Structured Offshore Investment Through an IRA
Oct 29th, 2008 by Kevin
Many people ask us: How exactly can I invest in property in a foreign country, such as Nicaragua, using a US based IRA? The first step is to contact a qualified IRA custodian and set up a self-directed IRA account. A good custodian will have the knowledge of using self-directed IRAs for non-traditional investments. There are many IRA custodians to choose from, two companies we have personal experience with are; Equity Trust Company and The Entrust Group. Many more are available, it is important to find one you are comfortable with.
The above diagram outlines the 4 basic steps to investing in any type of real estate using IRA monies.
As the diagram notes – Once you have your custodian, the next step is to identify the investment opportunity. Then your self-directed custodian will make the investment on your behalf. Your name does not go on the investment. You do not own the investment - your IRA does. The custodian directs FBO (For Benefit Of). Money made by the investment will flow back into the Self Directed IRA account. It is important to note that the money can not be paid to you at anytime.
Another component that can and should be added to this structure is to add in a business entity such as an Limited Liability Company (LLC) to make the investment. This is for legal protection. Also the LLC could allow you to partner with friends and family to combine IRA money so you can invest in a piece of real estate that may be out of reach for a single individual. This structure will help you to effectively diversify your retirement assets. In addition, the business entity allows you to run legitimate business expenses through the self-directed account as well as making them tax deductible, like the fee to set up the business entity.
Remember, with 401k’s, it is important to note that most plans with a current employer will not allow you to take money out of the 401k until your employment has ended. Contact the IRA custodian for more information. This is where their experience becomes very helpful. In addition, take note that Roth IRA’s can also be self directed, so real estate investments can have tax-free profits
Keep in mind, we are entrepreneurs so we always get professional advice from our accountants and attorneys and we highly suggest you do so as well.
The first time I heard about Self-Directed IRAs I could barely believe they were possible. Our experience is proof that they are available and they do work well. Always follow standard ethical business practices and take control of your retirement accounts!
