Surprisingly, most individuals are not aware that 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 a Solo 401(k) Plan vehicle has proven to be an extremely tax advantageous solution.
Many U.S. investors have began to recognize the tax advantages of using a Self Directed IRA LLC with “Checkbook Control” or Solo 401k Plan to buy real estate in Belize. Belize is located on the Caribbean coast of northern Central America. The Caribbean coast is lined with beautiful reefs, destination to the second largest reef in the world: first being the Great Barrier Reef, and over 450 little islands. Belize has a tropical climate, much like Costa Rica it has wet and dry seasons. Belize’s tropical environment supports an abundance of plants. Forest dominated, interrupted in places by grasslands, scrub, and crops. Also, the Belize government offers a number of incentives to attract inward investment. These include: - 100% foreign ownership of land and company assets - Encouragement of joint ventures with local entities - Special incentives for retirees. In addition, many U.S. investors have begun to view Belize real estate as an excellent investment opportunity for both personal assets and retirement assets.
A major reason behind the popularity of Belize as an investment destination has a lot to do with the stability of Belize. With an established political and economic climate under democratic rule, Belize offer stability for the international investor. Unlike any other place in Central to South America, English is the official language of Belize. With contracts and negotiations all being in English, navigating the real estate purchase process or simply communicating clearly becomes a much more efficient experience.
In addition, with property prices in desirable parts of Belize steadily increasing in value over the past 10 years, purchasing real estate in Belize is seen as a safe and secure investment.
The tax attorneys at the IRA Financial Group have significant experience assisting clients use their retirement funds to make real estate investments in Belize 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 Belize 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 401(k) Plan would be adopted by a business and the business owner (you) would become trustee of the Solo 401(k) Plan. The business owner’s retirement funds would then be transferred tax-free to the new Solo 401(k) Plan ban account. The trustee of the Solo 401(k) Plan would then write a check to the seller of the Belize property to complete the transaction. Title to the property would be held in the name of the Solo 401(k) Plan.
From a local tax standpoint, the Self-Directed IRA LLC or Solo 401(k) 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 401(k) Plan would not be subject to any federal income tax on the income or gains generated by the Belize real estate investment.
In sum, using a Self Directed IRA or Solo 401K Plan to purchase real estate in Belize 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 Belize property for personal or retirement use with no tax or penalty.