Using your IRA to Buy Real Estate in Costa Rica

Costa Rica is rapidly becoming a preferred retirement and vacation destination for U.S. buyers. Unless you are independently wealthy, you will need to identify the best way to finance the purchase of your new dream home in paradise. Mortgage loans are available to buyers from the United States; however, it is also wise to find alternative arrangements for financing the purchase of your property.

One method that you may wish to consider is tapping into your IRA in order to fund your property purchase in Costa Rica. If you thought that this was not allowed, think again. It is allowed, but there are some rules you need to understand. One of the most important elements you must understand when approaching using your IRA to purchase foreign real estate is the rule from the IRS that prohibits self-dealing. This means that you are not allowed to handle transactions on your own. In other words, you are not allowed to sell to or from your IRA. It also means that you are not allowed to borrow funds from your IRA.

This often means going through a custodian. In reality, your IRA custodian may attempt to persuade you against using your IRA to purchase foreign real estate. This is often due to a lack of understanding in how to handle the necessary paperwork. That does not mean that you cannot use your IRA to purchase real estate in Costa Rica. It does mean that you may need to be creative in your approach.

Many buyers opt to establish what is known as a “self-directed IRA” or even a “self-directed 401(k).” This will give you the opportunity to direct the investment of your funds. You will still need to actually go through a custodian who will make the investment on your behalf. If the custodian refuses, you might consider taking control of your IRA funds by establishing a checkbook IRA.

In order use this method, you will need to establish an account with a self-directed IRA custodian that will allow non-traditional investments. An LLC can then be created that will be used for investing all of your IRA funds. As a managing member of the LLC, you can then invest your IRA funds as you wish. Of course, you will still be required to adhere to IRS rules. The benefit of this structure is that it eliminates the paperwork as well as the review process that would be required otherwise. All that is necessary is to write a check from your LLC account when you are ready to make a purchase.

If you prefer to stick with the custodian arrangement, there are custodians available that provide IRA that are capable of holding non-traded investments, such as foreign real estate. Along with buying a home with your IRA, you can also start a business, buy a business, or even invest in a current business. For instance, you could invest your IRA in a farm in Costa Rica.

As you can see, it is possible to use your IRA to purchase an investment property, second home, or retirement property in Costa Rica when you stick to the rules and understand how to make your IRA work for you.

Disclaimer: We do not provide investment, tax or legal advice, and nothing written or published by us, any document received from us, or any communications from Coldwell Banker Vesta Group Dominical or FeelCostaRica.com should be considered professional investment advice. We recommend that you consult a registered and licensed advisor before considering any investment strategy.