Portugal GV "Fund of Funds?" + more on using IRA funds

Anyone here complete an investment and / or research the option of investing in multiple qualifying VC or PE funds that add up to 350,000 euros? (To decrease risk). One of the fund managers I spoke with said that it is possible, but more paperwork (how much I don’t know).

Also, I’m pretty far along on researching all the ins and outs of the investment via IRA (via checkbook IRA llc) – one of the funds I spoke with confirmed one of their investors has done this successfully but he didn’t know the details… He did offer to put me in touch with the attorney he used. I’ve read the long thread on the invest in golden visa using IRA topic but wondering if anyone has actually gone through and completed the process yet?

If so, my questions are: do I set up my IRA llc with a personal tax (social security) number or an EIN (I was told I could do it as either) AND how is the Portuguese bank account opened to comply with both IRS IRA rules AND the GV qualifications?

Thanks!

Yes, this is very much possible. I am myself looking to invest in 2 funds (rather than just one). There are different views on how many funds one should diversify their pie with, but of the research I have done people have advised to limit to 2 funds, as any more would create a bit more headache than needed to manage - especially around paper works, etc.

You should also think about the funds you would opt for, as each fund has a minimum investment amount as well. So by splitting you would automatically reduce the number of funds you can consider to split your pot with.

Hope that’s helpful.

Appreciate the reply. Do you mind sharing which funds you are favoring, if you plan to divide the investment equally, where you are in the process, and perhaps the attorney or advisors you are using in PT?
I was hoping to do 3 funds but my hunch was it may be too much paperwork and yes, limit my options too much.

Thanks!

Most funds that I’ve looked have a 50 or 100k minimum. The Explorer fund has a 250k minimum. In most cases, I don’t think the minimum will be the limiting factor.

Hi there. Massive caveat that the names below are names that I have shortlisted based on my criteria on risk and return profile. Kindly bear that in mind.

I have zeroed down to GreyTech II and MedCapital. I come from a PE background and their strategy is something I can associate with and feel comfortable with the management team (investment advisor). Additionally, I am not keen to get more exposure to real estate than I have already, hence did not focus on it too much. Some of the real estate focused names that I came across were BlueCrow and Rock Capital that had an interesting approach to investing.

My plan it to make the investment in May. Hence trying to get my paper work in order ahead of that.

Hope that helps.

Hi,
I was also looking closely at GreyTech - it appears they also assist through the entire process - someone mentioned their costs being a bit more upfront because of this. Curious if you’ve seen a sample contract and your thoughts on pricing.
thanks

GreyTech is actually quite nominal. It’s their other fund (Portugal Yield Fund or something like that) which has real estate exposure and has a 7.5% initial fee.

I will PM you the fund doc I have later today.

That’s helpful thank you!

Yes, thank you Aditya for sharing such good information.
GreyTech II and BlueCrow are on my short list as well. I’ve also been interested in SIF, largely because I seek sustainable and social impact investing as a practice, but their minimum might be too high for a split.
In general I am avoiding funds that have been set up only for the Golden Visa, in favor of funds that are first set up to be attractive investments to a wider group of investors - though I have learned some of the attraction of some of these funds for PT citizens are tax benefits that are unlikely to benefit foreign investors (which is fine, just need to realize some investors are in it for the tax benefits so their investment is not necessarily a solid indication they believe they will get an excellent return).
Kathy - or anyone looking into the Portugal Yield Fund or other funds that have the all the GV legal fees built in (this is the reason PYF is so much higher than GreyTech II, though its via the same group) please realize that if you are hoping to use IRA funds, the legal fees for reviewing fund docs, setting up the Bank Account, anything that involves the investment can and SHOULD come out of the checkbook IRA (to stay IRA compliant), but fees for processing the GV must be kept and billed separately and paid for with personal after-tax funds since this (not technically the investment) is a direct benefit to/for you.

Anyone else planning to use IRA funds? I know there is another thread on the topic, but its been quiet there for a while… perhaps that group has already made their decisions and gone ahead or not.

