Zero To A Hundred – Episode 11: Mastering Self-Directed IRA’s With John Park!

Hey Accelerators! 🚀 In this episode of “Zero to a Hundred,” we sit down with retirement and compliance expert John Park, who’s been helping entrepreneurs and business owners for over 35 years. We dive deep into the world of self-directed IRAs—from setting them up, to managing investments, and mastering checkbook control. If you want to unlock more freedom and flexibility with your retirement savings, this episode is packed with actionable insights!💡

🔹What’s on the Menu:

• Understanding the difference between traditional and self-directed IRAs. 🏦
• How to set up and manage checkbook control for your investments. 💼
• Why self-directed IRAs offer unparalleled flexibility for business owners. 📊

🔥Why Tune In?

• John shares decades of knowledge on how self-directed IRAs can provide you with investment freedom, and why every entrepreneur should consider adding this tool to their financial toolkit.

💭 Gem from John: “Control your retirement by controlling your investments—self-directed IRAs put the power in your hands.”

📞Get in Touch with John:

📧 Reach out to John at to learn how to set up your IRA: –https://pgiselfdirected.com/contact-us

• Phone: 602-684-2922
• Email: john@pgiselfdirected.com

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Watch the episode here

Listen to the podcast here

Mastering Self-Directed IRA’s With John Park!

Accelerators, on the show, I am very excited to welcome John Park. He is a compliance and regulation expert in retirement planning. He has been in the business for many years. Prior to that, he was the compliance administrator for the Big Ten Conference. He also was the assistant athletic director at Arizona State University. Cool guy with a cool background and great information that he’s going to give us. He is the President of PGI Self-Directed. They work directly with business owners and entrepreneurs just like you to help them set up their self-directed IRAs and 401ks.

We’re going to have a singular focus on setting up that self-directed IRA, rules and regulations, how you do it, cash flow, and also, most importantly, checkbook control to make sure that you are guiding where those investments go. For those of you who do not know me, my name is Jarrod Guy Randolph. I am the founder of BoxFi. We are a business growth solution through payment processing. I’m excited to share the network I’ve built over my entrepreneurial journey to help you grow your business and become more profitable. Ladies and gentlemen, let’s accelerate together.

John Park, welcome to the show. We’re very happy to have you.

Likewise. It’s nice to be here with you, Jarrod.

Self-Directed IRA Vs Traditional IRA

We’re going to have a very interesting conversation about the mythical world of 401(k)s, and IRAs, managing your checkbook, and setting yourself up for success in the long run as an entrepreneur. I want to dive in with something that it was probably not until the last 3 or 4 years that I knew anything about. That was the difference between a self-directed IRA and a traditional IRA. Can you give our audience of entrepreneurs some insight into how each one of them works?

I’m going to start off a little bit differently than what I might normally say. That is that the IRS doesn’t draw any distinction between, in effect, a traditional IRA and a self-directed IRA. It’s the industry that separates the difference, but there is a difference. What I mean by that is the IRS doesn’t sit there and say that you can only invest in these things that Charles Schwab sells. I’m picking on Chuck there, but they don’t tell you that you have to do securities.

You are basically able to do a wide range of investments. Now, the problem is when you have your IRA at Fidelity, Schwab, etc. For any of those, any of the big boys, there’s no selfish interest on their part in allowing somebody to invest in nontraditional. Meaning things outside of the market. I’m talking about somebody wanted to buy a rental property to rent out of their retirement plan. The IRS doesn’t stipulate there are rules, of course, that the IRS requires you to follow, but that’s not an impermissible asset.

If somebody wanted to do a private money lending situation to another third party, the IRS doesn’t say that that’s impermissible. You can’t do that with your IRA at Churn or Schwab or Fidelity, either of those two. I say the IRS doesn’t differentiate because they have what’s called IRA Law. Under the IRA Law, an IRA has to be held through the custodian. Same if it’s a self-directed IRA. Self-direction just shows that the person has the ability to direct those investments versus being only given a certain menu with a certain allowable choice of menu items to choose from.

Setting Up Self-Directed IRA

Let’s talk about setting up that self-directed IRA. If someone were to set up an IRA with a professional like you, what are the steps? We always want our audience to be informed and prepared when they’re making these decisions. They’re going to get more information. How would they go about it?

