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Today we have a remarkable guest with us, Carl Fischer. Carl is not your typical real estate developer. With a degree from Cornell University, he embarked on his career in the 1970s as a rocket scientist at the Kennedy Space Center in Cape Canaveral, Florida. It’s not every day that you meet someone who has transitioned from the world of rocket science to the world of real estate. But Carl’s story is one of adaptability and innovation.
Fast forward to today, and Carl is one of the founders and principals of CAMA Self-Directed IRA, LLC, doing business as CamaPlan. With over 20 million dollars in real estate transactions under his belt, Carl has certainly made a mark in the industry. His real estate portfolio spans both commercial and residential properties, including real property, notes, and mortgages.
One of the core themes of this conversation revolved around self-directed retirement accounts, a niche but powerful tool for wealth building. Carl stressed the importance of understanding how IRAs and 401(k)s can be self-directed to invest in a variety of assets, including real estate. He shared practical insights into the benefits and intricacies of these accounts, which can offer individuals greater control over their financial future.
This episode is a deep dive into the world of self-directed retirement accounts, real estate investing, and the intersection of technical knowledge with financial acumen. Carl’s unique journey, coupled with his commitment to education and helping others achieve financial independence, will leave you with a wealth of knowledge and inspiration.
In This Episode
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Exploring the concept of self-directed IRAs and 401(k)s.
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Enhanced Qualified Retirement Plan and Self-directed IRAs
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Strategies for using retirement accounts to invest in various assets, including real estate
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Leveraging investments while maintaining tax advantages
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Unrelated Business Income Tax (UBIT) and how it works
Welcome to today’s episode of Wealth Strategy Secrets. We’re joined by Carl Fischer, a Cornell University graduate and third-generation real estate developer with a fascinating background. In the 1970s, Carl began his investing journey as a rocket scientist at the Kennedy Space Center in Cape Canaveral. Today, he’s one of the founders and principals of Cama Self Directed IRA, or Cama Plan, a nationwide company based in Ambler, Pennsylvania.
Throughout his career, Carl has successfully executed plans and overseen real estate transactions worth over $20 million. His portfolio includes a mix of commercial and residential properties, as well as real estate notes and mortgages. Thanks to his unique background, education, and wealth of knowledge in business, finance, technical requirements, and overall management, Carl is an invaluable asset to his clients, helping them take control of their financial future. Carl, welcome to the show.
Thanks, Dave. I appreciate you inviting me today.
I’ve been looking forward to this conversation. After reading your bio, I think it sums everything up. You’ve hit the nail on the head with your approach to helping clients gain control over their financial future.
That’s something a lot of our listeners are struggling with, right? With the stock market being like a casino, people just don’t feel like they have control. You look at your 401(k) balance every month, and it can be very frustrating. I know I spent years in that same situation, wanting to do something different, to reposition my finances. I’m excited to have you here today to discuss your solution. I think there’s a lack of education in the marketplace about what’s available for investors who have capital in 401(k)s in this country.
Looking forward to talking through that and helping create some clarity. So, let’s start things off, Carl. For those who haven’t met you or heard of you, could you share a bit more about your journey and how you got here?
Thanks, Dave, I appreciate that. Before we dive in, though, I just want to make it clear that I’m not an attorney, not a licensed accountant, or tax professional, or a financial adviser. CAMA Plan doesn’t provide tax or asset advice, nor do we sell investments or products. We’re a neutral third-party administrator for tax-advantaged plans like IRAs, 401(k)s, health savings accounts, ESAs, and others.
We don’t endorse any specific person, product, or investment. However, we work closely with individuals and their teams, and we provide continuing education for many attorneys, accountants, tax professionals, and realtors to help them understand self-direction and the rules and regulations surrounding it.
One of the reasons I got into this business was realizing how little control I had over taxes, brokerage houses, and my own 401(k). I was always looking for other ways to invest my money, especially since I grew up in a real estate family. My parents were in real estate, and so were their parents.
