Your Accountant Will Tell You This Is Illegal…

One of the most common situations I encounter when I consult with people is the desire to use retirement funds to invest abroad to qualify for a “Golden Visa.” (A Golden Visa is any residency permit that you get in exchange for investment in a country.)

I understand why people ask about that. Getting a Golden Visa isn’t cheap; a qualifying Portuguese investment fund, for example, requires a minimum of €500,000 ($518,000). Not everyone has that kind of cash lying around.

Except, perhaps, for their retirement accounts. Many people have several millions of dollars in various investments in IRAs, 401(k)s, and other pension plans. When I tell people they can use that to get a Golden Visa, they’re often shocked.

It’s true, though. Here’s how it works:

1. You roll over some or all your existing retirement funds to a self-directed IRA—a perfectly legal structure that allows you to decide what to invest in, and where. With an SD-IRA, you can invest in property, funds, and other assets in foreign countries.
2. You create a small holding company in the target country, just like a limited liability company (LLC) in the US or Canada. You make your SD-IRA the sole shareholder of that LLC.
3. You transfer funds from your SD-IRA to the local LLC and use that to make a qualifying investment for a Golden Visa.
4. In most cases, the fund that you invest in will help you apply for the Golden Visa.

Amazing, huh? It is… but some US-based tax accountants and attorneys will tell you it’s illegal.

That’s because they think this counts as a “prohibited transaction” under IRS rules for IRAs. A prohibited transaction is one where the person who owns the IRA, a member of their family, or a business that the IRA holder owns gets a direct benefit from the IRA or assets that it owns.

For example, buying a Mexican rental property through your SD-IRA and using it as a vacation home once a year is a prohibited transaction. Everything that’s in your IRA is meant to provide for your retirement needs. Just as you can’t withdraw unlimited funds from your IRA for current expenses, you can’t use assets owned by your IRA for your personal benefit.

The question is whether getting a Golden Visa via an SD-IRA investment is a prohibited transaction. And the consensus amongst most people who specialise in this is that it’s not.

The essence of a prohibited transaction is that you’re using assets meant for your retirement in a way that reduces your long-term retirement benefits or puts them at risk in some way.

The week that you spent in that Mexican rental unit means your IRA loses a week’s worth of income for your retirement. Using a house owned by your IRA as collateral for a loan puts it at risk if the loan isn’t repaid.

But getting a Golden Visa as a side benefit of investing in a country using your SD-IRA doesn’t reduce the value of that investment, its long-term income stream, or put it at risk beyond the natural ups and downs of the market. Your retirement benefits suffer no harm.

Consider an analogy. People have invested in racehorses with SD-IRA funds. A successful horse can earn its owners a lot of money, both through prize winnings and breeding. If the person whose IRA owns a racehorse is admitted to The Breeders’ Club at the local track, how is that affecting their retirement earnings? Not at all.

We’re talking about something of much greater consequence than box seats at the track. But according to current practise in countries all over Europe that offer Golden Visas, using your SD-IRA to qualify for one is essentially the same thing.

In my consultation service, I’ve helped several people get on track for a European Golden Visa using their IRA funds this way. Naturally, I always advise them to consult qualified tax attorneys and accountants along the way.

If having residency in Europe that leads to citizenship… and allows you to come and go as you please (potentially without owing taxes in Europe!) sounds like something you’d like to achieve, sign up for a consultation with me, right here.