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John Bowens and Jeff Desich, National Education Specialist and Executive Vice Chair, respectively, of Equity Trust Company, had the opportunity to participate in a discussion with Robert Kiyosaki, Kim Kiyosaki, and Tom Wheelwright of the Rich Dad Radio Show.
In part one, John, Jeff, Robert, Kim, and Tom talk about the history of Equity Trust, the pros and cons of owning alternative assets such as real estate and precious metals within an IRA, and what checkbook IRAs are and why investors might want to avoid them.
Robert: Hello, Robert Kiyosaki here, the Rich Dad Radio Show, the good news and bad news about money. Today, we have a very special show. Aren’t we living in interesting times? It can’t get more interesting than this right now. I’ve never seen it so screwed up.
Twenty-five years ago, when Kim and I published, “Rich Dad, Poor Dad,” we knew it was going to get bad, but I didn’t think it was going to get this bad. My concern as an old guy is that my generation, the baby boom generation, is the first with a defined contribution pension plan versus a defined benefit pension plan. There are very big differences between the two.
In my father’s generation, they had a pension for life. So, let’s say they worked for Ford Motor Company. They got a pension for life. But, when the baby boomers came along, they said it was too expensive, and we couldn’t compete with China, Japan, and Europe. So, they took away the defined benefit pension plan, which is what our World War II generation had. And in 1974, they shifted it to 19 defined contributions. So, suddenly, most baby boomers have 401(k)s, IRAs, and things like this.
My concern is right. We’re in a massive market bubble, real estate bubble, bond market bubble. Everybody is in a bubble. My generation has not a clue what that means. The reason we wrote this book here, “Who Stole My Pension,” is that many of the people who think they’re safe, like the airline pilots and UPS drivers, really aren’t. Wall Street’s been stealing their pensions.
That’s why Kim and I do not have a pension. We just don’t want one and we don’t need one, but that’s what the Rich Dad Company stands for as Kim and I will attest that our job is to educate. We’re going to be talking about what’s called a self-directed IRA. Just know this, we don’t endorse it. We don’t have one, but you need to know about them, especially being in interesting times. Any comments there, Kim?
Kim: Yeah, this will be interesting because the self-directed IRA is not our forte, but it is a good vehicle for a lot of people. We want to bring that education to people who can use it and can benefit from it.
That’s why we have John Bowens and Jeff Desich of Equity Trust. We also have Tom Wheelwright, our tax expert because he can help translate for us what Jeff and John are going to be talking about. Welcome all to the show. Appreciate it. Thank you.
Jeff: Thank you for having us.
Robert: Let’s talk to Tom. Tom, what is the benefit of an IRA or self-directed IRA from a tax perspective? I mean, Tom’s a CPA. He wrote the book “Tax-Free Wealth”. He is my gold. He’s the guy I go to. What is a self-directed IRA? What does that mean to you as an accountant?
Tom: Basically, what it means is that it’s an IRA that, instead of turning your money over to somebody else, you get to control the investments. You get to say, I want to invest in this. I want to invest in that. You don’t have a mutual fund company like Fidelity, for example, saying here’s what you must invest in. You have a lot more freedom with it. However, it does bring a lot more responsibility as well. There are certain investments that make a lot of sense in an IRA because you want to postpone the tax on them as long as you can. And there are other investments, like real estate, that don’t really make nearly as much sense in an IRA.
It really depends on what type of investment you’re doing as to whether an IRA makes sense or not.
Robert: Why doesn’t real estate makes sense in a self-directed IRA?
Tom: Because real estate’s a tax shelter. You’re putting a tax shelter inside another tax shelter, and you create taxable income by putting real estate into an IRA. We don’t normally ever see that. We typically see things like investing in the stock market, investing in bonds, interest rate vehicles, even gold and silver, which can be very good in a self-directed IRA.
Robert: We’re not endorsing anything here. Kim and I don’t have pensions and we don’t even have any stocks. I took three companies public and once I understood how they take companies public… like I say, if you saw how they made sausage, you wouldn’t eat it. And every time I saw how we took a company public; I didn’t want any stock. So, that’s just our personal viewpoint. And that’s why the Rich Dad Company is more of a self-direct your own education because our schools will never teach us this.
Equity Trust Company history highlights
Kim: Jeff, your dad started this company?
Jeff: He started the predecessor in 1974. He stumbled upon the concept of a self-directed IRA right around 1980. He was a typical, plain vanilla stockbroker in our small town and decided to branch off into real estate. He put together his first limited partnership where he brought in local investors and had the idea of using their IRAs to each put in their annual contributions for two years and put together a real estate vehicle. And from that first deal that he did, one of the investors asked if he could buy property himself in an IRA. And that kind of started the process of providing that service.
Today we don’t offer any investments or anything like that, but we have hundreds of thousands of customers across the country. We’re nearing $40 billion in assets.
I would also politely disagree with Tom as real estate is one of our largest categories each year. Our customers will buy and sell 14,000 pieces of property. And yes, we know with real estate, when you’re purchasing it outside of an IRA, you get this great thing called depreciation, but depreciation is, if you think about it, really an artificial benefit.
I mean, if you’re in an environment where there are no taxes, then depreciation really doesn’t matter. I like to think as an investor versus an academic, and I look at these accounts as a vehicle to be able to make investments in a tax-deferred, tax-free environment.
So, when I’m buying real estate, when I’m buying precious metals, when I’m buying notes, all that income comes back into my account without the hindrance of tax. Then, when I take that money out, down the road, I’m going to be able to take that money out, tax-free.
Robert: That’s why we have Tom on board here. We don’t have any of that stuff. And Tom is our guide on this whole thing. Kim and I are, I would say, sophisticated investors. We’ve taken three companies public, we got to know something.
And so, I stay away from anything unless Tom blesses it for us. So, Tom, what is your counterpoint on what he just said?