U.S. citizen here, very interested in Portugalās āGolden Visaā by investment program. I have a SEP-IRA account (Self-Employed). Hereās my plan:
Roll SEP-IRA to Self-Directed IRA
Invest the Self-Directed IRA into the 350,000e investment fund option
Leave it there until we achieve Portuguese citizenship
I foresee two things I need to verify:
from the American side, I need to make sure investing in a Portuguese investment fund isnāt a prohibited transaction that would cancel my IRAās tax-sheltered status.
from the Portuguese side, I need to ensure that, even though the investment will be made by my self-directed IRAā¦ that the investment will be linked to me personally and qualify me and my family for the visa, and eventually citizenship.
Has anyone heard of this before? I think it should work but know of no precedent. Would be so grateful for any insight. I plan to reach out to an ERISA lawyer in USA and an immigration lawyer in Portugal so would appreciate any referrals as well.
Unless the IRA will let you transfer the funds (ā¬350,000) and fund units to a Portuguese bank account in your name (both requirements for getting the GV) I donāt think that would work, unfortunately.
I know IRA funds can be transferred to a Portuguese Bank. The name of my IRA account now is my name with āSEP-IRAā at the end. So, after rolling to a self-directed IRA, it would be my name with āSD-IRAā at the end.
Soā¦ I dunno. Seems having the āSD-IRAā after my name shouldnāt disqualify meā¦ but maybe it does. Thanks for the response!
If the IRA itself can be transferred there might be hope, but as you suggest this is probably uncharted territory.
Your best bet would be to get a legal opinion by a lawyer, check if you can find a Portuguese bank that seems OK with this idea and will let you buy fund units with your IRA, and then try to find an investment fund that will let you invest on the condition that your Golden Visa is actually granted (meaning they will buy back the units if your application is denied).
I suspect the real rub may be on the US end: the US Internal Revenue Act section that governs IRAs is notoriously complex. My impression has always been that all qualifying IRA accounts must be in US-registered financial institutions ā although i could be wrong about that. Iād talk either to the IRS directly (and then, get it in writing!), or find a good tax attorney who can dig out the answer.
I had more or less the same thought as you (but for Italy), but gave us without doing the further research.
Iād love to know what you discover.
DR
Iāve too been interested in this option. This is the one thing that gives me pause:
The IRA Rules of Investment Donāt Allow You To Unfairly Benefit
If you do any amount of research about self-directed IRAs on the Internet, youāll come across the term self-dealing quite a bit. Self-dealing is simply a prohibited transaction between yourself and your IRA. This could include buying something personally from your IRA or selling something that you already own to your IRA. The IRS created prohibited transaction IRA rules to prevent you from unfairly benefiting yourself or your IRA by giving overly generous ādealsā to one or the other. Another rule is that you may only make cash contributions to your IRA; this eliminates the idea of assigning something to your IRA and considering it a contribution. (SOURCE BELOW:)
The Portuguese government is likely to credit me with the investment because they will consider my IRA to be a wholly-owned entity. So, the Portuguese side of things looks hopeful. This still needs to be verified and I may have to actually transfer my money to a Portuguese bank before this is fully confirmed. So far, Iām dealing with a lot of theoreticals.
Self-Directed IRA accounts can definitely make investments in foreign countries (foreign real estate is more common than foreign investment funds, but either should be fine).
The biggest problem I foresee: the IRS might interpret me obtaining citizenship as a disallowed personal benefit achieved as a result of my IRAās investmentā¦ that would possibly put me in the āself-dealingā situation Marco305 points out. Citizenship is not a financial benefitā¦ but itās possible the IRS would consider that as improper.
Great summary. I wonder if there is a lawyer who might be able to opine on this to protect you? In other words, if you got a letter from a tax or ERISA lawyer, that said it was ok to move forward, then you could do so with certainty and avoid legal problems in the future since you were following the guidance of a lawyer. What do you think?
