. How is that handled? And what's the time frame again?
[00:22:04] Speaker B: That's handled by the accounting team.
[00:22:06] Speaker A: Okay.
[00:22:07] Speaker B: Typically, we'll get an invoice. We'll send you the invoice with a link to an authorization form so that you can authorize us to make the payment. There are things that you may not want to pay. You know, property manager might charge you for new flooring, and you don't think that you need new flooring, so you're not going to want to pay it.
So we'll send it to you. You'll complete the form, and then processing on those is about three days.
[00:22:28] Speaker A: Okay. All right. And all that gets processed. Am I charged a fee every single time I'm processing something?
[00:22:33] Speaker B: Only if we're sending it out via wire. If you're requesting us to pay it with a wire, then, yeah, you'll have a wire fee.
[00:22:39] Speaker A: Okay.
[00:22:40] Speaker B: But other than that, there's no fees associated.
[00:22:42] Speaker A: So it's part of my, you know, real estate administration fee for the year. If you want to have 14 rental payments coming in, which. That'd be amazing.
[00:22:52] Speaker B: Yeah.
[00:22:52] Speaker A: Some people pay every two weeks. Right. It happens.
So maybe you have 24 payments coming in, maybe you have 14 payments going out, little odds and ends being fixed all along the way. Same price for all of it, correct?
[00:23:04] Speaker B: Yes.
[00:23:05] Speaker A: Okay. All right. Well, I hope. Well, I'd love to have 24.
[00:23:10] Speaker B: Yeah, that'd be nice.
[00:23:11] Speaker A: And that would be amazing.
Lease are Very consistent. Right. I don't want to have the 14 fixes, but ultimately, that's what homeownership is.
[00:23:20] Speaker B: Yeah.
[00:23:20] Speaker A: And even when it's inside of your ira, it still happens.
[00:23:24] Speaker B: We all.
[00:23:24] Speaker A: We all know that. All right, let's say it's time to sell it.
We're going to switch to digital currency. It's time to sell digital currency. Now, what do I need to do to sell my digital currency?
[00:23:36] Speaker B: So all you're going to need to do is complete a form.
[00:23:39] Speaker A: All right.
[00:23:39] Speaker B: Digital currency sale form. You have flat transaction fee for us to process it, and we'll call you within two days with your quote.
[00:23:47] Speaker A: Okay.
[00:23:48] Speaker B: And you can either say, yeah, I'll sell it for that much, or no, I'll wait.
[00:23:51] Speaker A: I'll wait. Okay.
And can I wait? Is it okay to wait?
[00:23:57] Speaker B: You can.
No pressure, or no, no, It's. You know, you can choose what you want to sell your digital currency for.
If we've reached out to you three, four, five times and you're still not ready, we may require you to complete another form.
Um, but you don't have to sell it when we give you that quote.
[00:24:15] Speaker A: Yeah, it's a little different with cold storage. Right. Cause you have to extract, and then, you know, we have to send it, and then we have to call you over and over and over again. Not that we mind. We don't mind doing that. But at some point, we want to get back it back into cold storage. So.
[00:24:31] Speaker B: Yeah. You don't want to keep it out for too long.
[00:24:33] Speaker A: Yeah, we know that it's secure and you can always reach back out to us. It only takes a couple minutes to fill the form out. It's all electronic. Let us know what you want to do, and then we'll call and verify that.
[00:24:42] Speaker B: Yep.
[00:24:43] Speaker A: Okay. What am I.
What am I missing? You know, one of the things that we always try to emphasize so much when it comes to alternative assets, because with market, it's like, you know, there's. There's managers, there are money managers, they handle it, they do this all day long, etc. You. You're in, you're out. You can go in and out of the market whenever you want, but alternatives are a little different.
And I can assure you that if I'm investing in Apple.
[00:25:16] Speaker B: Yep.
[00:25:16] Speaker A: Or Johnson and Johnson or something along those lines, I have some familiarity with the use of those items. Right. Because we're either carrying them around, using them on a daily basis. We see them on the shelves. We see them leaves of the shelves, you know, so we're somewhat probability of. Of a return somewhat. With alternatives.
Oh, due diligence.
Like, I know sometimes people will say, well, what did you guys review? What did you look at? What did you consider? What did you. What did you. What did you. Okay. It is a self directed ira.
So please, for the love of all things, don't expect us suit to do your due diligence. Right.
That is not our role.
It is definitely your role.
[00:26:08] Speaker B: Yeah.
[00:26:08] Speaker A: It's self directed because you self direct us to make the investment.
If you choose a bad investment, please read our disclosure. That is not our doing. That is your doing. So when you select your alternative investment, you have to make sure you do your due diligence on the people you're investing with, the company you're investing with, the product you're investing in. Like all of those things. You need to have a little mental checklist and maybe even go even further than a mental checklist. You have to have a checklist. You've got to make sure you're checking all of those things. But there are a few things that we do check on.