If they were reaching out to PGI, I would have an initial phone call with them to explain the process. Part of my personality is I don’t necessarily like to just send them a massive group of emails. I like to actually talk to somebody and explain how the structure is set up. I think what your readers should also know, Jarrod is what PGI sets up as a checkbook control model. There are some great benefits associated with that. They typically are going to save money and fees. They’re going to not have the frustration of dealing with the custodian.

What I want your readers to know is when they establish a self-directed IRA with a custodian who does not permit checkbook control, they’re going to end up having frustrations with that custodian because custodians might be really good at being a custodian for their IRA account and following IRS law of what needs to happen, but they’re not necessarily a good processor of investment paperwork.

Sometimes, people can get really frustrated with that, but to get back to your question, if somebody wants that check of control for those reasons I mentioned, then we have two different structures. We have an IRA LLC, and we have an IRA trust, but initially, I’d be having a phone call with one of these individuals, and they would indicate to me whether they’re interested in looking at the LLC structure or the trust structure, and we would just have a conversation about IRS rules, how the flow gets started, etc.

I always like to have that initial lead-in conversation and then from there. Once we get some information on what they want to do, we get various documents sent out for document signs, etc., and then we’ll set up that client with either that IRA LLC or that IRA trust, but both of those will provide that person check to control those funds.

If you have a self-directed IRA versus a traditional IRA, you talked about fees. Is there a difference or a standard for each fee that you can expect to pay?

Definitely a variety of what various companies in this space charge for sure. As far as why there’s a fee, because it would be very normal for one of your readers to go, “I have an IRA Fidelity right now and they’re not charging me a fee. Why would a self-directed IRA be charging a fee structure?” Two reasons. One is self-directed custodians do not sell securities. They are only there to fulfill the IRS’s requirement that the IRA be held legally through an IRS-approved custodian, but they’re not there to sell you stocks, bonds, and mutual funds.

Explanation number one is a custodian still has to make their money. They have employees, they have a building, and all that other good stuff. They have an annual fee. With the checkbook control structure, the custodian only charges an annual fee, and that’s to serve as the custodian. On my side with my company, PGI Self-Directed, we have a fee to set up the structure, whether it’s the LLC or the trust, so I’ll use you as an example, Jarrod.

If you were creating an IRA LLC structure for yourself, or you control the checkbook, PGI is actually structuring the documents so that you can legally invest those monies as the manager of the LLC. Then your IRA will be a member of that LLC, but the main visual for right now is that we’re creating the structure so that you can legally do it. We’re not involved with selling your investments or making money off your investments. That’s totally whatever you choose to do.

With that particular structure, how much can you put into that IRA on an annual basis?

Here’s where some people get confused, and I guess the IRS doesn’t help with the confusion. Most people will initially fund their self-directed IRA with what the IRS still calls a contribution, but it’s really not a contribution in the sense of how we visualize a contribution. Let’s say I like to use visuals, Jarrod, so let’s use you again. You call me up and you go, “I want to sit at this IRA LLC. I’ve understood that there are some limitations to how much I can put in.” I say, “As far as new contributions, if you’re under the age of 50, which you are, $7,000 for 2024. If you’re over the age of 50, $8,000.”

Right now, Jarrod says, “I got $300,000 that I wanted to transfer over into this self-directed IRA. Are you telling me I can’t do it because that’s well past either the seven or the $8,000?” No, those are rollovers or transfers coming from other retirement plans. Even though the IRS calls everything a contribution, there is a difference between rolling over or transferring funds from another plan into your self-directed IRA on a non-taxable basis versus putting in a new contribution of either $7,000 or $8,000 into your IRA moving forward. Does that make sense?

Yes. I want to make sure that the audience understands this very clearly is that if you want to move your IRA into a self-directed IRA, it is still a contribution, but what it’s considered is a rollover or a transfer of funds. You can do that in a tax-free manner versus it being considered a new contribution, which is limited to up to $7,000 for anyone under 50, and anyone over 50 up to $8,000.

You got that exactly right. I always use visuals when I talk to people, and I say, “Warren Buffett can have his own self-directed IRA if he really wants to. You can roll over $10 million from another retirement plan that he’s got money into. That has nothing to do with the $7,000 or $8,000 contribution.”

