Most Americans are investing that in the stock market, in annuities, CDs, bonds, those sorts of things, and relatively new investors might be tempted to say, “I want to buy a note,” or, “I want to buy a house with my IRA that I’ve found.” In order to do that, your IRA funds have to be sent out towards the purchase of that. What then becomes necessary is for a company like Quest IRA to intervene and help you out with all of the administration side of it. Learn how Quest IRA offers all the same types of accounts with all the good tax benefits, except that they basically allow their clients to choose – all in private assets. Scott holds an in-depth discussion about checkbook IRAs with Anne Marie Hollonds from Quest IRA.
Listen to the podcast here:
Checkbook IRAs with Quest IRA – Money Mondays
Thanks for having me on again.
It’s not a problem. It’s always a pleasure for us to have you. Our audience, the note nation out there loves hearing from you based on the number of downloads your episodes always get. You’re always in the top five or six of every month we’ve had you on. You always have a busy schedule. What’s like for you with your events?
We do a little bit of networking, we’ve got some food and drinks and then we always bring in an outside keynote speaker to come and talk on a whole bunch of different topics. We’ll obviously be having you and talking about notes. The other big one that we have coming up is of course the Quest Expo. That’s the one that we’re talking about.
Those dates are August 25th and 26th taking place in Dallas, Texas.
Yes, at Westin Galleria, Dallas. We’re expecting a great turnout for the event. We just hit the 200th mark for attendees. We’ve got extra space going. We’re expecting about 500 to 600 attendees for it. We’ve got 30 speakers and 30 different sponsors coming from all across the US that are going to be there for it. One of the cool things about it is we’ll definitely have keynote speakers and I know you’re one of them, Jason Bible, Eddie Speed, Quincy Long. We’ve got a whole bunch of great keynote speakers. We wanted the focus of the Quest Expo to primarily be panels. We’re going to setup in the audience a microphone on a stand to where we’re going to have panels with specific focuses. Even though we’ll have questions, we want the audience to come up and ask their questions. How frequently do you get to pick the brain of all of these gurus and all different aspects of real estate from all across the country?
I know that we’ve got a big audience coming in two days before that for my Note Mastermind. We adjusted our schedule to match up with you. Our Mastermind group is all excited to be there. We’ve got some fun stuff lined up for some of our students that are going to be attending the expo too. I’m not going to share it here. I could not echo what you’re saying any louder; 500 plus investors, a bunch of great speakers, the sponsors are going to be great there. It’s two full days, 9:00 AM to 7:00 PM.
We’ll have some snacks and we’ll have some breaks and all that in there. It will be a full day. We’re going to be going all the way until 7:00 PM. The great thing about it is obviously your students are focused in notes. We’re going to have a strong note focus definitely. We’re going to have things for the real new types of investors who were like, “How do I find money to do my investments? How do I even find a deal? How do I know what I’m getting into is something that makes sense for me?” We find that a lot of our clients and a lot of people that are in the industry that are gurus have started off in the Corporate America world and then had gone into this more entrepreneurial side. We’ve got a panel talking about that and a whole bunch of other things. Definitely if you want to come out, we’ve got a great coupon code for all of your students. It’s WCNExpo.
That’s good for the general admission tickets and then also the VIP tickets, right?
Yes. We have two different options. There’s general admission, it’s $150. It will get you entry along with a tote bag with a bunch of cool goodies inside. The VIP is the best value. That one gets you the entry and goodie bag, but it also gets you a plated lunch on both days, two presentations that only the VIPs get. You get access to the VIP Lounge. If you want to go and step away and make a phone call, have a conversation with somebody, take a break, you can go in there and do that. Charge your phone. You also get access to the special VIP Casino Party that we’re doing Saturday night and you get a recording to the event, so you don’t have to break your hand taking notes.
