Most investors 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 vehicle has proven to be an extremely tax advantageous.
Many U.S. investors have begun to recognize the tax advantages of using a Self Directed IRA LLC with Checkbook Control also known as a Real Estate IRA to buy real estate in Ecuador. Ecuador is a prime market for international investors due to the extremely low cost of real estate in the country. Typically, a foreign investor can purchase a city condo for less than $40,000 US, a beach home for $100,000 or less, a small farm with two homes and agricultural income for $250,000 or less or a mansion for under $400,000.The doors are completely open to foreign investors in Ecuador and foreigners have full rights to property ownership here. Plus, buying property qualifies you for Ecuador residency!
The tax attorneys at the IRA Financial Group have significant experience assisting clients use their retirement funds to make real estate investments in Ecuador through a Self-Directed IRA LLC or Solo 401K Plan.
In the case of a Self-Directed IRA LLC, a limited liability company (“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 property in Ecuador 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, also known as Individual 401K or Self Directed 401K, an IRS approved Solo 401K Plan would be adopted by a business with no employees other than the owner 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 401K Plan or Real Estate 401K bank account. The trustee (you) of the Solo 401K Plan would then write a check to the seller of the property in Ecuador to complete the transaction. Title to the property would be held in the name of the Solo 401K Plan. Making an investment in Ecuador is as simple as writing a check.
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 with-holding 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 Ecuador real estate investment.
In sum, using a Self Directed IRA or Solo 401K Plan to purchase real estate in Ecuador 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 with no tax or penalty.