Real estate is a family business, and now my kids are also in real estate, just like me. So, I’m definitely biased toward two things: one is real estate and real estate-related products, and the other is tax-free income. Like many real estate professionals, I had a life-changing experience when my father passed away.
At the time, I was working as a rocket scientist at Kennedy Space Center, and I had to take a leave of absence to handle the estate. My father was only 60 years old when he passed away relatively suddenly. I went down there to work with my mom and try to settle the estate and thought we had everything handled. But then I found out there was a note on a property that was in default, with an interest rate of 28%.
I had to come up with money fast to close it out because foreclosure was imminent, and the property was worth far more than what was owed. I ended up finding an individual through the newspaper—this was in 1995—who lent me the money.
When he lent me the money, it was quick, and the interest rate was 12%, which was a huge improvement, reducing it from 28% and getting the loan out of default. But after I signed the papers and got things settled, I learned that the money had come from his IRA. I thought that was very interesting.
At that point, I had the estate settled, and I asked if he would like me to keep the loan with him. However, I told him he’d have to reduce the interest rate from 12% to 7% because I could get a 6% loan from the bank. He just matter-of-factly said, “No, I’m not interested.” I then asked, “Well, where are you going to put the money if I pay you back?” and he replied, “There are far more borrowers than lenders. I’ll have that money deployed quickly, just like I did with yours.”
I tried to persuade him, saying, “But look at the loan-to-value here, and we haven’t missed any payments.” He responded, “Don’t go down that road. When I gave you this loan, I was hoping to foreclose on you, because look at how much money I would make.”
I was taken aback—this guy was more experienced and seemed a lot smarter in this space than I was. He pushed me both ways. I told him, “Alright, I’ll go get the money,” and I left feeling pretty defeated. But then I thought, I want to do what he’s doing—12% to 18% loans.
At the time, I didn’t have to work to match the contributions from a company, because I was working at Kennedy Space Center launching rockets, so I had no shortage of income. However, there was very little information available on using IRAs and 401(k)s for investing. I called the bank that had helped me with the transaction, and when I asked them how I got the loan, they told me not to call again because I didn’t have enough money, and they didn’t work with individuals who weren’t clients of the bank.
I didn’t give up though. I went to Cornell, where I know you’re also affiliated with the school through your family, and I tried to find information in their library, which is one of the best libraries I know of. But I came up empty-handed. So, I called the IRS, and even their professionals couldn’t point me in the right direction. They acknowledged that self-direction existed, but they didn’t know how to do it.
A few more years passed, and I’m not sure who invented the internet, but Al Gore said he did! Anyway, I started using the internet to learn more about self-direction and began working with a small group of people. I’m the oldest of 12 kids, so I’ve always had a large network to tap into, which helped a lot in this journey.
Plus, I was at the Space Center working with a lot of engineers, so I had a small network of people. They said, “Hey, you’re good at this. Why don’t you open up a company?” My sister had just graduated from Villanova a few years earlier and was skilled with trust, accounting software, etc. She said, “Yeah, I’ll help you do it.” So that’s how Kamma Plan was born, 20 years ago.
Wow, fascinating story—told like an entrepreneur at heart, finding a problem to solve and turning that into an opportunity in the market. Were there any other self-directed companies that you knew of then?
Yes, there was Equity Trust. I learned about them a little later, but I didn’t really like their business model, and a lot of the people who were with us didn’t like it either. It was just an opportune time to look at it from an investor’s standpoint and set it up the way we thought would work. That’s one of our taglines today: “For investors, by investors.” As I said, our family is involved, and my sister invests in real estate, too. So, we wanted something that would satisfy us and our customers.
Carl, let’s break this down for investors. I’d like this to be really tangible so that they can walk away with some insights. Let’s start at a high level. Fast forward to today: What do you think is the problem with traditional 401k and retirement accounts?
One problem is that I don’t think traditional 401k and IRA accounts offer the diversity that investors really want. And that led us to ask: What is a self-directed IRA? A lot of the brokerage houses claim they have self-directed IRAs, but we had an attorney define it for us back in the day.