It’s going to be the largest IRA event of the year and I’m going to say all across the country. The fact that you’ve got so many people coming together and you’ve got a lot of people flying in from out of State to be a part of this. It’s not going to be local folks, there’s going to be people from all across the country. What else do you have? You’ve got Trillion Dollar Mixers going on in Dallas and Austin as well too?
We have one coming up in Dallas. That one is always the fourth Wednesday of the month, so that one will be right there at the end. Definitely check out our website, QuestIRA.com or you can call us at 855-FUN-IRAS. If you go to QuestIRA.com, you can check it all out. We do about 650 events across the US. A lot of those are based in the south, but we’re going all over the place. Check us out, you might find out that we’re coming near you so we’d love to meet up with you and have you come out and get some education.
The last couple times we’ve done this, we’ve always covered a little different segment from Educational Savings Accounts to HSAs. We were talking the subject matter of Checkbook IRAs this time. Let’s start off with the basics. If people don’t know what a Checkbook IRA, let’s start there first, Anne Marie. What is that?
As far as a Quest Self-Directed IRA, I’m starting off there. If you’ve got a traditional or Roth IRA or you have a 401(k), some type of employer plan, most Americans are investing that in the stock market, their investing it in annuities, CDs, bonds, those sorts of things. At Quest, we offer all the same types of accounts with all the good tax benefits, except that we allow our clients to not only choose all their own investments. Quest doesn’t sell any type of investments. We basically allow our clients to choose, but it’s all in private assets. Of course, we specialize in something like notes. When you think self-directed IRAs, people are thinking actual properties as well, private companies, oil and gas, a whole bunch of things you can do with it. When we’re talking about these types of investments, what’s necessary is for a company like Quest to come in here and essentially provide all of the administration side of it. Your IRA money is here at Quest and you say, “I want to buy a note or I want to buy a house with my IRA that I’ve found.”
In order to do that, your IRA funds have to be sent out towards the purchase of that. Let’s say we’re buying a house for example, we’re going to work with your title company directly, just like if you were doing it yourself. Quest is the one processing all of it. Something that’s popped up in the industry is called a checkbook control IRA. It’s pretty much exactly what it sounds like. If I purchased a property, for example, Quest would be the one that will be working with the title company. We would disperse the funds. If you had a loan on it, we would pay on a monthly basis that loan for you. If you had income coming in, we would be accepting that for you.
We’re essentially the middleman processing everything for you. These checkbook control IRAs have come up and what it’s essentially doing is bypassing the use of a company like Quest and it’s letting people do it themselves, which you would think, “That sounds really attractive because I am able to make all the decisions myself. I don’t have to go through with Quest to be able to disperse funds, accept funds, all that good stuff.” The problem is that there’s a whole lot of risks associated with it. When you start looking at the way that the IRS has written the rules, we tend to be a little bit more on the conservative side because the penalties are steep, if the IRS says, “You’ve made a mistake, you’ve done something wrong.”
You don’t want that. The big difference besides just having somebody, a third party, handling the paperwork, recording, that’s an important aspect of it. Where we see a lot of individuals that get checkbook IRAs, they’re the ones that are handling everything, which is not a good thing. If you were going to do it, you need a third party to handle it, an administrator of some sort. Another thing is checkbook access, while it’s easy, it’s not always a good thing if you get in a tight spot.
That’s for sure. There are all these great things you can do with IRAs, but then equally there are a whole bunch of restrictions and things that they say, “You cannot do that.” Some of the things are that as a disqualified person, which is essentially the account owner. If Scott Carson has an IRA, then Scott Carson, the individual, is a disqualified person. In addition, it’s other people like a spouse, your parents, your kids, their spouses and any companies those people are involved with. There’s a very specific list of things that those people are prohibited from doing. You can’t do things like buy and sell, you can’t loan money. Some of the things that we see commonly, “I already have a great property individually, my IRA can’t come and buy that from me or my son just got married and we want to get him his first house. I’ve got money in my IRA.” You cannot loan money to a disqualified person. You can’t loan money to your son. Someone in my family has a great startup business and I want to invest my IRA money into it. Those sorts of things are basically prohibited.
