Costa Rica Blog

Self Directed Retirement Funds to Purchase Property Abroad

Posted by Steve Linder on Fri, Feb, 12, 2010

Overview of self directed retirement basics:

Basically you can use any retirement funds, SEP, Simple IRA, traditional IRA, Roth IRA, 401k money, etc to invest any way you'd like.  The financial services companies don't make us very aware of that since they make no money from you investing your funds through self directed methods.  IRS rules are very liberal however, the few restrictions being only that you can't invest in collectibles and you MUST have a qualified intermediary handle your funds when you are investing them as well as any income distributions or other gains to put back into the fund. 

There are many firms that specialize in that service.  Basically you take your investment funds out of the market, give the proceeds of the sale to a qualified third party who for a small fee manages the purchase of the asset you identify and chose to buy.  Assets can be raw land, improved land with a home, a condo, both domestic or international, an airplane, gold, stocks, nearly anything that could be considered an investment.  You are not allowed to personally profit in any way from the investment until you reach retirement status, all earnings stay with the investment, which is verified by the qualified intermediary.  Many people are using self directed retirements to move their money offshore.  There is significant concern about the stability of the US dollar.  Holding your retirement funds in non dollarized assets is not a bad strategy.

So for example if you owned a rental property that you bought with your retirement funds, the rental income would go back into your investment account for things like paying the mortgage (if you had one), the taxes, the insurance, maintenance, etc and you could not take any distribution from the income, instead all income remains in the self directed account as earnings.  Once you reach retirement age, you can start taking the distribution and will pay tax on it based on your bracket at the time and the type of retirement dollars you had used to make the investment in the first place.  For example, if you had used money from a Roth, the income and distribution would not be taxed when you take it later on. 

Likewise you could buy a piece of land and hold it while it appreciates or until you reach retirement age and plan to build a house on it.  You could also purchase land and build a home on it, all with retirement funds, but you have to have enough money in your retirement savings accounts to do both, or at least to service a construction loan over time.  You can not mix retirement savings and your own money (non retirement funds) 

If you sold a house that you'd previously purchased with self directed funds, any capital gain would stay with the investment fund, not subject to tax again until you retire and start taking distributions.  If there were a capital loss, likewise, it stays with the investment.  You could not use the asset as a vacation home or to live in (although there are ways around this by setting yourself up as the tenant and paying rent to yourself but schemes like this are frowned upon by both the IRS and the qualified intermediaries that are out there).  There are people who do so however. 

You could also hold raw land simply looking for appreciation, hold gold or other assets, etc.  You typically pay very little in terms of fees when self directing your retirement versus having Fidelity or another brokerage firm, managing your assets for you.  Hope that answers your questions. For more information Google "self directed retirement".  A word of caution - Seems many firms have all of a sudden become experts in managing your self directed retirement funds.  If you plan to use your funds to purchase property outside the US, be sure to use a firm with sufficient international experience.   I can recommend a good intermediary company if you want to discuss this topic further.  We can recommend a good intermediary company if you want to discuss this topic further.    

Tags: Self Directed Retirement, Purchase property with your IRA, Using 401k IRA for investment