Today, I’ve simplified it: A self-directed IRA lets you invest in everything except life insurance and collectibles, with those two caveats. But the rules are the same as any IRA. I just call “self-directed” an adjective. If you look at Schwab’s or Fidelity’s self-directed IRAs, they only let you buy what they sell.
As I said earlier, we don’t sell anything. You bring to us what you want to buy, whether it’s a piece of land, a multi-unit facility, a condominium downtown, a single-family home in the suburbs, or even lending money, buying gold, or investing in an LLC or joint venture. Whatever the asset is, in most cases, we’ll process it, and it becomes part of your IRA.
You can see that you have a much wider variety of assets and asset classes to purchase beyond just stocks, bonds, and mutual funds. That’s the main reason I don’t like the way traditional 401ks and IRAs are structured. You probably don’t remember, but there used to be a software program that aired late at night—like at 2 AM—when I was learning about stocks and bonds.
It would turn red when you were supposed to sell, green when you should buy, and yellow to indicate you should get ready. I bought it, but I wasn’t any smarter about stocks and bonds than before. I also bought a blackjack book at the same time, and I think I’d rather play blackjack in Atlantic City or Vegas than deal with the stock market. That’s how anti-stock I was. Probably because I grew up in a real estate family.
I have a cousin who’s great in the stock market and worked for Lehman Brothers. He explained a lot to me, but I just knew it wasn’t my thing. So I always tell people to invest in what they know and understand—it lowers your risk. Does that make sense?
A hundred percent, Carl. Many people fall into that bucket. People are doing well with stocks, bonds, and mutual funds, but a lot of those are traders taking on huge risks. Your average investor is usually on a one-dimensional path: set it and forget it and hope the market goes up over time. And it has.
The market has increased over time since its inception. But I think one of the biggest things people are unaware of is compounding—especially when you factor in taxes, fees, and inflation, which erode that growth. People are going to be surprised when they withdraw their money. So having proper allocation, as you pointed out, is key for smarter investors.
You’re 100% right. The market’s gone up, but so has the price of gas. I used to fill up my car for $5 when I was in high school. Gas was 19¢ a gallon.
You’re right—talking about inflation and other economic factors over time. Carl, from a market perspective, what do you think is the future of real estate and alternative assets? What are you seeing?
Everyone calls things like real estate and gold “alternative assets,” but I consider real estate more of a mainstream asset. Stocks, bonds, and mutual funds are considered mainstream. I know one thing: You can’t just have a “set it and forget it” plan. You always have to adjust because technology, laws, economies, and geopolitical conditions change. You need a plan that accounts for these variations and cycles.
Where are we now in the cycle? Inflation has increased quite a bit, but the question is: Will it keep going up? Right now, I think housing has stabilized in most parts of the country. It’s slowed inflation, especially in Florida, where it was double digits. I know you’re in Sarasota, and while housing is still rising in Florida, it’s a bit of an anomaly because so many people are moving there. I think it’s the number one state people are moving to.
If you look at what’s happening out there, the supply of houses, for example, is low. One of the reasons it’s low is because most people have a 2%, 3%, or 4% mortgage on their property, which keeps their property payments low. If they have to sell that house and move into one with a 7.5% mortgage, they’re going to experience a significant downturn in their purchasing power compared to where they are now, in most cases.
I do think that rates may go up a little bit or stay where they are, but I don’t think the current rates are terrible. I grew up in a 6% to 8% interest rate environment and got started on some of my first properties with those rates.
However, a lot of people got used to the 2% to 3% interest rates, which is the first time I’ve seen those in my lifetime. So, I think the supply of houses needs to improve before you’ll see rates or prices come down. Interest rates might eventually come down a bit as well, but I’m not sure when that will happen. Will it be in 2024? 2025? I’m not good at predicting exact timing. I’ve tried buying assets thinking I was at the market trough, only to see them lose another 50% in value after I purchased them. So, I’m the wrong person to ask about market timing.
