Traditional financial institutions that act as custodians for IRA accounts limit investment options to what they have to sell you—stocks, bonds and mutual funds. However, the IRS is more liberal.
Forbes’ recent article, “How To Invest Your IRA Funds Offshore,” explains that IRS regulations that are of the greatest concern have to do with self-dealing: you can’t buy or sell something from or to your IRA personally. You also can’t use any asset your IRA invests in yourself (this becomes important in the context of a real estate investment). You can’t hold collectibles like art in your IRA, because these kinds of things could easily be “stored” in your house, amounting to personal use.
However, provided that you’re not breaking the no self-dealing rules, the IRS is lenient in its position on how you can invest your IRA funds. You can purchase and hold real estate, private companies, private mortgages, or precious metals, both within and beyond the country’s borders.
The issue may be your IRA custodian, which must approve any investments you want to make. It can be tough or impossible to get a conventional financial institution to agree to your investment idea. To that end, you can choose an independent custodian that allows a broader range of investment options.
Just so you know, placing IRA funds in non-traditional assets (anything other than stocks, bonds, or mutual funds) takes more effort from you. A non-traditional custodian will need information on any non-conventional investment you want to make, and you’ll have to provide it.
Your non-traditional custodian will ask for details, and they’re required to make sure the investment is qualified under IRS rules. One way to eliminate the need to get permission from your non-traditional custodian, is to create an LLC in which your IRA can invest. Then you, as the managing member of the LLC, can decide solely when and how to invest the funds of the LLC. You request that your non-traditional custodian invest your IRA funds in the LLC, then you can operate independently. This is usually called a Self-Directed IRA, However, that is misleading because all IRAs are self-directed. You direct your IRA custodian where and how to invest. This doesn’t have to be all-or-nothing: you could keep part of your IRA invested in stocks, bonds, and mutual funds, under the management of a traditional custodian and invest the rest of your IRA funds in an LLC that has you as the managing member, so you’re able to invest these funds where you like, including abroad.
However, an IRA is under the jurisdiction of the United States, and holding an offshore LLC doesn’t change anything. It costs more to set up an offshore LLC, but if you want to invest IRA funds in non-US stocks, bonds or mutual funds, you will need an offshore LLC, since non-US stockbrokers can’t comply with SEC regulations related to doing business with US citizens or entities.
Reference: Forbes (March 13, 2019) “How To Invest Your IRA Funds Offshore”