PS- I found what I think is the relevant IRS regulation. The personal gain prohibition is discouraging:
Hi Lucas, I am looking at the same route for my wife and I - invest ā¬350k through an SDIRA in a fund in Portugal to become eligible for their Golden Visa application. Have you been able to find out more information on this? The investment is just used as evidence in the application process. So you could make an investment in the fund and decide (or not) to apply for the Golden Visa. They are two separate and independent transactions, no? Iāll also update if/when I find out more. travelcouple
I havenāt confirmed with the IRS or a tax lawyer, but the IRS publication 590A (page 33-34) states the following about Exempt Transactions:
Exempt Transactions
The following two types of transactions arenāt prohibited transactions if they meet the requirements that follow.
ā¢ Payments of cash, property, or other consideration by the sponsor of your traditional IRA to you (or members of your family).
Chapter 1 Traditional IRAs
ā¢ Your receipt of services at reduced or no cost from the bank where your traditional IRA is established or maintained.
Payments of cash, property, or other consideration. Even if a sponsor makes payments to you or your family, there is no prohibited transaction if all three of the following requirements are met.
The payments are for establishing a traditional IRA or for making additional contributions to it.
The IRA is established solely to benefit you, your spouse, and your or your spouseās beneficiaries.
During the year, the total fair market value of the pay-ments you receive isnāt more than:
a. $10 for IRA deposits of less than $5,000, or
b. $20 for IRA deposits of $5,000 or more. If the consideration is group term life insurance, requirements (1) and (3) donāt apply if no more than $5,000 of the face value of the insurance is based on a dollar-for-dollar basis on the assets in your IRA.
Services received at reduced or no cost. Even if a sponsor provides services at reduced or no cost, there is no prohibited transaction if all of the following requirements are met.
ā¢ The traditional IRA qualifying you to receive the services is established and maintained for the benefit of you, your spouse, and your or your spouseās beneficiaries.
ā¢ The bank itself can legally offer the services.
ā¢ The services are provided in the ordinary course of business by the bank (or a bank affiliate) to customers who qualify but donāt maintain an IRA (or a Keogh plan).
ā¢ The determination, for a traditional IRA, of who qualifies for these services is based on an IRA (or a Keogh plan) deposit balance equal to the lowest qualifying balance for any other type of account.
ā¢ The rate of return on a traditional IRA investment that qualifies isnāt less than the return on an identical investment that could have been made at the same time at the same branch of the bank by a customer who isnāt eligible for (or doesnāt receive) these services.
So, if the bank that holds your funds is allowed to give benefits to the IRA holder as long as those benefits are the same for non-IRA funds, it should follow that the Golden Visa application should get the same treatment? A person is eligible for the Golden Visa whether or not the funds are from an IRA or from a non-IRA source.
HI, Iām new and joined as this thread came up in my google searches relative to this topic. I thought I would share what I have been told. I am hopeful that others might chime in with what theyāve learned since this thread was last active.
Background: I am in the process of setting up a self-directed (traditional, not Roth) IRA funded by rollover funds from a 401K with a former employer. What I have learned through speaking with a US tax attorney & CPA as well as a PT attorney for the investment group handling the development project Iāve identified which is ownership in a hotel project. 1. A limited purpose LLC must be created to act as owner of the rollover funds. The LLC is created and then the checking account and named āxyz bank FBO acct holder.ā 2. If you have another LLC - say a side hustle or what have you, it is not recommended that LLC is used to own the self-directed IRA (as per lawyer/CPA, IRA company said differently). 3. If funds are not going direct to the investment but need to go through a PT bank, then the PT bank account MUST be in the name of the US -based, limited purpose LLC to avoid IRS penalty. 3. Iām being told on the PT side that a PT LLC would need be created and a checking account opened in that LLCās name -the name of the US LLC and the PT LLC must be the same and the PT LLC must be solely owned by the US LLC. 4. Iām warned that Iād be creating an offshore entity and that I will require an accountant to file my taxes going forward as my taxes would be very complex. 5. Iād have to pay LLC fees in both the US and PT for creation and maintenance. 6. LLCs must remain āin businessā to receive any interest and/or buy back. 7. I need degrees in finance, accounting, tax law, and international law (sarcasm) to navigate this confidently. ** Your mileage may vary. ** I truly hope someone will have some better, less complicated solution and post same. (Note D7 is not currently an option for me as I would be unable to fulfill the time-in-country requirement and GV is only possible if I utilize the funds from my 401K.) - Margaret
Super helpful thank you. Youāve probably gotten further than anyone else (I donāt have any insight to add). If you are willing to share your contacts or otherwise allow me to coast behind your process let me know and I will contribute to your legal costs.