The stock market just seems to be going higher and higher, and I don’t completely understand how, but it’s likely keeping up with inflation. I think inflation will correct itself because, if you remember, about 6 or 8 months ago, eggs were twice as expensive as they are today. So, when we look back at April 2024 and compare prices to April 2023, it will seem like inflation has subsided. The same thing is happening with other commodities as well. Gas prices, for example, spiked to almost $5 a gallon a couple of years ago, and now they’re back down to about $4 a gallon.
Those prices are starting to look lower, but prices across the board have risen in the past 3 or 4 years. People will likely live with these higher prices until supply issues are addressed. Even though salaries have gone up, they’re probably in line with inflation, if it exists. What people often don’t consider is that their taxes have gone up as well because their income is higher, so their actual purchasing power has decreased. That’s why many people feel the pain of today’s economy if that makes sense.
I think that makes perfect sense. It’s also interesting traveling through the country. There are definite growth pockets, like you mentioned in Florida, the Carolinas, and Texas. I was just in Nashville recently, and it’s fascinating to see where people are moving in the country. You have this migration effect, and it’s interesting to see how prices are being affected in those markets.
There’s a growing trend toward alternative investments. It’s kind of funny that they’re referred to as alternatives by Wall Street, but gold and real estate have been around since the beginning of time. Interestingly, even institutional firms are now creating lines of business focused on alternatives and identifying those opportunities. Investors are looking for more control and diversification.
Most Americans have their money in just two places: their 401(k)s or IRAs, or trapped equity in their primary residence. If you can reposition that to reduce risk and improve yield, it’s low-hanging fruit for savvy investors who want more control. What does the process look like if someone wants to move into a self-directed vehicle? How can you help people in that position?
Great question. The process is pretty simple. It’s like opening any other IRA or 401(k) account. You fill out an application with Cama Plan—your name, address, beneficiaries, a license or passport, and some documentation to verify your identity. Then, you fund the account. You can transfer funds from another IRA, contribute for that year, or roll over an old 401(k).
Once your account is open and funded, you choose your investment type. That could be real estate, a note to an individual, shares in a debt or equity fund, or even a portion of an LLC or a limited partnership. There are plenty of options. Once you complete the paperwork, the only difference is that it will say “Cama Plan for the benefit of [Your Name]’s IRA or 401(k).” Otherwise, you fill it out the same way you would personally.
Once we receive the signed paperwork, we’ll send the funds to the appropriate party, whether it’s a title company for a real estate purchase, a fund manager, or a syndicator. You’ll be able to log in online, track the progress, and see the returns—whether that’s rental income, interest payments, or dividends. Within 24 hours of us receiving a payment, it’ll be in your account, sitting safely in FDIC-insured accounts. We ensure that even amounts over $250,000 are fully insured.
If you have questions, we’re always available to help, whether it’s about opening an account or conducting due diligence. We can also refer you to fund managers or attorneys who can review paperwork, or we offer classes on how to perform due diligence.
That’s helpful. One more thing I think a lot of people have questions about—especially once they get into their first opportunity—is UBIT. Can you explain what that is and how it works with an SDIRA?
Sure. There are two aspects I’ll talk about. One is Unrelated Business Income Tax (UBIT), and the other is Unrelated Debt-Financed Income (UDFI). For example, let’s say you use your IRA or 401(k) to buy a business, like a Midas muffler shop or a gas station. Since the IRA owns the business, any income generated by the business will be subject to UBIT because it’s considered a business running through an IRA or 401(k).
Think about it—if you could get these tax-free, there would be no businesses paying any taxes anywhere. Everybody would be running them out of their IRAs and 401(k)s. Because an IRA is considered a trust, it gets taxed at trust rates. So once you make $15,000, you’d be taxed at 37%.
But the money would go into your IRA, whether it be a Roth or a traditional IRA, tax-free or tax-deferred, and it would go into that. Your IRA would then fill out what’s called a 990-T, which is an income tax return from the IRS, and they would pay 37% on everything over $15,000. I think it’s something like 10% up to $15,000. This system was put in place by the IRS and the Department of Labor to prevent people from using their IRAs and 401(k)s to run businesses and potentially deprive the government of tax revenue.
