It may be a surprise to some, but the IRS permits the use of retirement funds to purchase both domestic as well as foreign real estate. In fact, the IRS states so right on their website. Using retirement funds, such as a Traditional IRA, Roth IRA, SEP, SIMPLE IRA, 401(k), 403(b), etc to buy real estate through a Self Directed IRA LLC or Solo 401(k) Plan has proven to be extremely tax advantageous.
Many U.S. investors have begun to recognize the tax advantages of using a Self Directed IRA LLC with “Checkbook Control” or Solo 401k Plan to buy real estate in Panama. Panama is located in Central America, bordering both the Caribbean Sea and the Pacific Ocean, between Colombia and Costa Rica. There are many reasons Panama is so appealing to American investors. The most obvious reason is the weather. Panama has a tropical climate. Temperatures are uniformly high—as is the relative humidity—and there is little seasonal variation. Panama’s tropical environment supports an abundance of plants. Forest dominated, interrupted in places by grasslands, scrub, and crops. Also, Panama offers a far more laid-back way of life which is why so many retirees and vacationers enjoy Panama so much. Furthermore, because of the strong connection between Panama and the United States historically, including a U.S.-Panama Income tax Treaty. Although Spanish is the official language but most Panamanians speak English fluently.
Many U.S. investors have began to view Panama real estate as an excellent investment opportunity for both personal assets and retirement assets. A major reason behind the popularity of Panama as an investment destination has to do with its natural beauty, diverse culture, and lifestyle. Like a lot of U.S. individual investors, a number of U.S. corporations and foreign corporations have began purchasing land in property in Panama for development purposes. This had prompted increased public awareness of the real estate investment opportunities in Panama.
The tax attorneys at the IRA Financial Group have significant experience assisting clients use their retirement funds to make real estate investments in Panama through a Self-Directed IRA LLC or Solo 401K Plan.
In the case of a Self-Directed IRA LLC an LLC is established that will be owned by an IRA and managed by the IRA Holder (you). The IRA funds would be transferred tax-free to a new IRA Passive Custodian who would then transfer the funds to the new IRA LLC bank account. The LLC manager (you) would then simply write a check to the seller of the Panama property to complete the transaction. Title to the property would be held in the name of the LLC.
In the case of a Solo 401k Plan, an IRS approved Solo 401k Plan would be adopted by a business and the business owner (you) would become trustee of the Solo 401k Plan. The business owner’s retirement funds would then be transferred tax-free to the new Solo 401k Plan ban account. The trustee of the Solo 401k Plan would then write a check to the seller of the Panama property to complete the transaction. Title to the property would be held in the name of the Solo 401k Plan.
From a local tax standpoint, the Self-Directed IRA LLC or Solo 401k Plan would be liable for any local property or other tax with respect to the property. In addition, a withholding tax may be imposed on the transfer of income or sale proceeds from the property. Whereas, from a U.S. tax standpoint, in general, the Self-Directed IRA LLC or Solo 401k Plan would not be subject to any federal income tax on the income or gains generated by the Panama real estate investment.
In sum, using a Self Directed IRA or Solo 401K Plan to purchase real estate in Panama offers a number of tax advantages, including tax deferral. Moreover, the use of after-tax retirement funds (i.e. Roth IRA or Roth Solo 401k funds) present a number of interesting tax planning opportunities, including the ability to take possession of the property for personal use, including retirement purposes, with no tax or penalty.
To learn more about the advantages of using a Self Directed IRA or Solo 401k Plan to buy real estate in Panama, please contact one of our retirement experts at 800-472-0646.