In addition to online research I’ve spoken to a rep from Broad Financial. (I do not work for nor do I have any affiliation with Broad Financial - I found them through a Google search for SDIRA). They stated that an international investment made IRA assets must be made through an LLC (pretty much what I found in researching online). This apparently can create some significant costs depending on the state where you reside (I live in FL and according to the rep there are no additional fees).

The biggest concern I have is the “self-dealing” aspect which is hard to pin down. I am not a lawyer so am not in a position to provide advice. Based on my research it seems advisable to find a third party to assist with the applications and GV process rather than using the resources provided by the funds, and to pay for all fees related to GV with non-IRA money.

Does anyone know of a US based attorney who will answer questions regarding this? I’ve reached out to several (and multiple times) here in Miami but no one will call me back.

I also am wondering how much can be done through a Portuguese Consulate vs. in country?

Kevin,

I am not an attorney, but I have a “checkbook IRA” - meaning the only asset my IRA holds is an LLC.

The LLC has a bank account and can purchase any investment that falls within the IRS rules for IRAs. Only difference is I am the check signatory as the LLC manager.

I could easily write a check to fund the GV… but after research and thought, I believe it would violate the IRS rules of self-dealing and - if caught - would render the IRA void and taxable.

Not telling anyone else what to do, but we ruled it out for ourselves.

Will the IRS “catch” you using the IRA for this purpose? Maybe. Maybe not.

You will have to make your own call on this.

Good luck,
D

This is new terrain for sure. Recently a Portuguese attorney told me only 56 visa by investment have been completed world wide and just a handful of those are US citizens.

The biggest concern for me that I’ve uncovered (and this is via a Portuguese attorney) is whether or not the PT government will grant a GV for funds that were sourced from an LLC, even if personal retirement funds are the sole source of that LLC.

I would never try to navigate the process without an Portuguese attorney.

Re: the “self-dealing” aspect. What I’ve been told consistently is that an LLC investing in Venture Funds is totally permitted. If the investment does not exist ONLY for the purpose of a GV, there is no conflict. I have previously invested some of my IRA money in US and Canadian venture funds and honestly feel some of these funds are attractive to me without the Golden Visa benefit. As with many of these things, I guess it could be ruled either way… But then again, one could decide that going to Hawaii to purchase invest property with your IRA (totally permitted) and then paying for the scouting trip with your IRA funds as an investment expense (also permitted) means is also “self-dealing.”
I was told that the key thing would be to pay for all the legal fees and PT expenses / bureaucratic costs related to the GV itself out of personal (post tax) funds.

“Re: the “self-dealing” aspect.”

“What I’ve been told consistently is that an LLC investing in Venture Funds is totally permitted.”

The investment is allowed.

Self-benefit should not result from the investment.

…until the funds are withdrawn in retirement. Again, everyone will make their own call regarding whether they want to risk the IRS learning of the benefits with the GV that result from the investment.

"I have previously invested some of my IRA money in US and Canadian venture funds and honestly feel some of these funds are attractive to me without the Golden Visa benefit.

This is true. My understanding as a non-accontant and non-attorney is that once you receive a benefit as the result of the investment, you’ve crossed the line.

"one could decide that going to Hawaii to purchase invest property with your IRA (totally permitted) and then paying for the scouting trip with your IRA funds as an investment expense (also permitted) means is also “self-dealing.”

No worries about purchasing investment real estate.

If you use the property personally, that crosses the line.

If you rent/lease the property and payment flows back into your IRA, no worries.

So, it seems the two issues to resolve are:

  1. Is there self-dealing
    [we decided it was pretty clearly a benefit outside the investment]

  2. If you do it anyway, how do you feel about the consequences of the IRS learning about it - if they learn about it…
    [we decided the likelihood of the IRS knowing we transferred money, invested in a GV fund, etc., was fairly certain]

Your mileage may vary and I wish you good luck either way!