The second issue, primarily with IRAs, is what’s called unrelated debt-financed income (UDFI). If you buy an income-producing property that isn’t government housing or government-subsidized, you most likely will be required to pay UDFI on your rental income if you take out a loan on that property.
Let’s keep the numbers simple. Let’s say you buy a property for $100,000. Your IRA puts $50,000 into it, and you borrow $50,000 from the bank. You make $10,000 a year on that property. What happens is that 50% of that $10,000, or $5,000, would go into your IRA right away because you have 50% equity in the property.
Now, you have a $1,000 deduction on the other money, so that means $6,000 would go into your IRA. But $4,000 is still subject to tax. Out of that $4,000, you’re going to be able to take 50% of the depreciation on that, which might be another $1,000. You end up with $3,000 which is subject to UDFI. At 10%, that would be $300. So, essentially, your IRA would pay $300 in tax that year.
Therefore, $9,700 of the $10,000 would go into your IRA, which, in my opinion, is not bad. Then, there are some other calculations. If you sell the property in 2 or 3 years, you’ll have long-term capital gains and pay 20% of the profit. But the number is going to decrease each year as you pay down the principal on the loan. For example, instead of 50/50 equity, in the first year it might be 55/45, then 60/40, and so on as time passes. If you pay off your loan a year before selling, there won’t be any tax at that point. But that’s how it works.
I once asked the government why they do that, and they said, “Well, you have an exempt entity taking money out of the economy without paying taxes on it.” So, they had to put something in place to ensure that some of that money was taxed.
That makes sense, Carl. I’d like to address another topic that I think is widely debated. Let’s talk about the EQRP. Can you help listeners understand what an EQRP is, and how it compares to an SDIRA?
An EQRP is a qualified retirement plan. It’s essentially a glorified 401(k). As I mentioned before, a 401(k) doesn’t have UDFI if it borrows money. I’m not sure if that’s an oversight, but a lot of people will look into that. Some of the differences between them are that both 401(k)s and IRAs or QRPs have creditor protection and checkbook capability.
However, I don’t like checkbook control with IRAs as much as I do with 401(k)s because with 401(k)s, the owner of the company is the ultimate authority. They’re the person running it, so having control of the checkbook isn’t that big of a deal.
On the other hand, the Swanson case regarding IRA checkbook control causes me some concern. I think it’s possible that it could be overturned. All the experts I’ve spoken to think that if it ever gets brought up in tax court, it might be overturned.
A QRP can invest in life insurance, while an IRA can’t. You must be part of a 401(k) to participate in many QRPs, whereas with an IRA, you don’t have to be. That’s why people ask, “Why wouldn’t everybody have an EQRP?” One, they might not have their own company, and two, they might not be able to set up their paperwork.
A personal loan is also available in a QRP or 401(k). You can borrow money and pay it back—up to $50,000 or half of what’s in your account, whichever is less. But with an IRA, you can’t borrow against it. Some people say you can take out money from an IRA and put it back within 60 days, but you’re only allowed to do that once a year. It’s not much help unless you need it for a short period.
The unrelated business tax rules apply to both, but the UDFI rules don’t apply to solo 401(k)s as long as they’re buying real estate. Another great advantage is that with a 401(k), you can contribute up to $67,000 this year, depending on your age. For example, if you’re under 50, you can contribute $19,000 (or $19,500). If you’re over 50, you can contribute up to $27,000.
People often ask, “Which one should I have?” My answer is, it’s not which one, it’s which ones. I think you should have as many as you can—whatever you can afford to contribute to. IRAs are cheaper to administer, while you can contribute more to a 401(k). So, that’s what I would say overall. It might be a little more expensive to administer a 401(k) than an IRA.
That’s helpful, Carl. Just to clarify, a Cama plan offers both the 401(k) as well as a QRP option, correct?