Give me an idea of what. You know, just any investment. You can pop anything into your head. An investment that we've actually done a couple of checks and balances on. What does that look like and why do we do it?
[00:27:01] Speaker B: So when we're looking at investments we're more looking for, is it allowed to be held in your ira?
[00:27:07] Speaker A: Yeah.
Permissible?
[00:27:09] Speaker B: Yeah. Are you allowed to hold it in your ira? Is that company still in good standing? Are they registered with the Secretary of State? Wherever they're registered at?
[00:27:18] Speaker A: Quick search. Yep, Quick search. Okay.
[00:27:21] Speaker B: We're not really vetting out the actual investment.
[00:27:25] Speaker A: Okay.
[00:27:26] Speaker B: As long as you've done that.
[00:27:29] Speaker A: Yeah.
[00:27:30] Speaker B: I mean, that should be what you do. You should be reviewing the investment.
[00:27:34] Speaker A: Absolutely. So when you look up the Secretary of State, let's say you find one and it pops up and it says inactive or revoked, what do you do?
[00:27:42] Speaker B: So they're going to have to be active before we'll be allowed to custody it.
[00:27:47] Speaker A: Okay.
[00:27:48] Speaker B: Typically, you know, I have. I don't run across that very often, but if I did, we just reach out to them to reenactivate it.
[00:27:54] Speaker A: Okay. All right. Have you ever persuaded a client not to invest in anything? I'm going off the rails here now.
[00:28:01] Speaker B: No.
[00:28:02] Speaker A: You've never persuaded. You've never said to somebody.
[00:28:05] Speaker B: You know, I've said it to myself.
[00:28:07] Speaker A: Oh, okay.
[00:28:08] Speaker B: Maybe not.
[00:28:09] Speaker A: Like, why would they do this? Yeah. Has there ever been an investment where the client asked You. What do you think?
[00:28:16] Speaker B: Oh, all the time.
[00:28:18] Speaker A: Interesting.
[00:28:19] Speaker B: Yeah, all the time.
[00:28:20] Speaker A: You know, when they do that, I should. I should. I should look in the camera and say this. If you're questioning us about an investment, you should make. Don't make the investment.
[00:28:30] Speaker B: Yeah.
Yeah.
[00:28:32] Speaker A: Okay. Because that diligence should have already been done by you. Like, you should feel so confident in your decision before you make that investment. You really should.
[00:28:42] Speaker B: Yeah.
[00:28:43] Speaker A: And if somebody is persuading you to make the investment, don't make the investment.
[00:28:49] Speaker B: Red flag.
[00:28:50] Speaker A: Yeah. Know that you're making that investment because you feel confident in that investment.
So alternatives can be tricky. Yeah, they definitely can be very tricky.
[00:28:59] Speaker B: And they're. Every single one of them is going to be different.
[00:29:02] Speaker A: They are. And you know what? Not all of them are going to be winners either.
[00:29:05] Speaker B: No.
[00:29:06] Speaker A: So we just watched, you know, this Powerball go to some ridiculous amount of money. What was it at like?
[00:29:12] Speaker B: I don't watch because I know I'm not gonna win.
[00:29:18] Speaker A: But most lose, right?
[00:29:20] Speaker B: Yeah.
[00:29:20] Speaker A: I mean, it was raining in Vegas. They're like the odds of you being struck by lightning is whatever. If you don't do any due diligence on something, your odds are probably not going to be very good. If you do a decent amount of due diligence. And let's say there are still issues, because that happens. All investments have risk.
Let's go through that for just a second. And I invested in a.
We'll go back to the promissory now.
And I can't get them to pay.
What. What do I do?
[00:29:51] Speaker B: You have a couple of options.
You can.
[00:29:55] Speaker A: She sighed before she said that.
[00:29:58] Speaker B: Because one of the options is to find an attorney.
[00:30:00] Speaker A: Yeah.
[00:30:01] Speaker B: And fight back.
[00:30:02] Speaker A: Yeah.
[00:30:02] Speaker B: You know, fight with that. Yeah. So then you have the costs associated with. With finding an attorney and doing all that, which also should be paid from the ira.
[00:30:10] Speaker A: Yep. Collections. Collections. Collections.
[00:30:13] Speaker B: Yeah. Now, if for some reason that person is never going to pay you back and you know it. And it's just a complete loss.
We do request a W9.
[00:30:26] Speaker A: Yeah.
[00:30:26] Speaker B: When you complete the promissory note on the front end so we could distribute it and it's taxed to the borrower.
[00:30:33] Speaker A: Yeah. We do a 1099 C. Yeah.