At Quest, our role is we provide the administration side. We are the experts on that. We know all those rules, we’re well-versed in those. We know how to avoid those types of situations. We try to educate people upfront about that so that they’re coming to us with these investments and they already know, “I know I can’t do that.” The problem with checkbook control is when you’re bypassing the use of this type of company, if you’re not 100% sure of what you’re doing, if you’re not well-versed in those types of rules, you can get yourself in some hot water and be doing something that’s totally prohibited and we’ve seen that before.
There are two kinds of bonuses people like to talk about that offer these. You don’t have to go through your trustee to take two weeks to fund things. Quest doesn’t take two weeks to fund things. You’ve got 24 to 48 hours business days obviously. You said if they were going to Friday evening, it’s not going to fund on Saturday morning, but you guys are quick. There are other companies out there that are religiously long. You will grow a beard, you’ll have to get a new haircut by the time you get the funding come in and there’s also a cost to checkbook IRAs. We’ve seen $1,500 to $2,500 for people to set these up.
You’ve got to go create a new IRA and a new LLC as well too oftentimes. Then you’re going to pay State filing fees for that LLC, which will vary from state-to-state. $300 in Texas or $800 here in California each year. $30 if you’re in Mississippi, like our friend Walter Wofford likes to talk about. You’ve got to file that LLC paperwork. You’ve got to keep that going and then you’ve got to go and create new accounts as well too. You’re adding expenses on the frontend that you don’t need. You’re paying for something that honestly, if you’re a Quest client, you’re good.
You’re completely right. We see people, maybe not much as with notes, I’m not sure what you’ve seen, we see people that are pursuing checkbook control because they want to do a fix and flip or a rental property for example. They’re concerned that, “My IRA is going to purchase this property, I need to pay the plumber, I need to pay an electrician or something like that.” They’re going to be left waiting around. You’re right, that does happen with other companies.
At Quest, everything we do whether it’s setting up the account, to dispersing funds, to a contractor or making the loan payments, we do in 24 to 48 hours. It’s quick. People aren’t going to be left waiting around and it’s pretty cheap. To reiterate what you said, with this checkbook control, we often see people are getting charged $2,000 and the company sets it up for them. They set up their LLC, the IRA money is spent into the LLC bank account and from there, they’re on their own and they’re making all the decisions. They don’t even realize until way down the road, “I’ve done something wrong.”
“I just put my whole IRA at risk.” That’s the biggest thing. One thing that people don’t realize too is with the other Uncle Sam, the three-letter word, IRS, they’ve also enacted and added a lot of people on. In a checkbook IRA or IRA LLCs are one of the most heavily audited entities out there too. They’re targeted and they’re often put upfront. I’ve seen several of our students get notices like, “I’ve got to make sure all my stuff’s in order. Who do I talk to? Can I call Quest?” It’s not Quest account anymore. Be smart about it.
You make sure everything is taken care of, especially come end of the year, the valuations, all the documents are provided accurately. You’re giving the eye, the once over, making sure the loan documents are created if they’re lending money out of their IRA or if they’re investing in a private entity of some sort. You do a great job with it. You kick butt compared to anybody else out there because you do fund twice a day?
Yes, we fund twice a day. Everything is really quick. You don’t need to have this checkbook control. Just to give our guests a little bit more background on it, when you start looking in at the IRS publications, the greeting pub about it, what you’ll find is everything that they write is very vague. It’s a lot of interpretation in the industry. That’s why you might call Quest or you might call one of the other big names and they are anti-checkbook control, but you can Google online and you can find other IRA companies that are for it. There’s a lot of interpretation with it. We tend to take a more conservative approach. If you’ve met our President, H. Quincy Long, he’s a pretty conservative guy for sure. The reason is basically one of the things that is prohibited, we talked about that you can’t buy properties, you can’t loan people money, you can’t invest into your own company. There’s a whole bunch of things that you can’t do.