Maybe I should actually get to this first. Let’s talk about the types of investments that you could make with a self-directed IRA that you can’t with a traditional IRA. When you receive profits from that investment, how do they go back into the IRA?

Let’s talk. The asset one is really easy. The IRS, as far as other rules come into play, but the only assets that the IRS specifically says that an IRA can’t invest in are life insurance contracts and collectibles. If Jarrod called me one day, here’s a joke I use with people, and I’ve never been known for being funny, so it’s not really a joke, but I’ll tell somebody, “You could call me for five straight days.” You might say, “Can I do cryptocurrency?” “Yeah, it’s a permissible asset.” “Can I buy a rental property?” “Yeah.”

“Can I do a real estate syndication?” “Yeah.” “I’d be involved in commercial real estate.” “Yeah.” “Can I do private money lending?” Probably about the 4th or 5th day, Jarrod, if you call me, I’m going to say, “Jarrod, I like you. You’re a nice young man. The bottom line is, if it’s not a life insurance contract, if it’s not collectible, asset-wise, you’re fine. Now, how does that compare to Charles Schwab?” That’s obvious to everybody. If you go to Charles Schwab, say, “Take $300,000 out of my retirement account. I want to go buy this rental property.”

Chuck’s going to say, “We can send you the $300,000, but you know you’re going to be taxed and penalized on taking that money out because we don’t sell rental homes here at Charles Schwab.” The IRS does not say that’s an impermissible asset, but Charles Schwab and any company like Schwab have every legal right to say this is a Charles Schwab IRA, and we will only allow you to invest in securities we sell. That doesn’t mean that the IRS says they can’t do other types of investments. Charles Schwab is dictating those rules because it’s their IRA.

We talked about what you can put into it, the self-directed versus the traditional. We also touched on the management of the money and the contribution, and that you can potentially do a rollover or a transfer without tax consequences. Let’s talk about when you’re making an investment out of that IRA, let’s call it, because you like examples, into a real estate syndication, you invest $200,000 into a real estate syndication. In three years, it returns your $200,000 plus an additional $200,000. How is that treated?

First of all, it would be non-taxable. I shouldn’t say non-taxable. There are ways that an IRA can be taxed. There is a tax code. I don’t know that we want to get into a deep dive right now, but there is a tax code just so people can at least hear the terminology called UDFI, which stands for Unrelated Debt Financed Income. That could be applicable to doing a real estate syndication from their IRA, but let’s just go past that issue for right now with real estate syndication, we’re going to be creating that IRA LLC structure.

We’re doing that for Jarrod. Jarrod will eventually, those monies are going to come from wherever his funds initially were to the new self-directed custodian into that LLC structure that we’re setting up. Jarrod’s going to be the manager of that, so he controls the day-to-day business activities. His IRA is the member or the owner of that LLC. Now Jarrod goes and says, “I want to do this real estate syndication and I’m going to put a couple $100,000 into it.” He calls me up and says, “Yeah, do I have to call you for this?”

I’m going to say, “No.” “Do I have to call the custodian to report this?” I’m going to say, “No.” Those IRA funds are now the legal owner of that LLC. That LLC goes out and does the real estate syndication. Any subscription agreement will be titled in the name of the LLC, never the person, never the person’s IRA. It’s going to be at the LLC because, again, it is owned by the IRA. Now the titling is in the LLC, investment returns come back to the LLC, rent, and repeat as often as you wish.

Now, just to follow up on that, let’s just say Jarrod did self-correction for five years; he made a killing, but he was just done. He just said, “It’s been a good ride. I’m done. I want to move these monies back to like a Charles Schwab.” Not a problem. Those monies would go from the LLC bank account again, owned by the IRA, into his IRA account with the self-directed custodian. That cash could then be transferred back over to an IRA at Charles Schwab in a non-taxable manner. There’s always going to be an exit strategy for people who eventually want an exit strategy.

Otherwise, you can pretty much use that IRA LLC structure for any investment that you’re doing. The only other caveat I bring up is the only time I would suggest that somebody strongly consider having more than one IRA LLC structure would be as if they were going to go out and buy three rental properties all from the same IRA account. It’d probably be good across the board. I’m sure an attorney would agree as well that for each one of those LLCs, we would create three LLCs, each owned by the IRA, but each of those LLCs would separately go out and buy its own property.

