Using your IRA (Individual Retirment Account) in Costa Rica
By Roger A. Petersen
Many people are unaware that they can transfer their IRA funds to a Self Directed IRA custodian which then would allow them to invest those funds in Costa Rican real estate. Choosing an investment portfolio mix for your IRA can be overwhelming in itself. Most people invest these retirement funds in a portfolio of stocks which during the past couple of years has significantly underperformed to say the least. However you are not just limited to owning stocks. Those looking to diversify their portfolio have transferred their funds to a self directed IRA are able to diversify those by investing in real estate where the underlying asset is a tangible piece of property. Sure, nobody can guarantee that the real estate investment you make will appreciate in value or will generate the rental income that you are expecting, however, at least you have a tangible asset that should appreciate over time.
If you want to get out of the traditional stocks and mutual funds offered by your current IRA custodian then consider a self directed IRA where you take control of the investment decisions. Real estate is one of the most popular ways to invest using a self directed IRA.
Why Costa Rica ? Costa Rica in the past couple of years has become one of the post popular destinations for retirees, expats and second home owners looking for real estate abroad. Costa Rica has the longest standing democracy in Latin America. The country does not have a military opting instead to use those funds to increase funding for public education which in turn has produced one of the most educated populations in Latin America. Costa Rica is consistently ranked as one of the happiest countries in the world.
When you choose Costa Rica you are not alone. All of the following have significant investment and operation centers in Costa Rica: Amazon, Hewlett Packard, Sykes, UPS, LL Bean, Western Union, Baxter, Intel, Boston Scientific, Hospira and many others. In addition to this corporate presence many celebrities have a second home in Costa Rica – some of which may not want you to know. So, you won’t be alone if you decide that Costa Rica is the right place for you.
The Right Custodian
In many cases you will find that your custodian does not offer the option to purchase foreign real estate with your IRA. Many Custodians just prefer to keep your funds in their account offering you their own investment options. If your Custodian does not offer you the option of purchasing foreign real estate then you can search for a different Custodian that offers that option. There are many out there that will work with you and who have done transactions in Costa Rica before.
What are the Restrictions.
The same restrictions which are applicable to a domestic real estate investment with your IRA are in effect for the purchase of foreign real estate. Transactions which are identified as prohibited transactions are the use of the IRA account by you, your beneficiary or any disqualified person. A Disqualified person includes your fiduciary and members of your family (spouse, ancestor, lineal descendant, and any spouse of lineal descendant). If it is treated as a prohibited transaction then the IRA account is treated as having distributed the assets to the account holder.
What Can My IRA Purchase.
Using the self directed IRA in Costa Rica can enable you to purchase a property in Costa Rica for either rental income or for future appreciation. You can also participate with others to own a percentage of a particular property.
How Do You Set It Up.
We have worked with a couple of Self Directed IRA Custodians on Costa Rican property transactions. The first step is to determine if your current IRA custodian is familiar with or can handle a foreign property purchase. If they are not then you will likely have to switch IRA Custodian to one that specializes in Self Directed IRA and understands the logistics of a foreign property purchase.
Now that you have established your account you are ready to initiate your property search. At that point it is important to have an Attorney in Costa Rica that understands IRA funding to assist you with your transaction. In Costa Rica any transfer of property requires the involvement of a Notary Public who by law must be an Attorney as well. They will conduct the necessary title search and ensure that you are getting what is promised. In our case our office also provides Escrow account services to ensure that funds are only disbursed to the Seller once the proper documentation has been executed on behalf of your IRA account.
In Costa Rica it has become a widely accepted practice to have your real estate property investment owned by a Costa Rican corporation or LLC. If the investment is owned by a local LLC it is possible to transfer the membership ownership in the LLC to your IRA Custodian. In this way the actual record owner of the LLC that owns the investment property is your IRA.
Therefore, If you want to diversify your existing portfolio and have considered Costa Rican real estate then this option may be for you.