One of the biggest ones on there is that you cannot extend a service as a disqualified person to your IRA. The way that we interpret what the IRS writes is that if you are using a checkbook control IRA, if you’re the one that is dispersing funds, if you are bypassing these with a company, that you are potentially extending a service to your IRA, which would be a prohibited transaction. These prohibited transactions, they’re no joke. What happens is let’s say the IRS says, “Scott Carson, you’ve done a prohibited transaction.” Let’s say that they find that this year, chances are you didn’t do that prohibited transaction last year. Chances are you did that five, ten, maybe more years ago and had no idea that you had done something wrong.
If they decide that you’ve done this prohibited transaction, your full IRA can be distributed and it’s not distributed as of that year in which they found it. It becomes distributable, not when they found it but when they deem that you did this prohibited transaction. If they say, “You’ve done a prohibited transaction that happened ten years ago,” then all of that money, your complete IRA, all those taxes and penalties, that’s all going to come down on you in one year and we’ve seen that happen to people. A lot of people that are clients that might be a little bit more seasoned, a little bit older in life, if your whole IRA becomes distributable to you in your later years, what are you going to do? We talked about it a couple times ago. You need roughly what they quote is about $1.7 million saved up for you and a spouse to live to about 93 years of age. That’s not easy to make up for it if it all becomes distributed to you.
I don’t think it’s worth the risk. Some things you want to put in professionals’ hands, some things you can mess around. I don’t think you want to mess around with your retirement accounts. You want to keep it simple, silly. That’s what I like to say, the KISS method, “Keep it simple silly.” You’re paying the administration fees with Quest. You are not the cheapest but you’re also not the most expensive. The fact that you provide so much great education, networking events, plus the fact of your service is better than anybody else.
There’s always somebody we can reach almost immediately during business hours over there. When the Houston office went down with the flood, you had your Austin and Dallas office kicking in. There’s always somebody there that can answer your questions regarding what your transaction is. How does it set up? Is the paperwork proper? That stuff is important that you’re not going to get trying to do this thing yourself.
It’s not like doing one risky investment. If you come across something you’re like, “I could make a lot of money with this. It’s a little bit risky. I’m going to go for it,” that’s just one investment that you’re doing. When you’re talking about potentially risking your whole retirement account, it’s not worth it. There are other options out there like Quest where you can get things funded quickly. You can have minimal fees for these sorts of things and you can sleep at night knowing that your IRA is going to be safe, or at least safer than if you might be doing it yourself.
I know one of the things that we’ve recently found that if the risks, the prohibited transactions, the penalties and all that aren’t enough proof for people, what we always have told people is that recently the IRS has required for IRA companies to now report. You talked about the fair market valuations and things like that that were required to gather and submit. The IRS requires that IRA companies have to submit documentation showing when an LLC is owned in the IRA. Why are we coming and taking these extra steps to be able to gather that type of information? We don’t know 100% but you assume that they’re trying to get that information because they want to look into doing more audits.
We had the National Social Media Day. Nate Hare spoke on, he did a great job on it. We literally had people from all across the globe joining in. We had speakers from Thailand, Zimbabwe, the Philippines and then of course United States. We had people all cross the globe join us. We have a question, “What if two people are partnering their individual IRAs and then get married? Do they have to stop the partnership to stay compliant?”
Technically speaking, and let’s say it was you and your significant other, you are not married. On paper, definitely we would fund that type of investment. What we would want to look at is when you look at it, one of the things that they say is prohibited is that you cannot have any type of direct or indirect benefit. One of the things that we like to say is, let’s say you live with your significant other. You’re not married but you live with them. You share finances. You’re essentially living as if you are married but without that type of official type of documentation. It could be deemed that there was some type of indirect benefit. There could be definitely a case.