Is it for liability reasons?

Liability reasons, bookkeeping reasons, and the list go on and on. It’s because you need to have the LLC for the checkbook control anyway. The side benefit, so to speak of that structure, is that it is a limited liability company, which is going to provide some liability protection to the individual.

Things To Stay Away From

We touched on a lot of the parameters around structuring it. Are there any other key rules and regulations that you need to look at with the self-directed IRAs?

We’d probably go into more detail, but let me identify the primary things that people want to stay away from. The first one we talked about was disqualified assets. It’s pretty straightforward. The IRS doesn’t restrict you from too many things asset-wise. There’s a rule called disqualified individuals. For disqualified individuals, I always get the visual of a cross or a horizontal and vertical plane crossing each other. That individual IRA account owner is on the vertical plane. Individual IRA account owner and their spouse, if there is one.

Children below them are bloodline descendants if there are children. Any parents or grandparents of the IRA account owner and their spouse who are bloodline ascendants are all considered disqualified individuals from the plan. What that means in simple language is that the IRS would say that under self-dealing rules, none of those individuals can receive a transactional benefit associated with that investment, nor can they provide a transactional benefit. I rarely get this question, but if somebody said, “Wait, John, if I’m good at investing, my IRA is going to grow and I’m benefiting from that. You’re not even making sense with what you’re saying.”

I’m going to say, “Everybody obviously understands that, including the IRS.” What they’re basically saying is, let’s use you as the example, Jarrod. If you’re a realtor, you go out and use your IRA LLC funds to buy a rental property and get a commission. I can almost guarantee you your broker is not going to know these rules and they’re going to issue you a commission check. If you ask me, “Is that permissible?” I’d say, “No, because you’re a disqualified person from your own IRA, and you can’t materially benefit from that investment.”

If you have a self-directed IRA, you can’t materially benefit from investing in a property or investing in a property or a project that a family member is running because the IRS does not allow that.

Every situation can have its potential exceptions depending on how something might be structured. As a general rule, I would want your readers to know is any of those people I just mentioned are disqualified people. You just want to stay away from doing anything where they’re either providing a benefit to your IRA or they’re receiving a benefit, including yourself, because it’s probably going to be a permit transaction.

Could you invest in a buy a twenty-unit multifamily rental building and hire your son’s business as the property manager?

I would not do that. The son is a disqualified bloodline.

Those are the types of nuances that get you in trouble. Let’s talk about if you were to do that, if the IRS found out, what are the consequences of something like that?

With an IRA, it’s they’re pretty severe. What’s considered a full distribution, and here’s the example I always give people is let’s say Jarrod had a $1 million IRA, but he did a transaction that was just $2,000. Thought it was fine. You’re probably never going to be audited, but let’s just say you’re audited and the IRS comes up with this $2,000 expense and they’re asking you to explain it. You explain it. You don’t think you’re doing anything wrong, but they don’t agree with you. Let’s just say they’re right.

You can always appeal it and go to tax court, but usually, they’re right about what they’re saying. Now Jarrod pulls out his wallet, so to speak, like, “What do I owe, like tax or penalty, and can I just get this taken care of?” Basically, what they’re going to hear is, “You don’t have to worry about that. Your IRA has been distributed.” That means in IRS language that a full million dollars has now been considered taxable.

If you’re under the age of 59.5, you also have penalties. The bottom line is you lose your IRA. If you’re not just doing something correctly for a $2,000 transaction, it could potentially disqualify your IRA account. Now, yes, after you paid the tax and the penalties, whatever you get is your money, but most people don’t want it coming out of the IRA account anyway, let alone having those taxes and penalties by dealing with a prohibited transaction.

Just so you know, how I deal with my clients is that PGI is not the tax firm, not the law firm. We’re setting up the structure, but I always tell people I’ve been in the business for a long time. I do encourage people to visit with me about their transactions, but I will also heavily emphasize to them that before they cut that check or do that wire transfer, it’s probably incumbent upon them to review with their tax or legal professional just to make sure they’re not violating an IRS prohibited transaction.

Let’s use the example of $1 million that you have in your IRA and you decide to go out and you need $200,000. Let’s not be concerned about what you needed before, but you need $200,000. What is the tax consequence of taking out that $200,000 as a 50-year-old individual?

