Using IRA funds to purchase property in Ecuador…using a self-directed IRA

I’ve been researching the possibility of placing some of my IRA funds into a self-directed IRA, so that I can purchase some real estate now, with IRA funds, that willbe somehow transferred later to my own ownership after I’ve reached 59 1/2 in about 2 years. I do NOT profess to be an expert, far from it – I am hoping that writing about this subject here on this blog may glean more information regarding this type of investment. Perhaps there are others out there that are also researching…perhaps we can help each other.  Most of the information that I am able to obtain seems to focus on the investment companies who just want you to invest the money with them…and then, check with your tax person, check with your real estate person, check with your accountant! Help!

Here’s what I think I know: If I transfer some of my IRA funds from a typical stock fund manager, i.e., Fidelity, Janus, etc., to a “self-directed” fund manager, i.e. Pimco or Guidant,  then the funds will be placed into an IRA Trust for my usage. After the money is in the new IRA trust, I can buy and sell items that are approved IRA investments (real estate, stocks, etc., but not stuff like antiques) with the money in the IRA trust.  Real estate bought with funds in an IRA can only be used as investment property and I would need to rent the property out, as an investment. Any costs associated with the purchase, upkeep and repair must come from the IRA, and any income such as rents paid for use, or profits from the sale, if sole,  must flow to the IRA. It is important not to mingle funds from the IRA trust with my own money, nor can you do “prohibited transactions” such as pay your sister to sell you the property, or sell the house to your child. Accountsand moneys must stay separate. Furthermore, investment  real estate held within an IRA trust cannot be depreciated for tax purposes.

We are all familiar with the normal IRA disbursement rules: once a person reaches 59 1/2, funds from the IRA can be withdrawn, and income taxes must be paid on the entire amount if it’s a traditional IRA. If funds are withdrawn from a Roth IRA, no income tax is needed to be paid on any of the funds, as long as the Roth IRA was initially started a minimum of 5 years previously.

Here’s where my information seems to get a bit hazy: after age 59 1/2 and after the 5 year holding period required for Roth IRA’s, how do I “disburse” the real estate to my self? Is it required that the real estate be sold for the money to be disbursed from the IRA? Or, can the property revert to me at that  time if an appraisal is done and I pay taxes on the appraised amount of the property? What’s the recommended method to avoid audit? And here’s a biggie: If I purchase property in Ecuador with money from an IRA trust, will this satisfy the pensioner’s residency requirement for Ecuador (must  invest $25K if you don’t have a minimum monthly income such as Social Security income)? I welcome any and all suggestions, advise, hints, warnings, you name it.

Alta and hubby preferred to rent in Cuenca, as opposed to buying anything with all that stress involved. They rented an unfurnished apartment just off the Tomebamba river with 3 bedrooms, 3 baths, a lovely patio and gorgeous wood floors. And then had a blast furnishing the place.  I am including a picture or 2 of their extremely comfortable and eye pleasing place.


8 responses to “Using IRA funds to purchase property in Ecuador…using a self-directed IRA

  1. Pingback: Morning Update – Thursday, June 9, 2011 « South of Zero

  2. I was also wondering if funds from an IRA could be used to satisfy the investment visa requirements in Ecuador. I’m curious if anyone has any information to share.

  3. Ann, we have been in Cuenca for about 6 weeks and my husband and I just finished setting up a LLC for a self directed IRA for his 401K retirement account. It is quite involved, but I think he has a pretty good understanding of it. If you want, you can email me directly at and I will give you our Magic Jack phone number here in Cuenca and we can talk in more depth about the details. If anyone else wants more info, please email me and we will try to help. Sue

    • Sue, thank you so much! I would love to speak to you. I will email you directly, and we can chat. By the way, I’m also curious about how the Magic Jack phone works?

  4. Hi, I’m wondering how much that 3 bed/3 bath apartment Alta and hubby rented costs per month? Looks nice…..

    • Apartments in Cuenca vary from cheap to not so cheap, depending on the style, location and amenities, or if they are furnished or not furnished. Many good priced apartments must be leased for a year, with deposits. I believe that you can find 3 bedroom apartments anywhere from $400 to $1200 per month, the higher end ones, of course, fully furnished and probably month to month. If you are looking for an apartment like this one, a suggestion is to ask around at all the Gringo bars and restaurants, talk to everyone you see about what you are looking for. Alta and hubby heard of this one from someone already in the building, they went right over to see the building, contacted the owner, waited around for him, viewed it, liked it, made an offer on the spot, wrote a check for the deposit and got the keys the next day!

  5. I have helped set up Self Directed IRA’s for several people who have invested in Ecuador and Brazil. I am a trust officer and could possibly answer some of your questions. The cost of using a third party like Guidant may be more complicated and expensive than necessary. A solo401k is a wonderful retirement plan if you can qualify. Many benefits for small business owners without full time employees. I work with several Trust Companies that are experienced in International Real Estate in SDIRA’s.
    I have been to Cuenca 5 times in the last 18 mo, love it, have clients there, and will be back in Sept. my skype is summitwellth

  6. In my opinion setting up the self-directed IRA is not this issue. I have called about 6 different companies all claiming to have self-directed IRAs. The best one I found was IRA Financial Group. They will get you on the phone with a Tax Attorney in minutes and answer all you questions.The real issue is whether the Ecuadorian government will accept that you have purchased property (or invested in a bank CD) with funds from a LLC not an individual. I cant find any clear answers on that.

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