A popular self-directed 401k investment type is real estate–both domestic and foreign. This post will concentrate on investing a self-directed 401k in foreign real estate where the participant/account holder also invests in the same foreign property alongside her self-directed 401k (aka solo 401k retirement trust).
Items to Consider When Investing In Real Estate Located in a Foreign Country
1. Not all countries will accept a 401k as a party to a real estate investment/purchase, thus requiring the use of an LLC or a foreign trust. For example, in Mexico a Mexican Trust is commonly used.
2. If the foreign country does allow for the 401k to take title to the property, title would be taken in the name of the solo 401k plan. Also, the EIN for the solo 401k is used for reporting purposes.
3. For the funding of the property purchase, the funds would flow from the solo 401k bank account directly to the seller NOT first to your personal bank account and then to the seller as that would result in a taxable event.
4. The solo 401k funds may also be sent to another bank account for making the foreign real estate investment as long as the second bank account is also titled in the name of the solo 401k and the bank is a US domiciled bank (e.g., Citibank).
For example, if the self-directed 401k funds are currently held in an “Investment Only” Fidelity Investments brokerage account, they may be wired to a foreign bank account also in the name of the solo 401k as long as the bank is a US domiciled bank.
5. Going forward expenses and income would flow through the solo 401k bank account.
Items to Review Before Making the Decision to Partner with Your Self-Directed 401k in the Same Foreign Property Investment
No debt financing is allowed when investing alongside your solo 401k in the same property.
Taking title to Foreign Property
If you proceed with the TIC transaction, title would be taken in both the solo 401k and your personal name.