As a 50-year-old individual, you’re still going to have to pay the taxes unless it’s a hardship. Now, there are qualifying hardships where somebody can take money out. It’s like when you say the person just takes the money out because they need it. It depends on what they need it for if they have a child going to college with tuition.

There are exceptions to the normal rules, but if you’re just taking the money out because you want to go to Las Vegas and play that one hand of blackjack and you’re 50 years old, you’re going to be paying taxes. You’re going to have a 10% penalty on top of that. It’s just probably something that you’re not going to be interested in doing unless it is a true hardship. I would encourage somebody to let’s see if you potentially qualify for an exception with the hardship provisions. If there are no hardship provisions, it’s tax and penalty.

Taking Cash Out Of IRA

Give me an example you talked about potentially, and maybe this was just something you were throwing out there, tuition for a child to go to college. What are two or three hardship provisions that you could potentially remove or take cash out of that IRA?

There are some exceptions for medical provisions and severe health issue issues. I believe there’s a provision for losing employment that you’ve had. A college education is one. I’d have to go through the list to see the whole list, but usually, most people, fortunately, don’t have to necessarily do that. If they do, they always want to see if there’s an exception up versus just taking the tax hit and the penalty.

What about instead of taking out the $200,000 from the million-dollar IRA? Could you borrow against that if you were to go to a lender? When you say go to a lender, borrow against your IRA. You’ve got a million dollars of value in your IRA. Can you borrow against it?

No, you can’t because, again, you’re a disqualified person. You can’t take a loan directly out. Now, there’s an exception when we talk about the Solo 401(k), you can take out a loan, what’s called a participant loan, from your Solo 401(k) and that’s a permissible activity. With an IRA, if you own one of the exceptions, you can’t just borrow against it or pledge its assets on a loan because, in the eyes of the IRS, that money doesn’t belong to you.

One thing that’s really important for the audience to read here and key in is depending on the type of investment, the vehicle will only function in one way. If you have a regular investment account, you could potentially borrow against it. If you have a self-directed IRA or an IRA, you can’t borrow against that IRA because it benefits you as an individual. Those are one of the key things to note when you’re building your investment portfolio.

I would encourage your readers to realize that one simple visual is the idea of the IRS. Everybody knows this is the money in the IRA is for your benefit in retirement years. Prior to that, it was legally owned by the IRA. Yes, it benefits you, but that’s why they have these strict rules about, can’t conduct business with yourself, etc, or any other disqualified person, because legally speaking, those funds don’t belong to you. You’re just managing those investments.

Tax

Let’s talk about getting up there in age and because the show is all about accelerating and we like talking about big numbers. Let’s say you’ve got $10 million in your IRA and you’re 65 years old, which is young, and you pass away. How is that IRA affected if it’s in trust to your estate in terms of taxes?

That will all be depending on how you just identify the beneficiaries. I think I know the paths are going with the question. Let’s say John’s married to Patty. John hits the bus and John’s just no longer with us, unfortunately. I would have already identified to the custodian who my intended beneficiaries are. For a person who’s married but, let’s say, also has a family living trust, most likely the spouse, because the spouse that dies would want the other spouse to be able to live and buy groceries and those kinds of things.

The spouse would be identified as the primary beneficiary in almost all cases. The family living trust would be identified as the secondary. If it was a situation where both people died, let’s say simultaneously, then those assets would, instead of going to the spouse, now dad would go to the trust, and then the trust would distribute those assets based on the trustee’s wishes.

I know we’re not getting too much into tax and policy, but it ultimately would be taxed based on state transfer taxes, correct?

It could be taxed, but more likely than not. The beneficiary, let’s say it was a child, could take it as a decedent IRA and then be on a schedule to still be able to use the money to invest, but they would also have to take out taxable distribution. There are a couple of options. It’s not like they’re just because you’re, let’s say, the child and you get the benefits of the IRA. It doesn’t mean that you necessarily have to take them all. At that time, you could actually move those funds that you got through debt into your own inherited IRA.

This is really important for the audience to know that you have so many different options when you are looking to create an investment portfolio. Speaking to an expert is always key, as well as having a team of experts so you’re putting together something that is going to be most effective for you and your family in the situation that you’re in because this genuinely is not one size fits all. Now, one thing I do want to talk about, John. It’s still in the IRA before we jump to a couple of other topics, which will be fun for us to talk about taxation and the UBIT. Talk to us a little bit more about how they are taxed.