Collection of debt. So one way or another.
Yeah. This is. I have to just. Sidebar.
The funniest conversations you have with clients is when you tell them we're sending a 1099 C and they're like, no, no, no, no. You can't send that to my wife.
What?
Wait a second. What do you mean, you know, you're not allowed to. And then they're like, oh, no, I didn't mean my wife. I meant, yeah, I meant this, that, or whatever.
But we have an obligation here.
[00:31:05] Speaker B: Yeah.
[00:31:06] Speaker A: So we're going to need to send the 1099C because somebody's going to need to pay the taxes on that. The IRS is not going to just forego everybody. Right. And so somebody is going to be penalized for that.
And that's sometimes when we find out that they're relatives that they. Well.
[00:31:25] Speaker B: And it's either going to be you taking that distribution or that.
[00:31:28] Speaker A: Yeah. So you can always pick.
[00:31:30] Speaker B: Yeah.
[00:31:30] Speaker A: And we've had them pick themselves because they're like, oh, man, I've been outed. Yeah.
[00:31:35] Speaker B: And just disqualified their IRA in the meantime.
[00:31:39] Speaker A: But that's when the. That's when the truth serum comes out because they're like, what do I do? But let's say I legitimately.
Let's say the company goes bankrupt. Let's say I invest in a private placement memorandum and startup company.
I was part of the seed capital group. And they go belly up and they bk. Can I send you that? Is that justification for the loss of the asset?
[00:32:03] Speaker B: It is.
[00:32:04] Speaker A: Okay.
[00:32:04] Speaker B: Yeah.
[00:32:05] Speaker A: So I just need to follow up on it.
[00:32:06] Speaker B: Yeah.
[00:32:07] Speaker A: So either I'm following up on it, or you're looking at maturity dates and going, hey, what happened? And you going, oh, oh, my gosh, I forgot about it. I haven't looked at that retirement account in years.
[00:32:15] Speaker B: Yeah. We flag you at least annually.
[00:32:17] Speaker A: Okay.
[00:32:17] Speaker B: When we do our audits.
[00:32:19] Speaker A: Okay.
[00:32:20] Speaker B: Yeah. If there's a bankruptcy or anything like that, it's important to let us know.
[00:32:23] Speaker A: Yeah.
[00:32:24] Speaker B: So that we can track that as well.
[00:32:25] Speaker A: Okay.
[00:32:26] Speaker B: Because it could potentially be a loss to the ira.
[00:32:28] Speaker A: All right. And then we're going to talk the very last fun thing. Okay. FMVs, fair market valuations.
So at the end of the year, lot of our accounts are based on the assets, total assets, cash and investments in the account.
And every year you have the opportunity to put in a fair market valuation form. And the fair market valuation is just really putting a new number on the value higher or lower of the assets that are held in your IRA. So that when we report to the IRS on your 5498 where you are accurate in the asset value of your account, we do that for fee purposes, but we also do that because we should be reporting the accurate numbers. Now, how many clients would you say actually fill out a fair market valuation report?
Because based on what The IRS says it is suggested. I love that word.
It's suggested that a fair market valuation is completed. And there's been some back and forth whether a custodian should handle it or the client's responsibility.
And it sways both directions, depending upon who you ask. We have chosen to put that onus on our clients to determine what the fair market valuation of those assets are.
And we do allow them to fill out the documentation. It has to be third party. Like, you can't just fill out the form and be like, oh, that house is worth a dollar now. Because I don't want to pay preferred trust fees. Like, there has to be something around it. So talk to me about fair market valuation. What. When should I. When should I actually complete that? Is it when it's always lesser, or should I consider putting it in when it's more.
[00:34:04] Speaker B: You should really complete it. Towards the end of the year, I would say November.
That way, by the end of the year, it's reported at an accurate value.
Most people who completed it's because it's a lower value.
So that they want, you know, 5498. Yeah, yeah. Lower value.
But I would say November. November would be a good time to.
[00:34:26] Speaker A: And that could change. Yeah, I mean, that's something that could change either as a, you know, a company policy or it could change as a IRS rule.
[00:34:34] Speaker B: Yeah.
[00:34:35] Speaker A: They start requiring that. That has to be reported, I say accurately. But most of our assets are. Well, all of our assets are held at cost until they're modified, with the exception of commodities. Right. Precious metals, digital currency.
Those are valued, I believe, daily.
[00:34:53] Speaker B: Yes.
[00:34:54] Speaker A: So those are every day. There's a different value associated with those, which you will see in your account.
[00:34:59] Speaker B: Yeah. Every night it's updated.
[00:35:01] Speaker A: Okay, so where do I find that?
[00:35:03] Speaker B: So when you're logged into your account, you're going to see a couple of columns, one column being cost and one column being market value.
