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Buying REal Estate using funds from 401K or IRA?


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401 K and IRA Investments in Foreign Real Estate


So it is possible to have your retirement plan invest in Costa Rican real estate, the answer is yes but the question remains is this actually a smart idea or not?


At first blush most of us would tend to jump at this idea as we get to do what we want without triggering sizable and painful tax erosion on our retirement account. Yes it is the least painful but is it a particularly good idea in the long run? My vote is no, this is not a good idea, kind of an instant gratification but with a great deal of longer term pain will result from tying to take this short cut. Kind of like the choice on how to remove a bandage quick and painful or slow and painful, which is best?


In the overall picture yes I believe the general concept is excellent in the purchasing of real estate here particularly when one looks at the long term scenario. I believe the idea of putting some of your retirement funds into real estate is a brilliant idea by getting diversified out of the U.S. market into a completely different and rapidly appreciating market and most particularly away from paper assets of dubious values. To me this is not just a case of running to someplace one wants to be but it is definitely running away from a market that is about to change drastically, none for the better. If there is light at the end of the tunnel for the baby boomer market it is a train coming. Now to back up my pessimism regarding the future of paper assets that most hold in their retirement plans I suggest that you immediately make it a priority to get the book "Prophecy" by Robert Kiyosaki, you may of heard of him as the multi million selling author of ”Rich Dad Poor Dad.” You can order it at www.richdadpoordad.com or any decent book store will have it or get it easily.



Denying the affect of the baby boomer market would be incredibly foolish, just look at what it has done to the Costa Rican market in the past three years, what do you think is the principle cause of that, if not the baby boomers searching for their paradise? If you do not want to get mowed over by the tidal wave that is going to drastically change the investment market, that we are part of, you have to read this, it is not optional. Without question the simple facts contained in this book will blow you away when you take a good look at the math and what the future is going to do to those that don't get out of main stream thinking. Robert is one of very few financial authors that I believe has a clue about what he writes about particularly since he did it first (became a multi-millionaire) before he wrote and started teaching his principles to others. Others writers tend to write to get rich that way but he did it in business first, then retired but returned as a teacher with a unique perspective. There is a world of difference in his teachings when you consider it comes from a do as I did approach rather than a do as I say one.


Okay back to the advantages / disadvantages of using your 401K or IRA account to purchase real estate here.



You purchase the property with net dollars as no tax erosion takes place at time of purchase thusly you can theoretically buy more with your account. This of course is quite psychologically comforting as we do not give up any of our hard earned money. At least that is what most of us fool ourselves into thinking however the IRS has a whole different take on this. They look at that money as theirs and have opted to leave it in your plan and patiently wait to get their big chunk of it further down the road. We all tend to look at the bottom line of that statement and think “this is how much money I have”, but that is a delusion what is on the statement most certainly is not what you have! So the first challenge is for you to reframe this concept and think of what is in this account that you have any hope of EVER seeing once Uncle Sam is done with you.



1. You have to follow the rules as to what and how you invest in property. What you want to do and deem as most effective for your benefit may well not fall within the governing guidelines.

2. The process will be much slower and consume a sizable amount more paperwork which may not fit into the same schedule that will attract the attention of a vendor for the property you want.

3. Since one of the main purposes is to get into a market with good capital gain potentials you will also eventually have to pay full taxes to the IRS on all future capital gains earned within your plan. So it fits into the concept of pay a defined amount now by cashing out or a whole lot of unknown in the future!

4. All income earned on property will also be fully taxable at your personal tax rate in the U.S. as you take such funds out of the plan. The whole intent of many is to boost their retirement income here with residual income earned on property so as not to be dependent on any government system like SS. This can be done using different methods without taxation back in the U.S.

5. The property is not in your name it is in the name of the trust that holds your plan thusly at all times you need to go back to big brother (the trust administrator) when you want to do anything that will affect the property. If you have had quite enough of big brother looking over your shoulder this may well not be exactly what you would call a comforting, long term relationship.

6. With a long term plan in mind you are also forcing this property into your estate and the fun and games that will follow your death on probating property held in a foreign country under a different system of law that the US Judiciary looks upon as inferior or confusing (neither of which is true) hence opening up a long and painful process for your beneficiaries to settle.

7. Beneficiaries have to liquidate all assets held in the plan and pay tax upon your death with this structure of ownership whereas in a more future looking plan the property could stay in the family for generations and not trigger one cent of tax erosion on anyone’s death. This fits into a concept of long term estate and tax planning rather than a senseless short term dodge trying the impossible, to avoid the unavoidable!


So now you be the judge before you run off to your lawyer and accountant if you have been considering this approach does seven shortfalls make up for the one short term advantage that is really more an illusion than a fact? The math is simple pay some now or even more later, but it still means pay. To me it further complicates life when one tries to bring something like this structure into another country with completely different structures. It is really much simpler to just bring your cash after paying your taxes and start fresh and intelligently with a structure and a tax plan custom made for your life here. This is especially true for those intending on spending a great deal of time in their new paradise. I suggest it is better to create a new and often better planned approach here to your assets in your new life and leave the old life and structure back home where they belong. Sometimes what we think we want is not exactly what we NEED!

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