UBIT and a subsection of UBIT called UDFI. With your permission, I’m going to do this at a 50,000-foot view level because it can be extremely difficult for people to grasp it just over a video. Yes, there are two ways that an IRA can be taxed. UBIT stands for Unrelated Business Income Tax. It’s basically a scenario and this applies to a 401k as well, as UBIT does. That’s a scenario where the retirement plan is receiving active profits from a business investment. An example I use, which would in almost all cases, trigger UBIT, would be, let’s say, I own a McDonald’s.

Let’s just say I did. My company never goes out and tries to solicit investments. Let’s just say I did. I reach out to Jarrod one day and I go, ”Jarrod, I have this McDonald’s. I need to do a facelift with it. I need $50,000. I don’t want to necessarily get it from other sources, but Jarrod, I like you. What I’m going to do is I want to borrow $50,000 from you and I’m going to pay you 3% of the profits from my business over X period of time.” Let’s just say you decide to do that investment. That would not be illegal, but now your IRA or your 401k would be paid based on the business activities of that business.

There are very good reasons why this rule is in place, by the way. Now, because of that, your IRA or your 401k would owe some money in taxes because it wouldn’t be fair for you to receive business income from profits and not have to pay taxes when other people who don’t maybe use an IRA or a 401k would be having to pay taxes gains, capital gains taxes associated with that investment. Rarely do people trigger UBIT, but it will always be a situation where their IRA or 401(k) is invested into a business opportunity that pays them not interest because that interest is basic, but actually pays them a percentage of profits associated with that business activity.

That’s UBIT in a nutshell. UDFI and your readers need to know this, only applies to an IRA. It does not apply to a 401k. What is it? This stands for unrelated debt and finance income. Ensure that an IRA is in either taking on debt itself through a mortgage on a leveraged property, which is potentially permissible to do. Rules have to be followed, but it’s potentially permissible to do so, whether it’s that situation or, like you mentioned earlier, a real estate syndication. Real estate syndications are very popular right now, but I don’t know probably that there’s a single syndicator in the United States of America that doesn’t take on debt.

They may raise credits passively from people like you, me, etc, and they may go buy an asset. Let’s say it’s an apartment complex. If they’re not taking any debt on that, there’s no debt. Let’s now say that the syndicator goes out and spends $3 million in debt financing to rehabilitate the property. That $3 million was generated through loans. In fact, the IRS is saying that the IRA can’t just benefit from investment returns generated with debt financing. In that particular case, when they get a K-1, if it’s anything more than a thousand dollars and there was debt financing, there will be a formula where their IRA widows some tax.

It’s actually a good rule because there have been abuses in the past. Nobody likes to pay taxes. Everybody understands that, but I always tell people when they’re doing syndications that first of all, you have to figure out with the syndicator if this UDFI tax is applicable based on the debt financing. Number two, you’re probably getting a very healthy return where if you have to pay some tax, just pay the tax. It will be the IRA that will pay the tax. Just pay it and get it over with because your investment return would probably justify that expense anyway.

Key Team Players

You’re setting up your IRA. Who are the key players that you need to have on your team and in particular, a self-directed IRA that can help you make sure that you’re being compliant, you’re following all the rules and regulations, and you don’t run into major tax issues or consequences?

I’m going to use the example of a self-directed IRA with the LLC check of control because that’s what we’re talking about. You have to have a custodian. Companies like PGI, my company, we have relationships with custodians. It’s not like the client has to find their own custodian. We have options for them on the custodian side, but you’ve got to have that custodian in play, which is required. That’s a lot.

If you’re having checkbook control, then you would be using the services of a PGI or an ABC or an X, Y, or Z to step up at either that IRA, LLC, or the IRA trust structure, which will then permit the custodian to release funds to either that LLC or trust structure owned by the IRA. Jarrod can go out and make investments on behalf of either of those two plans. You would have the custodian, and you’re going to have a PGI, which I just call a facilitator company.

