The number one question I get on offshore IRAs, is “can I buy foreign real estate with my retirement account?” The answer is a resounding yes. You can buy raw land, a home, condo, office building, or anything else you like outside of the United States within your retirement account.
In fact, you can buy or invest in just about anything offshore. The only limitations on your IRA are found in Section 408 of the Internal Revenue Code. This says you are prohibited from investing in life insurance, collectibles, and certain coins (collectable coins that are not 99.99% pure). Other than that, you can place whatever you like in your IRA.
Foreign real estate is the most popular investment with our offshore IRA LLC clients. They choose real estate as a way to further diversify out of the US and out of the dollar. To take some cash off the gambling table in the time of Trump and to help grow retirement wealth or turn it into income from rental profits.
There are two ways to buy foreign real estate in your IRA. You can setup a self directed IRA and ask your custodian to make the investment. This is best if you will have only one international investment and don’t want to open a foreign bank account for your retirement account.
The other option is to take your entire retirement account offshore. Get rid of your custodian and take over management of your IRA. Get the entire account out of the United States and under your control.
You can do this by forming an offshore IRA LLC owned by your retirement account. Then this LLC appoints you as the manager and opens international bank accounts at institutions that understand US IRA rules.
The last step is to instruct your custodian to invest your entire IRA into this newly formed offshore IRA LLC. Once the cash is transferred into the IRA LLC bank account, the custodian’s control ends and yours begins.
From here you can buy and sell foreign real estate, trade stocks, buy physical gold, and generally manage the assets of the account for the benefit of your IRA. You are to act as a professional investment manager and “always work in the best interest of the account.”
Once you’re installed as the manager of your offshore IRA LLC, you’re responsible to follow all of the US rules imposed on professional investment managers. This basically means that you can’t personally benefit from your retirement account.
So, you can’t buy a house and live in it, can’t borrow from the account, can’t use IRA funds to pay off an existing or personal mortgage, and can’t combine IRA money with after tax money in one offshore account.
These rules are detailed in IRC Section 4975 and referred to as prohibited transactions. A prohibited transaction is any improper use of an IRA by the account owner or account manager (both of whom are now you), beneficiaries, or any disqualified person.
Examples of prohibited transactions include:
- Borrowing money from your IRA
- Selling your property to your IRA
- Using your IRA as security for a loan
- Buying property for personal use
Most of these are self explanatory. I should point out that you are allowed to use loans to by foreign real estate in your IRA. You are just prohibited from pledging your account as collateral for that loan. To put it another way, you can borrow money to buy foreign real estate with a nonrecourse loan. You can’t borrow with a recourse loan that’s guaranteed by the IRA or by you personally.
Above I said that these rules apply to you, beneficiaries and disqualified persons. Disqualified persons are defined in IRC Section 4975(e)(2). Here are the most common disqualified persons:
- The account owner (obviously)
- A person providing services to the plan such as an attorney, CPA, real estate agent, investment advisor, etc.
- A business, corporation, partnership or trust of which you own 50% or more (ownership or control / voting rights)
- Your spouse, parents, grandparents and great-grandparents, children (and their spouses), grandchildren and great-grandchildren (and their spouses).
The term “disqualified person” does not include siblings (brothers and sisters) or aunts, uncles and cousins of the IRA owner.
With all of those caveats, you are absolutely allowed to by foreign real estate in your IRA. You can do it through a custodian, if you don’t mind having him in control of the property, or setup an offshore IRA LLC to handle the transaction.
I hope you’ve found this article on whether you can buy foreign real estate in your IRA to be helpful. For more information on taking your account offshore, please contact me at firstname.lastname@example.org or call us at (619) 550-2743. We have been assisting clients get their accounts offshore since 2002 and will be happy to work with you.
Just remember that there are risks in taking your IRA offshore. You must follow all the IRS rules and act in the best interest of the account. This means you’ll need ongoing support and an incorporator / advisor who’s an expert in these US rules. If you don’t hire Premier, hire someone in the United States. For more on why you need a US expert, see: Risks in Taking Your IRA Offshore.