Investing in Central America with your IRA
Since 1975 when the first IRA account was opened, investing in real estate, and indeed, even foreign real estate was a distinct possibility. The problem was, most of us were never informed by our broker or financial advisor, as they often had competing financial products they wanted to offer in our retirement plans.
But now you know better; as long as the investment is titled and held according to the IRS guidelines, and there is no personal use or prohibited transactions, you may own investment real estate in your self-directed IRA, both in the USA and elsewhere. Better yet, with a Roth IRA, the possibilities may be better than ever.
Whether a Traditional, Simple, SEP or Roth IRA, the same type of investments can be made. Although you may purchase investment real estate with your IRA, if you wish to use it for yourself or family members, you must first take a distribution - and be taxed at the appraised value. Except, that is if the property is purchased in your Roth IRA and held for the required length of time.
Remember, the Roth IRA is a bit different than most tax deferred retirement plans including other IRAs and 401(k) plans. With a Roth, you pay the tax before your contributions are made; subsequently if you obey the rules, no taxes will need to be paid on the earnings in subsequent years, so long as you have had the account funded for at least 5 years and you have achieved the age of 59.5.
Now you have the potential of investing in real estate, putting the property in a rental program - all within your Roth IRA. All expenses such as maintenance and taxes are paid from the IRA, and all rental income goes into your IRA. Should you later wish to use the IRA owned property, you must first take a distribution; essentially re-titling the property into your personal name. Once that distribution is complete, you may use the property as you wish, without any income tax implications - once again, so long as the Roth has been funded for 5 years and you have achieved at least the age of 59.5. As far as the remaining cash in your Roth account - you may take a full or partial distribution at anytime once your age and the account age minimums are met, once again without taxation.
In 2010, special tax provisions permit all those with a roll-over 401(k), as well as a traditional IRA to convert to a Roth IRA without any limits on earnings. Additionally, the tax implications of converting those accounts to a Roth may be spread into tax years 2011 and 2012 which may provide a significant tax advantage.
As with all investments, check with your tax advisor about your personal situation, and conduct the proper due diligence on the investment to determine if it makes sense for you. Your IRA investments today may pave the way for your retirement home tomorrow.