I not giving advice here just my uninformed opinion. I don’t see how a self-directed IRA investing in a GV fund is self-dealing or benefit to the investor contrary to the rules.

All of the examples of prohibitions I have seen involve a direct or indirect financial benefit. While there is a benefit to obtaining a visa (that is the purpose of the GV), there is no guarantee that you will get the perm residency or citizenship. The visa does not offer any type of financial benefit but merely a “convenience” benefit. I don’t think that is the type of conflict that was intended by the rules. The IRS clearly does not want you creating a conflict or financial benefiting from the investment but that is not the case here.
Did a lawyer advise that this type of investment is prohibited?

Is it possible that you could be audited and the IRS determines that this is improper and assess a penalty? Sure, that is why you should confirm with an expert but I think some level of risk may be justified here given the ambiguity.

Thank you. This perspective is helpful.
I did consult with an IRA LLC expert today who said the self dealing prohibitions are very clearly defined (ie the Ira owner or direct line family member using / renting a real estate holding or receiving a loan)… he felt this does not fall under these prohibitions. That said it’s clearly a gray area that has not been tested - of the number of US citizens who have sought GV eligibility by investment is very small and it’s a pioneering / new effort.

I checked the Sovereignman content regarding the GV and am passing it along here to evaluate …

…The IRS prohibits the use of retirement funds to obtain any personal benefit.

For example, you cannot purchase a house in Portugal using your retirement funds, and apply for a residency in Portugal via their popular Golden Visa program.

It’s prohibited because that would benefit you personally (versus benefiting the “retirement account”).

However, you can purchase the same house in Portugal (without applying for the Golden Visa there), and just rent it out for profit. Your retirement account benefits from this transaction, but not you directly. So that’s fine.

And this from:

The Exclusive Benefit Rule

The exclusive benefit rule applies to all tax-sheltered retirement plans and is stated in IRC section 401(a) for employer plans and section 408(a) for IRA plans. This rule stipulates that all activities of the plan must be for the exclusive benefit of the plan beneficiaries.

This rule needs to be viewed in two ways:

1. The investments of the plan must be in the best interest of 

growing the plan savings and meeting the retirement benefit
needs of the plan participant(s).

2. The investments of the plan may not provide a benefit to plan beneficiaries or other disqualified persons other than growing the savings value of the plan.

With respect to the first principal of being in the best interest of the plan, the IRS recommends the following criteria to determine if a plan’s policies are for the exclusive benefit of the plan participants:

The cost of an investment must not exceed its fair market value (FMV) at the time of its purchase.
A fair return commensurate with the prevailing rate must be provided.
The investment must be sufficiently liquid to permit distributions per the plan terms.

The safeguards and diversity that a prudent investor would adhere to must be present.

When a plan acts or is used in a way that provides a benefit to the participant or a disqualified person, then a prohibited transaction occurs.

All that said, since only you will be responsible for any consequences, I think it is your call.

[apologies for the formatting]

…The IRS prohibits the use of retirement funds to obtain any personal benefit.
For example, you cannot purchase a house in Portugal using your retirement funds, and apply for a residency in Portugal via their popular Golden Visa program. [quote=“Lagos, post:16, topic:34975, full:true”]
I checked the Sovereignman content regarding the GV and am passing it along here to evaluate …

It is not clear whether this is someone’s opinion or an official Treasury regulation. I assume the former. I would prefer to see clear guidance from the IRS before reaching such a definitive conclusion as they did.

Wouldn’t we all :wink:

Hi. I’m trying to figure out the GV process using my 401K. Does anyone have a custodian for a self directed 401K they could recommend? Think this might be easier than going it alone. Thanks!! ww

Wendy –
I am deep into this journey of using my IRA funds to do this process.
I do have a custodian I like who I have used for other things and have also decided to hire and have also possibly hit a potential roadblock we can discuss to see if you’ve come across it and how you navigated around it…
Would love to connect. DM me with your phone number if you’re open to a call.