Honestly, that’s getting it funded, that’s getting the structure set up, but now you have a living vehicle of what you’re trying to do. I always tell people is you can always call John and ask questions, but to say that you don’t need to make sure you have a close relationship with your CPA or your attorney would probably be pretty foolish for me to say.

Now, realizing that a lot of times people don’t want to pay the extra money to consult with a tax professional or an attorney, I get that. At the end of the day, these are your retirement funds. If there’s any question about what you’re doing and you want to make sure the I’s are dotted in the T’s are crossed from a tax standpoint, you should probably always visit with a tax or legal professional as well.

Checkbook Control

Readers, read very clearly. There are four people that you need on your team. If you’re going to set up this Self-directed IRA and do it right. You need your custodian, your facilitator, like a PGI. You’re going to need your CPA and a good tax attorney. Just know that to do it right, these are your retirement funds, and don’t play around with them. Make sure you have the right team in place. There’s one other thing I want to touch on before we go into our rapid-fire section, John. That is, and you’ve brought it up. I’d like for you to define it a little bit more and talk about the advantages and risks of checkbook control. What does that mean? What are the advantages? What are the risks?

Whether you’re doing a solo K or a self-directed IRA, LLC, in either of those structures, you’re going to control the checkbook. The obvious benefit is now someone says, “I controlled that checkbook. I don’t have to get anybody else’s approval. John, yeah, I understand. I got to follow some IRS rules.” Those are the obvious benefits. You save money on fees. You saved with the frustration factor. A frustration factor meeting Jarrod has to do a timely investment and he doesn’t have to check the control.

He reaches out to his custodian and he says, “I have this subscription agreement here. I got to fund it within four days.” They go, “This is going to take us two weeks.” That’s frustrating for Jarrod now. It could be like, if I had the ability to control the checkbook, I could just write a check or do a wire transfer. It’d be done in fifteen minutes or he might have to wait two weeks with the custodian. The second part is fees. This is fair for custodians that don’t allow the checkbook control if they’re doing assignments for you and tasks for you.

It’s only natural that their fee structure is going to be higher. What I will honestly tell people is if you did not have a checkbook control the first year, you may save money by not having checkbook control, but starting in year two, by year three, you’re actually going to be saving money. The reason being is when you control the checkbook, the custodians charge a lower fee structure because they’re not doing the dotting of the I’s and the crossing of the T’s. Finally, one of the negatives is that when you control a checkbook, there are still IRS rules you have to follow.

Let’s make no bones about it. They may not be overly complicated based on what the person is trying to do. Like if somebody says, can I buy a rental property? You can buy a rental property. Depending on their strategy and how complicated they might be trying to do something, they always want to have that tax advice. Here’s where sometimes people will say, “If I have a custodian structure only, no checkbook control, they’re going to make sure I follow all IRS rules. It’s somewhat of a security blanket. That’s not always going to be there.”

What I mean by that is yes, the custodians are always going to try to do their very best to make sure when there’s no checkbook control. They’re going to make sure when they review that investment paperwork that it doesn’t appear to be a prohibited transaction before they sign off on it. Why are the funds out, etc. Sometimes people are lulled into the belief that just because they have a custodian, so providing that, that it’ll mean that they won’t have any prohibited transactions. I’m going to guarantee you what the custodians are going to say. We do not give tax or legal advice. We follow instructions.

On the one hand, a custodian will try to make sure they do their best. I want to give them credit for that. On the other hand, they would even be the first ones to say, “If we make a mistake, we’re not going to be liable for this because you told us and you directed us to make this investment on behalf of your IRA.” I just tell people, if you feel like you’re mature enough to control the checkbook and organize enough not to go buy groceries and pay the mortgage with your retirement funds, you might as well. The prohibited transactions are going to apply to you regardless of whether you’re using a custodian or not.

Rapid-fire section

That makes sense. John, we’re going to do something fun. You’ve given us a lot of information and great context. The key to this and why it’s an important topic is that I’ve had this conversation with many of the business owners we work with. I’ve looked at it for myself as well. You need to understand that there’s a lot of nuance in setting up your IRA. Next time we’ll have you on John, we’re going to talk about 401(k)s cause there’s nuance in that as well. The most important thing is you have a general knowledge of what it is and how to do it. You make sure you have the right people around you to execute on it. Let’s do the rapid-fire section. Quick answers off the cuff, coffee or tea.

Coffee.

