How to invest in Costa Rica with your IRA pension fund

If you are looking at real estate overseas, or for a way to get better returns in your IRA, here is little secret your stock broker will never tell you about...
The IRS lets you purchase real estate with income that is tax-deferred. That means that many savvy investors are investing their IRA funds in real estate.
This is a great way to beat the ups and downs in the stock market, to diversify your portfolio or to provide a stable income as you transition from riskier investments.

The rules governing the diversification of your portfolio in this way are simple. First, you may purchase practically any foreign real estate you can imagine: raw land, condos, office buildings, single or multi-family homes, apartment buildings and improved land. You can also own a fraction of real estate, with other entities or investors owning other fractions. You can purchase an option on the foreign real estate or you can buy outright using a land trust, L.L.C., or similar entity. Also, you can rollover your IRA, so you are buying the real estate with retirement assets.
Limitations
The main exception is that you can't use the foreign real estate in your IRA as your residence or vacation home, if you are under 59 & 1/2. This is logical, since your retirement funds are tax deferred and are meant to be used for your retirement In other words it can be any kind of property, but you can't use it personally, unless you are already retired and take the amount as a distribution.

Other exceptions
Your business can't lease space in your IRA-held property. You cannot place real estate that you already own into your IRA. Your spouse, your parents, or your children also couldn't have been the previous owners of the real estate. Property owned by siblings may be allowed, since the Internal Revenue Code (section 4975) specifies that only "lineal descendants" be disqualified.
Buying the property
Your IRA custodian must actually buy the real estate you are investing in. So, the title will really be in their name, not yours. You may put up the deposit with your personal funds, in order to reserve the property until the legal structure is in place, in this case you have to be sure you include that amount in the total due so you get your money back from your IRA at closing.

What if your IRA doesn't have enough money?
If the property is financed, you must structure the purchase correctly so as to avoid adverse tax consequences down the road. Also keep in mind that if the property is leveraged, the debt must be a non-recourse promissory note. But it is possible for your IRA to take on a debt. Another way is to purchase an interest in the property along with others, such as a spouse, business associate, or friend.
Operating property in your IRA
Because all property expenses, including taxes, insurance, and repairs, must be paid from funds in your IRA, you'll need liquid funds available in your account. Of course, all income generated from the property will be deposited in your IRA account so you might use that money to cover your costs. Or you can make annual contributions within federal guidelines: $3,000 annually to a traditional or Roth IRA ($3,500 if you're age 50 or older); and as much as 25 percent of your annual compensation, up to $40,000, if you're a self-employed individual with a SEP-IRA. If your account doesn't have funds to cover property expenses, you will have to withdraw the property from your IRA and pay taxes on the value of the property, as well as possible penalties for early withdrawal.
Selling or Distributing the Property from Your Portfolio
The buyer cannot be a family member. Once a deal closes, your IRA account now holds the cash — ready for you to make your next move. A great way to build up your retirement portfolio is to sell property with seller financing so that all payments made by the buyers are paid to the IRA.
Distributing your property
You can withdraw real estate in Costa Rica from your IRA and use it as a residence or second home when you reach retirement age (age 59½ or older for a penalty-free withdrawal). Either the IRA can sell the property, or you can take an in-kind distribution of the property. In that case your IRA custodian transfers the property title to you. If you expect the property to appreciate and you want to eventually take it as a distribution, then the Roth IRA is your best vehicle (see below) Whether your retirement strategy is to hold properties or buy and sell for gain, real estate investing through your IRA can yield extraordinary returns toward your future retirement.

Other exceptions

Your business can't lease space in your IRA-held property. You cannot place real estate that you already own into your IRA. Your spouse, your parents, or your children also couldn't have been the previous owners of the real estate. Property owned by siblings may be allowed, since the Internal Revenue Code (section 4975) specifies that only "lineal descendants" be disqualified.

Buying the property

Your IRA custodian must actually buy the real estate you are investing in. So, the title will really be in their name, not yours. You may put up the deposit with your personal funds, in order to reserve the property until the legal structure is in place, in this case you have to be sure you include that amount in the total due so you get your money back from your IRA at closing.

What if your IRA doesn't have enough money?

If the property is financed, you must structure the purchase correctly so as to avoid adverse tax consequences down the road. Also keep in mind that if the property is leveraged, the debt must be a non-recourse promissory note. But it is possible for your IRA to take on a debt. Another way is to purchase an interest in the property along with others, such as a spouse, business associate, or friend.

Operating property in your IRA

Because all property expenses, including taxes, insurance, and repairs, must be paid from funds in your IRA, you'll need liquid funds available in your account. Of course, all income generated from the property will be deposited in your IRA account so you might use that money to cover your costs. Or you can make annual contributions within federal guidelines: $3,000 annually to a traditional or Roth IRA ($3,500 if you're age 50 or older); and as much as 25 percent of your annual compensation, up to $40,000, if you're a self-employed individual with a SEP-IRA. If your account doesn't have funds to cover property expenses, you will have to withdraw the property from your IRA and pay taxes on the value of the property, as well as possible penalties for early withdrawal.

Selling or Distributing the Property from Your Portfolio

The buyer cannot be a family member. Once a deal closes, your IRA account now holds the cash — ready for you to make your next move. A great way to build up your retirement portfolio is to sell property with seller financing so that all payments made by the buyers are paid to the IRA.

Distributing your property

You can withdraw real estate in Costa Rica from your IRA and use it as a residence or second home when you reach retirement age (age 59½ or older for a penalty-free withdrawal). Either the IRA can sell the property, or you can take an in-kind distribution of the property. In that case your IRA custodian transfers the property title to you. If you expect the property to appreciate and you want to eventually take it as a distribution, then the Roth IRA is your best vehicle (see below) Whether your retirement strategy is to hold properties or buy and sell for gain, real estate investing through your IRA can yield extraordinary returns toward your future retirement.

Self Directed IRA Specialists

PENSCO Trust: www.penscotrust.com

The Entrust Group: www.theentrustgroup.com

Guidant Financial Group: www.guidantfinancial.com