If you have lived in the United States for quite some time and recognize that the time to sit back and relax is getting closer by the day, you need to make a decision as to your next move. Although you have money in a 401(k) account, you do not want to touch it because of hefty taxes.
Costa Rica has become a top destination for people who want to retire. The challenge is that with all of your money in a retirement account and no way to access it, you might need to figure out a different way to move to this tropical paradise.
One option is to invest, which would generate some income over the years. With investing, you could have the opportunity to say goodbye to your boss at age 60 and head to one of the most gorgeous islands in the world. The key to accomplishing this goal involves learning how to make it happen.
You could roll the 401(k) funds into a self-directed IRA, but in this case, you would want to choose a custodian that allows investments in real estate located in foreign countries. At that point, the custodian would be directed to make the investment in Costa Rican real estate that will produce income. Even better, income could be produced into shares of a Costa Rican corporation, which would receive the cash used to fund the purchase of real estate.
With that, you would enjoy your IRA-owned Costa Rican corporation, drawing in income from your investment that is without tax implications from the United States. While you can expect to pay some taxes on net rental income, the rates are drastically lower than those in the U.S. Finally, when you reach retirement age, you have the chance to live in Costa Rica. Of course, for this to be legal, there are a few factors to consider.
For one thing, self-dealing in any form is strictly prohibited. For this situation, the tax deferral benefit provided by the IRA would be blown to pieces. In other words, be sure any property purchased by the IRA is not owned by someone who is deemed unqualified, such as a spouse, brother, sister, or some other relative of yours.
In Costa Rica, you should never live or even vacation in the home until reaching 59 and a half years of age. In addition, the home cannot be rented out to a disqualified individual. With this example, it is presumed that the property will indeed produce rental income, regardless if it is a home, beach cottage, or condominium. However, you can also invest in a commercial building or raw land.
As to the types of real estate that you purchase in Costa Rica with your IRA, there are no real limitations. To get started, you can use a self-directed IRA and make your investment dream a reality. Specific to self-directed IRA purchases, there are many things to learn. For that reason, it is best to talk to a tax expert.