@rahimlakhani Do you happen to know if more than one self-directed IRA can be used to meet the $500k minimum investment requirement for the Investment Fund option for the Portuguese Golden Visa? I have a traditional IRA and a Roth IRA that, for tax reasons, canāt be merged together. Iād need roll those into two distinct self-directed IRA accounts to transfer the funds from. Ideally, they would each transfer into their own Portuguese bank account and then each would invest into a fund separately, together meeting the $500k minimum.
(Alternatively, while it may be possible for each self-directed IRA to contribute to a multi-member LLC in the United States and then to have that US LLC make the transfer into a Portuguese Fund, it would be a lot simpler if I could just make two discrete transfers from two seperate self-directed IRAs without having to form the US LLC. I live in California and Iād have to pay $800/year franchise tax for the LLC. Iād also have to file a state return for the LLC and a federal tax filing as a partnership.)
Hi guys, Iām a US based CFP who lives/works in PT and Iāve been trying to get down to the definitive answer here, too. Like a lot of solutions one finds here in the cross border financial world, especially in Portugal, getting to ādefinitiveā can be elusive and I still feel like thereās a bit of grey area in even the best solutions.
That said, Iāve witnessed a successful implementation of this. I have a client who has used āwww.irafinancialgroup.comā to open the checkbook IRAs in the states (no reason to see why this couldnāt also work for a Roth as well). Heās successfully placed an investment with two funds in Portugal, and evidently has been approved/has his biometrics scheduled.
I learned from him that the most important factor, so far, has been the naming of the Portuguese LDA account. For the Golden Visa investment to be approved, SEF needs to see that the investment is being made by the named individual and so the account/LDA needs be created solely in the name of this person, ie. āJohn Smith investments, LDAā
He was indeed required to create an LLC in the states, as is always the case with implementing this investment strategy, and he used Bison bank in PT to open his investment account, as well as worked with a Portugeuse attorney who was recommended and executed on the job in a timely manner, and had some relationships at Bison bank. I would further add to this story, the entire process was initiated in October of last year, so it seemed like an accomplishment when he reported back to me that the entire process had been registered as a success prior to the end of the year (he was seeking to make his investment in 2021 in order to take advantage of the then 350k initial investment minimum)
Any questions, references etc. you may feel free to PM me.
Do you know of any reason that this approach wouldnāt work for a real estate purchase? In other words, a self-directed IRA that holds PT real estate, instead of investing in a PT fund?
Hi John,
I was very interested in what you had to say regarding the use of the SD IRA funds for an investment in Portugal. I have inquired in Portugal about the naming of the LDA and what I have gotten as a response has ben that the individual needs to be named as the sole shareholder and so I cannot use my IRA owned LLC in the USā¦because itās membership is not me but my custodian for the benefit of myself. Do you have other information regarding this. Or, would you be willing to pass on any legal contacts in Portugal who have done this type of thing that your client used?
Much thanks,
Barbara
Hi, John-
Adding my name to the list of folks trying to use a self-driected IRA/ 401k to make a PT investment. Iāve been working on it for over a year and keep hitting blocks. The info youāe provided here is really helpful. Are there any more details that you can share that would be helpful? I want to pass this along to the company Iām working with to see if we can make it happen. Thanks so much! -J
Hello All,
I just wanted to update this point as I have been involved in a process of investing for the portuguese GV using SDIRA funds.
The process from the portuguese side is bulletproof in terms of SEF and taxes
Looking for references and contacts that can help us get started here. My husband and I are looking into the same route described by this thread: 401K > SD IRA > LLC > Portuguese investment. Would you be able to recommend points of contacts to start this journey?
We realize we are pretty late in the game, so hoping to jumpstart quickly.
I donāt think thereās anything illegal about your IRA investing in real estate overseas. You can buy real estate in your IRA, you can buy foreign stocks, why not foreign real estate?
The illegal part would be if you live in the house your IRA bought. Thatās not allowed. But the IRA is completely allowed rent the house to someone else (the rent profit goes into the IRA).
The bigger issue is whether using the investment (even if you rent it out or just leave it empty) for the personal benefit of getting a golden visa is āself dealingā or a āprohibited transactionā under the āexclusive benefit rule.ā It looks to be a close call to me. But Iām not a tax attorney and Iād want to look at that closely before making such a decision.