If you did decide that you wanted to get married, then at that time that would be something that would technically be prohibited. We definitely urge people, if you think that somewhere down the track maybe that you’re going to get married, don’t do the investment in that way with that type of person. If you’re just partnering together, if it’s an IRA of one individual, husband and wife, two IRAs can partner together, that’s not a prohibited transaction. That’s totally fine. Even my personal money and my IRA money, if I want to bring in my husband, my mom, my dad, whoever in my family, we can do that. If we wanted to loan someone money, each of us could have a percentage that would be loaning out of the greater amount. We could all come in and buy a house together and I have 10%, someone else has 20%, we could structure it in that way. That would be totally fine. The things you want to avoid with a potentially disqualified person is you can’t buy and sell between each other. You can’t loan money. No extension of service. You want to remember those things like benefiting as well.
The same, you could have your family partnering together, pooling money to buy an asset as long as none of them are living in it or it would be an investment property, not something that they could move into and get the benefits.
That’s the biggest thing is if you’re partnering together with some type of a disqualified person, whatever your percentages of ownership are in the house and the note in whatever you’re doing, that’s not a profit that you’re going to get back. If you’re only in for 5% of the deal and somebody else has a huge IRA and they’re doing 95%, you’re only going to get 5% of the profit back. If there are any expenses associated with the deal, you’re going to be able to have to pay the 5% for all of those.
When Steph is investing in something or I’m investing in something, we’re very careful, especially with using our IRAs on the paperwork and stuff like that. If we see deals, one of the big things that we make sure is if it’s Steph’s IRA is buying it, we make sure that the contract immediately comes from the hedge fund or the seller to her IRA. It doesn’t come to me and then me. That would be a direct benefit and we would not want to do that. That would shoot the whole thing in the foot with our entities.
One of the great things we are always trying to be modern and have all these great advances. One of the things that we added on to the beginning of the year and that’s becoming popular is through our website, there’s a feature where you can click pay online. If you have a note with someone and they’re paying you back, instead of them having to write a check, wire the funds and do all that, they can go on directly into the Quest website and they can do that. That’s for note payments, for dividend payments, for rental payments. We try to make it convenient for people. You don’t have to be delving into something that could be prohibited. We try to make it as seamless as possible.
I’m glad you brought that up. Your new payment portal rocks the house. We’ve made payments on loans out, we’ve paid chunks back and stuff like that. Stephanie initiated a large payment on it as well. It’s nice because we go to the bank all the time and when we walk in they’re like, “You’re here to do a couple of wires,” “Yes, we’re here to do a couple of wires.” The thing is it allows us to do where we can access from anywhere to make this payment if they’re a Quest client. I love that aspect of things that you’ve got going on. You are at the mid-year level period. You have any special goals for this month? Sales goals or things like that? New accounts? Do you have new promo going on this month as well?
We’re most likely going to be having a promo that we’re going to be releasing because we’re putting all of our focus right now into the Quest Expo to make that huge. We tend to do most of our account promos a little bit earlier in the year, usually around tax time through the beginning of the summer. Nothing in the works right now. I am expecting that in August and beyond that we’re going to have some cool promos that we’ll be releasing around the time of the expo. If you do want to get tickets, go to that expo, have the discounted rate and all of that, just read up about it, see if it’s for you. You can go to QuestExpo.com. Just by going there, you get a 15% coupon but I know with WCN Expo it is more so definitely make sure to use that one.
It’s 25%, WCN in Expo. You do a lot of training with your staff and stuff like that. You’re also doing a tremendous amount of upkeep of what’s going on in the market. You’ve got so much growth going on. Are you seeing increased transactions as things are going on? You see people holding their money a little bit? You may not know the answer to that, but I just like to ask that because with it being the summertime and real estate and things going on, are your transactions up with people? Is it slowing down a little bit? Do you not keep track of that?
We definitely do keep track of that. Normally, what we see as in the summertime, we see a little bit of a slowdown. People are vacationing and things like that. This year, it’s been steady. We’ve had a lot of investments especially what we’re seeing in Houston. Some of that could be due to Hurricane Harvey. There’s a lot of talk of that in the industry and all the local events, everybody’s doing some type of post Harvey, how it’s affected Houston. I’m not sure if that’s the reason but we haven’t seen it taper off at all this year. It’s been steadily increasing to be honest with you. Note is still the number one.