If there is a zombie apocalypse and you have to leave your house and protect your family, what is your weapon of choice?

I don’t watch any of those shows. I’m going to say a club.

What is your favorite quote or phrase in the business world?

No idea. I’m going to go with a standby. “It is what it is.”

That’s one of the most true quotes because it’s like, there’s no negative, there’s no positive, it just is, it is what it is. What is one of the top business books you would recommend?

You know what? I don’t really read business books and I will tell you there is a book on Self-directed IRAs since we’re on that topic of self-directed IRAs written by an author by the name of Mat Sorensen and it’s a very good book. He’s a tax attorney, I believe. Anyway, you can get that on Amazon, and for people who are thinking about self-direction, that’s a very good initial inroad to the self-directed world by getting that book.

What is your favorite movie?

You asked my spouse, and it’d be like there was like 200. I’m just going to go with something real quick. I want to say something like The Fugitive or In The Line Of Fire with Clint Eastwood. There are so many good movies out there.

The fugitive is actually really good. I have not watched that in ages and I’m putting that back on my movie list because I have not really enjoyed the new movies and I love those old-school ‘90s, like action thrillers.

Here’s another one for your readers. I always made fun of people who watched TCM and Turner Classic movies. Now, I don’t want to say I’m a die-hard fan, but there’s a really cute Christmas. It came out in the middle of summer when it was first released, like back in the ‘40s, but it’s a Miracle on 5th Avenue. It’s about a homeless guy who moves into the home of a rich guy who leaves every winter and goes down south. He ends up bringing in some other people who are homeless and they just have a really special time around the holidays, talking about what’s most important in life and they’re very happy because they’re living in a mansion and they’re cooking food and sharing time and love together. It’s just a cute book.

If you are a small business owner, you’re doing $10 million in sales on an annual basis. I walked through the front door and handed you a $300,000 check. What would you advise that business owner do with that $300,000 and investment to 2X their revenue over the next year or two?

Now, Jarrod, you know I’m not a financial planner and I don’t sell investments.

It’s okay. You could say invested in personal coaching.

I personally like real estate. I just have always bought into the philosophy that dirt doesn’t move. As the world gets more populated, there’s just less dirt to go around. If you own some of that dirt you own it.

I love the quote, “Dirt doesn’t move.” I’m going to have to add that to my repertoire. Why it’s a really good investment, dirt can be moved, but it doesn’t move itself. That’s actually really good. Last question. I perceive this to be one of the most important questions what is the biggest obstacle that you have ever had to overcome in your business to reach the success that you have today?

Really pretty straightforward is just getting started because, as we know, most businesses fail. I think in my case with PGI, just when I started the business back in 2007 or 2008, I can’t remember which year it was, but it’s just being able to stay in the business long enough until you develop a reputation. A name where you start gravitating business towards you based on clients you’ve already worked with. Rituals and those kinds of things. I think just that initial, probably six-month period, where it’s like, I really enjoyed this business, but I’m doing it on my own am I going to be able to stay in this thing early on? That was probably the biggest struggle.

Episode Wrap-up

You’ve made it and you started and you’re thriving. John Park, thank you so much for being on the show.

Jarrod, thank you very much. I appreciate the opportunity.

My pleasure.

Important Links

• John Park
• PGI Self-Directed
• https://PGISelfDirected.com/Contact-Us
• John@PGISelfDirected.com

About John Park

Compliance Administrator for the Big Ten Conference — Served from 1985 — 1990 in the field of compliance for the member schools. Involved in education and, as necessary, enforcement of NCAA rules.

Assistant Athletics Director, Arizona State University — Served from 1990 to 1998. As Assistant Athletics Director, was responsible for educating staff on NCAA rules and establishing and monitoring compliance activities for the department.

President, PGI Agency — Served 1998 — 2005. PGI Agency provided various health insurance products for its clients…businesses. These products were provided as part of a company’s and employee’s benefit package.

PGI SelfDirected — Served 2005 to Present. PGI SelfDirected establishes self-directed IRA and 401K plans for individuals so that they can have “checkbook” control of their retirement assets and invest in asset classes other than stocks, bonds and mutual funds.

Specialties: Expertise with IRS and ERISA regulations as it pertains to the establishment of self-directed IRA and 401K qualified retirement plans.