Investing in Costa Rica While Generating Income

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.

James Drews

Vice President, Sales. Age 43 Prior to co-founding VESTA GROUP, James moved to Costa Rica in 1996 and began his real estate career here by co-founding Dominical Realty. In 2001, the company obtained a Coldwell Banker independent franchise, and three years later partnered with another Coldwell Banker franchise in Costa Rica to become Vesta Group, the Master-Franchise-holder for the entire country. As a member of the Global Association of Realtors and the U.S.-based National Association of Realtors, the Master Franchise has already grown to ten (10) offices throughout the country, with several more currently in process. James is married to a Costa Rican, and proud father of 3 daughters ages 7,10, and 20. James, is well respected among the local and foreign community, and carries high ethical standards, and a hard working family man that seeks to provide his customers with the best level of service possible. James goes out of his way to seek out new frontiers that are ahead of the wave, and specializes in rural and remote farmland, developing land and collecting legacy type of properties. Surfing big waves, fishing, hiking, and travel are favorite pastimes. Daily goal is a new discovery. Approaching 20 years of living in Costa Rica, James knows his territory well, and has much love for his new country and it's people, and will guide you well, and share his resources and local knowle​d​ge with you to make your new venture successful.​ ​