#1 Strategy For Accessing Funds To Buy Property Overseas
As I’ve been reporting for years, it’s possible to invest your IRA funds outside the United States.
However, to do so, you have to find an IRA custodian that allows for non-traditional investments.
A traditional brokerage or bank custodian generally only allows you to hold assets in your IRA that he can sell you—stocks, bonds, etc.
That’s a restriction of the custodian… not of the IRS.
The IRS is happy for you to hold a variety of other assets in your IRA. You simply have to find a custodian willing to make the investments.
One simple way to invest your IRA offshore is to use a custodian that allows you to invest in an LLC. You can be the managing member of that LLC. You simply can’t receive compensation for being the manager.
Once your IRA has invested in the LLC, you, as the managing member, can then invest the LLC’s funds in any investment allowed by the IRS that you choose… which means most any investment that isn’t a collectible or that would be considered self-dealing.
This last restriction, to do with self-dealing, is relevant if you’re interested in using your IRA funds to purchase real estate in another country. You can do that, by all means. What you can’t do is use your IRA to buy your vacation home from you or for you.
Using LLC For Offshore Invesment
Generally speaking, when using an LLC to hold investments, you should use a U.S. LLC to hold U.S. investments and an offshore LLC to hold offshore investments… asset protection for those offshore investments being the point of using an offshore LLC.
Using an onshore LLC for offshore investments makes the offshore investments vulnerable to onshore liabilities, such as a frivolous lawsuit.
However, after years of following this rule and putting onshore assets in onshore entities and offshore assets in offshore entities, I changed my mind when it comes to an LLC used for IRA investments.
While the people who make money selling offshore LLCs would prefer you to use one for your self-directed IRA structure, the cost of setting up and maintaining an offshore entity is greater than that of setting up an LLC in Nevada or Florida, for example… or anywhere else in the United States.
Furthermore, using an offshore entity owned by your IRA to hold offshore assets doesn’t provide the asset protection you’d like it to, as the IRA is a U.S. structure that already falls under U.S. jurisdiction.
While you may have other reasons for intending to use an offshore LLC as the investment vehicle for your IRA, think through your long-term goals before spending the money.
One legitimate reason to use an offshore entity to hold your overseas property purchase could be that you eventually want to own the property yourself. One way to achieve that without taking the entire property as a single distribution and suffering a big tax hit as a result would be to take shares of the LLC as distributions over time. That way you could mitigate the tax burden in any given year.
Of course, if you held the offshore LLC in a Roth IRA, you could take the entire thing as a distribution without worrying about the tax implications.
Other situations could arise where it’d make sense to spend the money to set up an offshore LLC for your IRA to invest offshore. However, between complications getting bank accounts for offshore entities these days and the much higher costs, I recommend you look into using an onshore LLC for your self-directed IRA when intending to use those funds to invest beyond the generic investment limits of your current custodian.
Now I’ll sit back and wait for all the hate mail I’m sure to get from offshore LLC providers…