[00:35:11] Speaker A: Okay.
[00:35:11] Speaker B: The cost is going to be what you paid. Market value is going to be what it's valued.
[00:35:15] Speaker A: Okay. And if the cost and the market value are the same, it's just not a fluctuating value. Is that correct? Okay. All right.
What have I not asked you about investments?
[00:35:28] Speaker B: So the one thing you haven't asked me.
[00:35:30] Speaker A: Fun. What is it?
[00:35:31] Speaker B: Is the most common misconception of investments.
That was on my paper.
[00:35:39] Speaker A: It was on your paper and I missed it? Yeah. Oh, my goodness.
Two pages of questions and I space that one. Okay, well, let's talk about it. Okay.
Tell me, what is the biggest Myth.
[00:35:51] Speaker B: I think, I mean, we kind of did go over it already, but the biggest misconception I think people have is that we're going to track that investment daily for them and that we're going to know all the answers to it. So that's where it becomes really, really important that you understand it's a self directed IRA and it's your investment and you should really know what's going on with your investment.
[00:36:14] Speaker A: It's kind of funny you say that because I've been on the phone with a couple of clients and they will say, well, how is the investment going?
Do you recommend anybody else? Do you? And it's like, whoa, hold on a second.
I think the biggest misconception is, is where our role starts and stops. Yeah. Like they, and you even you said this, you're like, what do you think about the investment? You're like, I don't know, like this is.
Or when we have a lot of clients that invest with a couple different companies, one may call and say, what do you think about this company? My friend said, xyz, blah, blah, blah. Okay. We still can't answer the question. Yeah. Because when it comes to investments, we don't offer them. Yeah. Explicitly, we do not offer them. Not because we don't want to, but because that is not our role.
[00:37:12] Speaker B: Yeah.
[00:37:13] Speaker A: Right. The IRS has very specific rules for us as custodians that we cannot offer investments. So therefore we do not. We also don't offer advice. We don't offer tax advice. We're not CPAs. Like, that is not what we do. We are, I hate to say it, we're kind of a one trick pony.
[00:37:31] Speaker B: Yeah.
[00:37:31] Speaker A: We're a necessary group of individuals that hold custody of your qualified funds.
[00:37:37] Speaker B: Yep.
[00:37:38] Speaker A: That's what we do. We keep them protected so that you can maintain the tax shelter that you're looking for. Yeah. So we're kind of like, yeah, we're.
[00:37:48] Speaker B: We'Re making sure that you don't disqualify your ira. Disqualify your retirement.
[00:37:52] Speaker A: Yeah. That ultimately is our goal. And sometimes it squeaks out and you let us know who that unsecured promissory notes with. But besides that, for the most part, I would say 99% of the time, clients, when they come to us, they know what they want to invest in.
They've done their due diligence. Right. And if they haven't, we kind of shy away. We're like, okay, please, please go look at this a little bit closer.
Or if docs look weird, we may send the docs back to you and say these aren't executed or there's the wrong date. You know, you may want to reach out to them because at some point we do have to separate ourselves from the transaction.
So. Okay. And that's it. On two pages. That's the only thing I missed?
[00:38:31] Speaker B: I think so. That's pretty good.
[00:38:33] Speaker A: That was pretty impressive.
All right, well then if you don't have anything else.
[00:38:38] Speaker B: I don't think so.
[00:38:39] Speaker A: Here's what I heard.
My funds get transferred.
[00:38:42] Speaker B: Yes.
[00:38:43] Speaker A: Could take about a couple days. We're going to say worst case scenario, five business days, funds are received, I identify my investment.
Approximately two days, it's funded.
I'm now receiving whatever income is associated with my alternative investment.
You will only monitor the expiration date?
[00:39:04] Speaker B: Yes.
[00:39:05] Speaker A: Is that fair? So when that maturity date comes, I'm probably going to hear from you, I'm going to hear from you about a fair market valuation. Probably once a year. Just a little tap on the shoulder, see if you want to fill that thing out.
And aside from that, it's pretty smooth sailing. I monitor through your online portal. When I'm ready to sell, I let you know, I verify any sale proceeds that I'm expecting and I move on to my next investment. Yep. This is not that difficult.
[00:39:33] Speaker B: It's really not.
[00:39:35] Speaker A: All right, well, we just made it very easy for how you can invest. You can using a self directed IRA in an investment from the moment you invest all the way through a payoff. And it really wasn't that hard. So thank you guys very much for joining us for the Preferred Way and we'll see you next time.
Thanks for joining us for another episode.
[00:39:57] Speaker B: Where retirement savers meet alternative investments.
[00:40:00] Speaker A: Can't wait for the next episode. To learn more, visit our
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