A growing number of North Americans are using funds from their IRA to purchase foreign real estate. While the process may appear convoluted at first, all it involves is a few steps taken in sequence. The steps have been followed by hundreds of investors purchasing real estate in Nicaragua, Costa Rica, Panama and Belize. The same process works for 401K investments, Roth IRA and other retirement plans.
The first thing you need to do is to set up what is called a “self-directed IRA”. You’ll typically need a new custodian to do this. So either search online for a self-directed custodian or review the three main firms offering this service: Entrust, Equity Trust and Lincoln Trust. As you decide on your custodian make sure that their program allows investment in foreign real estate.
Practically all types of real estate in Central America are eligible for purchase using the funds in your IRA. So this will include raw land, condos, multi-unit apartments or a house. The key factor to bear in mind is that the property needs to qualify as an investment rather than as a personal use purchase. But that’s only before you retire. Once you retire you can take the property as an IRA payment and live in it full-time. Many investors who are of pre-retirement age use their IRA funds to buy rental real estate as an investment with a plan on moving into the property once they retire.
Although in some countries it’s possible to buy property in the name of your IRA account, across Central America the local legal systems do not recognize these account names. The solution is to set up a corporation to own the property. Your IRA invests all of its funds in that corporation and then you as the manager of that corporation purchases the real estate that you have chosen.
- Finding the Best Retirement IRA Companies (2008taxes.org)
- Basics of a Roth IRA Account (2011taxes.org)