When investing in your retirement portfolio, it is very traditional to invest in stocks, bonds, and mutual funds. Most big name brokerages only offer such investments, and the closest they may get to helping you invest in real estate is to assist with purchasing shares of a REIT, real estate investment trust. But investing in a REIT is putting your retirement dollars in the hands of another, just like many of us stock market losers have been doing for years.
Given IRS Publication 590, you can use your IRA or 401K to invest in international real estate, such as Baja California. It is 100% legal today, and has been since 1974! This type of international investing has been successfully practiced amongst many who are not even slightly familiar with IRS publication 590! It is just that there are many who are not happy limiting their retirement investments to just stocks, bonds and mutual funds.
If you were to ask your broker about investing in international real estate with your IRA or 401K, they might ask you “why would you want to do that?” It is just that they are not educated on the subject. They don’t get paid unless you use their consulting services or buy stocks or funds through them that offer them compensation for the sale! They have no incentive to learn about investing in international real estate using IRAs or 401Ks.
Further, investing in international real estate using your IRA or 401K is not a tax loop hole! This is sound retirement account investing! Publication 590 clearly states that you can not invest in life insurance, certain S corporations, and collectibles such artwork, baseball cards, antiques, metals, gems, certain coins, but you can invest in Baja real estate!
Here is a synopsis on how you can use 401K or IRA funds to invest in Baja real estate. Firstly, transfer funds from your common retirement account and broker, also called a custodian, to a custodian who is not restricted to the typical investment products of stocks, bonds and mutual funds. This type of custodian allows for self-directed retirement accounts that include real estate. This transfer may take about a month.
Next up, you will open a LLC in the state of your choice, such as Nevada, Delaware, or Wyoming. Your operating agreement, the document that governs your business, will confirm that you will be incompliance with Publication 590. Open up a bank account for the LLC, or use an internet bank such as Net bank. Expect to spend about $700 to $1500 dollars depending on how you go about getting these steps done.
The funds in your new self-directed retirement account are going to buy units from the LLC, and be the owner of the LLC. A unit to a LLC is slightly comparable to what a share is to a company. Simply put, a check is going to be written from your self-directed account to fund the LLC. Your self-directed retirement account now owns the LLC. Many IRA investors call this an IRA LLC, but it is not an official term.
Go buy land, or a condo, or a house with the intent of using a fideicomiso, in which the beneficiary of the fideicomiso is your IRA LLC!
If you were to buy a vacation rental, then net profits from the rental go right into the LLC, and then are transferred to your self-directed IRA account! When you sell the property, all profits go to the LLC, and then back to your self-directed IRA account. If you decide to use the property for your own personal enjoyment when you retire, then you can take the property as a distribution, in which you are eligible after the age of 55.
There are many tax accountants and lawyers who know this whole process. You should familiarize yourself with them in order to get them to be a part of your team. Make sure 100% of everyone assisting you with your transaction is familiar with 401K and IRA international real estate investing. Remember, this is tax free on the USA side, with inexpensive taxes and procedures on the Baja California, Mexico side!