Yes, the QRP is primarily a 401(k). We offer both IRAs and 401(k)s, with the same contribution limits.
Any time I’ve looked into these options, I think it’s important for investors to do the math and look at their specific scenario—what are they trying to invest in, and what makes sense for them? Are there any other considerations investors should be aware of?
I’m biased toward tax-free accounts, but there are tax-deferred options too. It’s important to understand both because I don’t think financial advisers do enough to educate people on that. The tax-deferred world has a lot more money in it, and people are saving money on their taxes for the year. For example, Dave, and probably others, you go to your tax accountant in January, February, or March, and they say, “If you contribute $7,000, you’ll get an extra $2,500 off your taxes.” So, you run out and make that $7,000 contribution for the last tax year.
It only costs you $5,000 in real money. But the problem with that is, that as you grow that money, it grows in a taxable account. So when you pull that money out, it’s tax-deferred, but when you withdraw it, it’s going to be taxed at the rate you’re at when you take it out—assuming you’re 59 and a half and you’re not paying a 10% penalty. Most people think they won’t be making as much money, or they won’t need as much money when they get older, but I’m here to tell you that’s a fallacy. The older you get, the more money you spend.
I don’t want anybody working to make less money in the future, because I don’t think that helps your retirement plans. So, in the tax-free world, you pay your tax now, and everything you earn in the future is tax-free. You don’t get the immediate tax break. You don’t get the return from your tax return that year, but you put that money into the tax-free Roth account, and everything that the Roth account earns in the future is tax-free.
Use more tax-free accounts, worry less about your W2 salaries and your 1099s and focus on growing your Roth account.
Let’s say, for example, we had two people who did this. One did it in a traditional account, and one did it in a Roth. They both turn 70, and their accounts are worth $1,000,000. The one in the Roth is going to take out the full $1,000,000. The one in the traditional account is going to pay $300,000 to $400,000 in taxes on that $1,000,000. So, they’re going to end up with $600,000 to $700,000 versus the full $1,000,000 from the Roth, where they could have paid $2,000 in taxes earlier in life. Does that make sense?
Perfect. I think those are great points. This has been insightful, Carl. There’s still such a lack of education in terms of folks understanding that there are options to transition capital into better vehicles, like diversifying into alternative assets. So, Carl, if you could give our listeners just one piece of advice on how they could accelerate their wealth trajectory, what would it be?
I would say to use more tax-free accounts, worry less about your W-2 salaries and 1099s, and focus on growing your Roth account. I always talk about four types of money: W-2 money, passive income (such as rent), tax-deferred, and tax-free.
If you make $100,000 in your job, you’re probably paying around $40,000 in taxes between federal, state, local, and Social Security and Medicare. If you’re buying rental properties or earning passive income like royalties, interest, or dividends, and you make $100,000, you’re probably only paying around $25,000 in taxes because you don’t have to pay Social Security and Medicare on that income.
With tax-deferred accounts, you get to keep using all the money without losing it to taxes. The way I see it, I’m paying taxes on my interest, while others are paying interest on their taxes. With tax-deferred money, you put that money in and can use it year after year without losing out on taxes. But when you withdraw it, you’ll pay taxes later. I would recommend focusing on tax-free investments, paying attention to that, and putting some of your safest and highest-producing returns into tax-free environments.
Well said. Appreciate that. Carl, if people would like to learn more about Cama Plan or connect with you, what’s the best way for folks to reach out?
Go to our website, CamaPlan.com. You can request a consultation, or you can give us a call at 215-283-2868. That’s 215-283-2868. Cama Plan has a lot of information available for free, and it will answer many questions to help educate yourself. But we love to talk to people, so feel free to give us a call.
Awesome. Really appreciate your time, Carl, and for sharing your insights with the audience. Thanks to the audience for spending your most important resource with us—your time. If you’re enjoying the show, please give us a rating and review on iTunes or your preferred podcast platform. We appreciate it, as it helps us bring in excellent guests like Carl. Until next week, thanks again.
Appreciate it, Dave.