Editor's Note:  Last month, international business attorney Joel Nagel listed the first 10 of 20 questions he is frequently asked about international investments by IRAs.  This month, he completes that list.

1. How do I take advantage of a relatively small amount of money in an IRA?
   While many foreign investments require larger amounts of money to participate, there is no prohibition on your IRA from partnering with other IRAs or non-IRA investors in a particular investment.  Also, some small IRAs may deal in part of a transaction, such as an option or purchase agreement, and then sell the underlying investment to another person or entity for a fee which has a material, positive impact on the small IRA.
2. Can I use debt in conjunction with an IRA investment?
   Yes, you can.  You may end up with what is called Unrelated Debt Finance Income (UDFI), which could subject a portion of your income to taxation, however in many circumstances it make sense to use debt in conjunction with IRA investments, particularly real estate.
3. What if I make a mistake and buy a restricted investment or make a prohibited transaction from my IRA?
   In the case of a restricted investment, the amount in question is deemed to be a distribution in the year the investment is made. So if I buy a painting (which would be impermissible) in my IRA for $40,000, I will be deemed to have received a $40,000 distribution, subject to taxation.
   

   If, on the other hand, I purchase a house for my own personal use (instead of investment property) for $250,000 with my IRA funds, I would have entered into a “prohibited transaction.”  That prohibited transaction creates a deemed distribution of the entire IRA account.  So, if I had $1,000,000 in my IRA, I would not only pay tax on the $250,000 value of the house, but on the entire $1,000,000.  If the IRS does not catch the prohibited transaction for several years, penalties and interest for under-reporting of income in the year in which the transaction took place would be significant and could exceed 100% of the amount involved in the prohibited transaction.  In this case, even the use of an LLC owned by the IRA will not shield the transaction from running afoul of the prohibited transaction rules.

4. How are the assets inside my self-directed IRA valued?
   The U.S. government requires that each year by January 31, your third-party administrator or custodian to report the total value of your IRA account on IRS Form 5498.  For most liquid investments such as stocks, bonds, cash, precious metals, etc. ascertaining the fair market value is easy to do.  For real estate and other non-liquid investment, the IRA holder is required to get a bona fide third-party appraisal.
5. May I take compensation for managing assets inside a structure owned by my IRA?
   No.  That is a prohibited transaction, as you would be deemed a disqualified person.
6. Who does the “due diligence” on foreign investments that I wish to make from my IRA?
   You do!  A custodian or administrator is just that.  They hold assets and do government compliance work.  When investing internationally, it is important to do your own due diligence and work with trusted investment advisers, banks, brokerages houses, attorneys and CPAs.
7. May I personally guarantee a loan entered into by my IRA?
   No.  The IRS prohibits the direct or indirect extension of any type of credit between a plan and a disqualified person.  Therefore an individual would not be permitted to guarantee a loan taken out by an IRA to buy property, or for a margin loan on a securities account.  Also, you cannot pledge IRA assets as security for personal or corporate obligations.
8. What about gold and other precious metals, can I own them inside an IRA?
   Yes, absolutely.  There are some exceptions for numismatic coins which can fall into the “collectibles” exclusion.  U.S. minted gold coins, bullion and certificates, such as the Perth Mint Certificates or publicly traded ETFs for gold (or other metals) may be owned by an IRA or a structure held within the IRA.
9. So, how do I get started in moving some of my IRA assets overseas?
   There are several ways to begin.  Our firm offers a first step, analytical tool we call our “Personal Asset Protection Plan.”TM We look at all of your current assets (both tax-sheltered assets and non-sheltered assets), your risk profile and your general estate plan goals.  We will customize an individual road map with structures, and strategies to help you get where you want to go.  Conversely, you can simply do a Google search for “self-directed IRAs” and you will quickly have a list of numerous custodians permitting this type of global investment.
10. How much would it cost to have your firm assist us?
    For Hemispheres readers, we are offering our “Personal Asset Protection PlanTM” for $2,500, which is 50% off of our standard rate of $5,000.  Furthermore, if you engage our firm to carry out any of the suggestions in your PAPP, we will credit dollar-for-dollar the amount you paid for your PAPP towards the final work product, making the planning work free.  Costs of implementing the PAPP work product ranges significantly, depending on whether you are doing something relatively simple such as setting up an LLC, or something more complex such as an international asset protection trust.

To receive the full list of "20 Frequently Asked Questions About International Questions Through an IRA," or to ask your own questions, contact Joel Nagel.