Even though self-directed IRAs held with a custodian such as Quest Trust Company are generally recognized as the most flexible retirement savings option, most investors choose to limit themselves to assets or companies located within the United States. In fact, many countries have well-developed investment markets, so looking outside the U.S. may be just the key to helping you find the perfect investment for your needs. If you choose to consider investing abroad, here are some of the biggest issues to keep in mind.
Foreign Taxation Issues.
You should not assume that everything you know about U.S. tax law when it comes to property held within an individual retirement account holds true abroad. It may be possible that certain types of investing activities, even if they happen within a self-directed IRA, will subject you to a foreign tax liability.
Real Estate Considerations.
Let’s take a closer look at one of the more popular foreign investment types; real estate. The first thing to remember is that all of the IRS rules prohibiting self-dealing continue to apply even for real estate outside the U.S. That means if you’re investing your account in a vacation property abroad, you and your family (and other related parties) are prohibited from using it – even for a single day – when it is still held within your account.
Foreign Ownership Restrictions.
It’s not uncommon for foreign countries, or regional or local government bodies, to impose restrictions or limitations on foreign ownership of real property. In some cases a foreigner is prohibited from owning property outright, which means that your investment options would be limited to some type of minority stake. This may or may not help you achieve your investing goals, depending on precisely why you’re investing.
In some countries, similar restrictions may also apply to owning manufacturing facilities or other types of business as well.
The Investment Process.
If this will be your first time investing abroad, you’ll also need to familiarize yourself with whatever the local investing process may be. Continuing with our real estate example, you’ll need to know and understand which local agencies need to be involved in the process, what types of taxes, fees or assessments need to be paid as part of the transaction, and how the documentation for the transfer of ownership needs to be recorded or otherwise formalized. The best approach will almost certainly be to do your homework before you spend a lot of time looking for investment opportunities.
Consider a Partnership.
In many instances, the best way to address many of these issues is to partner with a local investor and approach the investment opportunity jointly. Again, you will have to do your homework in identifying potential partners that suit your needs, but in some cases choosing not to undertake the investment by yourself can make the process much easier.
Regardless of the investment opportunities you’re considering pursuing abroad, it becomes essential that you understand all the limitations, restrictions and risks that may be unique to the investment you are considering.