First, we need to highlight the one fundamental rule that applies to all IRA investments. That rule, the exclusive benefit rule, states that only the IRA can benefit from the transaction. That makes sense, when you think about the fundamental purpose of an IRA or Individual Retirement Arrangement (the legal term for an IRA). The government created IRAs at the same time it passed legislation (known as Employee Retirement Income Security Act or ERISA) to put controls over employer sponsored pension plans to prevent abuses by fiduciaries who were, theretofore, misusing or stealing the pension funds of their employees. To further protect future retirees, the government created IRAs to allow them to save for retirement independently from employer-sponsored plans. Unfortunately, the government had to step in again 30 years later with the Pension Protection Act of 2006, to prevent new abuses such as what happened to wipe out Enron and WorldCom employeesā retirement accounts.
But what do we mean by the exclusive benefit rule in the real world?
Basically, neither the IRA owner nor any other ādisqualified person" may receive a personal benefit as a result of a transaction by his or her IRA.
It is almost that simple if not for the plan asset rule, and other elements of IRC 4975, which we will discuss later. So, for example, you cannot extend a loan from your IRA to yourself or any direct relative (remember ādisqualified personā), even though (believe it or not), because of a Department of Labor (DOL) Prohibited Transaction Exemption (PTE) called 80-26, that you can actually lend money to your own IRA in limited circumstances! A more basic example of a violation of the exclusive benefit rule, would be purchasing a vacation home that you were using personally. No, you canāt vacation in your IRA owned vacation home (even for a weekend). And, furthermore, you canāt use the property even if you pay rent, because from the governmentās perspective you are receiving a personal benefit. You canāt even buy raw land and hunt on it with your friends. In simple terms, the consequence of an IRA owner or beneficiary engaging in a prohibited transaction is severe. Essentially, you lose the tax-exempt status of your IRA from the first day of the year in which the prohibited transaction occurs, resulting in a taxable distribution of your entire IRA balance (unless it is a Roth, in which case only the earnings the IRA earned up to the time of the deemed distribution are taxed), plus a 10% penalty if this occurs before you are age 59 1/2, plus penalties and interest if the taxes werenāt paid on time!
Sure, I guess that would be a question for tax lawyers. You are legally allowed to manage a rental owned by your IRA (vs hiring a property manager), and you could argue the Golden Visa just lets you visit to manage the rental as often as necessary.
I donāt think the IRS puts any price on citizenship - you canāt claim a loss for renouncing another citizenship, nor do you have to pay a tax on gaining a citizenship via ancestry. So my guess is itās legally fine. But Iām not a tax lawyer.
But even if itās legally fine I wouldnāt recommend it. Even buying local real estate in an IRA is considered a bad move because real estate already has a lot of tax benefits (deductions), which you lose if itās owned by your IRA. Much more efficient to buy real estate with normal money, and stick to stocks and bonds in your IRA.
Agreeing with this. You absolutely can use tax sheltered funds to invest in real estateāeither domestically in the US or internationally. And as the prior commenter mentioned, you cannot live in it.
The fundamental rule, IMHO, is that you, personally and directly, cannot benefit from the ownership of that real estate (of that tax sheltered investment). All benefits from owning that investment MUST accrue to that tax sheltered account (IRA).
With that in mind, Iāve always operated under the assumption that the benefit of a visa or resident permit as a result of a tax sheltered investment in real estate should only accrue to that the tax sheltered account (which effectively has no value to that tax sheltered account). Harvesting that benefit personally feels like, to me, directly benefiting from the investment outside of the tax sheltered account.
Not a tax attorney. But also a bit conservative about my investments and not willing to risk the tax sheltered status of my IRA and encounter the subsequent penalties should it be deemed non compliant. I donāt think there is, as of yet, any case law on this particular situation.
Happy to be wrong. Have not been willing to roll the dice.
Greetings Everyone,
I wanted to share an update regarding my involvement in the investment process for the Portuguese Golden Visa using Self-Directed IRA funds. From what Iāve experienced, the procedures in Portugal regarding the Immigration and Borders Service (SEF) now called AIMA, are secure to proceed in this form.
We have successfully helped one investor to proceed in this form who already applied for their Portuguese Golden Visa using money from his IRA.
For a US citizen with a self-directed IRA/401k account, Iāve heard from my Portuguese lawyer that this can work, provided the LLC on the US side and the Portuguese side, as well as the Portuguese bank account for the Portuguese LLC or Unipessoal all match the applicants legal name exactly.
However, my lawyer also said that only the 401k owner whose legal name is on the GV application can apply, not any additional family members. This would be a deal-breaker for me. Hoping someone with experience can clarify/corroborate this.
Would love to know if, in that process, you were able to obtain guidance from the IRS or the Dept of Labor clarifying that the benefit of receiving the golden visa doesnāt constitute a prohibited transaction (section 406(b)(3), for example).