No problem. Happy to share. I just ask that if you learn something new that you share as well. Not sure why I canāt just create an US LLC to own the IRA and open a business acct for a foreign entity in PT vs create two LLCs.
US attorney and CPA: Jeff Vandrew Jr. (Redbank, NJ), https://keykeeperira.com
PT attorney: Francisco Queiroz, Investor Relations for La Vida and Mercan: +351 919 885 244
This is also exactly what Iāve been contemplating. Since most of my money is in IRAs, it would be easiest - and tax advantageous - to self direct. Margaret - is the LLC required as part of your rollover, or as part of the long-term transfer? Since Iām at the beginning of this process, excuse my ignorance - must the funds used to purchase shares in the qualifying real estate PE fund have a Portuguese bank as the origin source, or can the funds be transferred (invested), in Euro, to the PR fund directly from a SDIRA? My only concern would be if a fund intends to pay a dividend rather than be surrendered for net value via wire or physical cheque at the conclusion of the investment period. If the latter, the settlement would be transferred back to the named financial entity (i.e. my SDIRA, bearing my name) without involvement of a PT bank account intermediary. Creating a US LLC is trivial; Iām less familiar with making sure itās set up correctly in PT.
I feel like the self-dealing concern is minimal for a general project, as there is no monetary value assigned to the resident visa or even citizenship, and the funds to pay for those transactions would be from personal, non-IRA funds. The exception would be the MERCAN benefit of free hotel rooms (if this is the Porto project youāre referencing) - that would cross the line, imho, as having a defined value which is being accessed. The way around that would be to decline or not use the ābenefitā.
PS - Margaret; I would love to chat offline and trade notes. I did not see a DM option in the accounts here.
Jordan,
The self-directed IRA with checkbook control requires that a LLC is created to own/manage the IRA. Think of it like setting up your own private equity firm. True, there are self-directed IRAs without checkbook control and these do not require that a LLC is created as the firm you work with to create the self-directed IRA acts as the custodian; HOWEVER, I am unaware of any firm who will sign off on client-selected foreign real estate investment due to potential liability for that firm (they donāt want to sign off that the investment is IRS compliant).
As to creating a PT LLC, I am still not convinced it is truly necessary and question why the US LLC cannot āsimplyā be registered in PT as a foreign entity and a ābusinessā account opened in PT so that the US LLC holding the IRA funds can be used to purchase the selected foreign investment as required by the GV program.
I am told that the GV itself is not a self-dealing concern AS LONG AS any fees specific to the GV application process are paid with personal funds. IRA funds should only be used to purchase the investment. As to the benefit of staying at the investment property, the investor using IRA funds, as well as any ādisqualified individualā such as spouse or child, would need to forgo this benefit or risk tax penalty. I donāt see this as an issue - you simply never avail yourself of this option.
My focus right now is to answer the question relative to getting the IRA funds to a PT bank.
Hope this helps.
Margaret
Thanks for your reply @NJNomad - Iām knee deep in the PT side as I was looking at individual properties, but the funding requirements through a PE offering is too enticing to pass up, especially since my time horizon for potential emigration is still 3-4 years away. I am just now exploring the SDIRA side and see the value in the LLC as a control vehicle. Boa sorte!
The problem is still that the funds must go from the US based IRA or solo 401K to a PT bank and THEN to the identified fund or real estate investment. The funds cannot go direct from the US based IRA or solo 401K to the investment. Therein lies the block, at least what Iāve been told thus far.
Margaret
Hi Margaret - have you made any progress? What I have found is similar to your discoveries. I am speaking with a few from PT - legal, bankers to check the follwoing:
can you buy the fund directly through the bank holding the fund such that they can issue the required letter.
setting up a legal structure in PT that does not require the annual filings and maintenance cost
bank account that says in care/of XXX for IRS compliance etc.
I think the US IRS side is pretty clear on what can and cannot be done so I am focusing on learning the PT side - what is is exactly that is required for the PT authorities for GV.
Sean
No breakthroughs yet unfortunately. I agree with your points and am investigating same along with investigating if a US bank with a PT branch, Citibank, for example, can accomplish the goal.