People are taking time off. People are enjoying vacation and I want to put something out there in this episode. What are you doing to make sure you hit your own financial independence? I know we’d love to have barbecues, fireworks, drinking beer, wearing red, white and blue. If you don’t have a Roth IRA, don’t have a self-directed IRA or you have an old 401(k) sitting out there and not doing anything, you’re hurting yourself in the long run. Take that opportunity, jump online, go to Quest IRA, pick up the phone, call and talk with their IRA experts and get something started and start tithing to you. Start doing something on a regular basis to help you hit that financial independence. That’s what we were talking about. That’s the biggest thing is checkbook IRAs, ESAs, HSAs, Roths, traditional, solo 401(k)s, SEPs.
There are many different things you can do that you have to start taking action to get where you want to be in the long-term. We’ve always had IRAs and rolled through that and things and there had been times we’ve funded them or didn’t fund them just because of everything going on. That has probably been the biggest priority, I can tell you the last couple of years is to start putting money away, start socking it away and start paying yourself first. With you guys in your portal now where people can make their donations online, so they do that relatively easy, there’s no excuse.
It’s time to do it. It’s $50 a month. Any little bit you can start putting into your IRA is going to help in the long run. If you start paying yourself first and start living off the other 90% or the 90% you take home and put the 10% away first. It may not be a lot of money initially but if you look back in six months or a year ago, “I’ve got a little egg going there. I can use that small amount of money where I can go to a Trillion Dollar Mixer and find other people with little nest eggs and we can start partnering together to deals.”
For the most part, what we tend to see for people is they get set up with their accounts, you get it funded and then the hardest part is about getting out there and finding your first investment. Once you do that first one, you have the bug. You see how exhilarating it is. You’re making money in there. If you’re doing it in IRA, you’re not being taxed on it. It’s all about what you said, getting it set up, make a contribution and then get out there and find someone. At Quest, we try to make it easy no matter what you’re interested in. If it’s notes, we’ve got lots of education on that. If you want to flip houses, if you want to invest in multifamily deals, if you want to go to the foreclosure sales, whatever your interest is, we’ve got education on it. We’ve got a network of people that you should be talking to. The best part is that all of it’s for free. You can’t beat that. There’s no reason not to come out and take advantage of it.
I was going to say one more thing to wrap up with the whole checkbook thing that I forgot to mention. Obviously, you can’t be accessing your IRA funds to do it all yourself. That being said, if you do want to set up an LLC, you can do that. Your IRA funds can be sent into that. It will save you some money in Quest fees. Though they aren’t too much to begin with, but if you want to do that as long as a non-disqualified person, it’s on that as the managing member then you’re good to go. Check out our website QuestIRA.com. There’s a whole bunch more education on it. You can always call me at 855-FUN-IRAS. We can talk it through and figure out what makes sense for you. Don’t think that we’re anti-LLC, we’re just anti-checkbook because we want to make sure that our clients are protected.
Anne Marie, I will let you get back to your day. On our next Money Monday, we’ll have an interesting subject then, I guarantee Anne Marie and I put our brains together. Thank you for all of you in the audience. Thank you for all the good questions and comments. Go out and make something happen. Open your IRA and we look forward to seeing you all on the top. Bye.
About Anne Marie Hollonds
Anne Marie Hollonds is a Marketing Director at Quest IRA, the premier Self-Directed IRA company. After graduating from St. Edward’s University in Austin, Texas, Anne Marie joined Quest IRA as an IRA Specialist. In 2014, Anne Marie received the designation of Certified IRA Services Professional from the Institute of Certified Bankers, making her one of the youngest CISPs in the United States. Anne Marie regularly attends conferences, workshops and does local radio interviews, where she publicly speaks about the benefits of self-direction.