If you are looking at real estate overseas, or for a way to get better returns in your IRA, here is little secret your stock broker will never tell you about...
The IRS lets you purchase real estate with income that is tax-deferred. That means that many savvy investors are investing their IRA funds in real estate.
This is a great way to beat the ups and downs in the stock market, to diversify your portfolio or to provide a stable income as you transition from riskier investments.
The rules governing the diversification of your portfolio in this way are simple. First, you may purchase practically any foreign real estate you can imagine: raw land, condos, office buildings, single or multi-family homes, apartment buildings and improved land. You can also own a fraction of real estate, with other entities or investors owning other fractions. You can purchase an option on the foreign real estate or you can buy outright using a land trust, L.L.C., or similar entity. Also, you can rollover your IRA, so you are buying the real estate with retirement assets.

Limitations

The main exception is that you can't use the foreign real estate in your IRA as your residence or vacation home, if you are under 59 & 1/2. This is logical, since your retirement funds are tax deferred and are meant to be used for your retirement In other words it can be any kind of property, but you can't use it personally, unless you are already retired and take the amount as a distribution.

Other exceptions
Your business can't lease space in your IRA-held property. You cannot place real estate that you already own into your IRA. Your spouse, your parents, or your children also couldn't have been the previous owners of the real estate. Property owned by siblings may be allowed, since the Internal Revenue Code (section 4975) specifies that only "lineal descendants" be disqualified.

Buying the property

Your IRA custodian must actually buy the real estate you are investing in. So, the title will really be in their name, not yours. You may put up the deposit with your personal funds, in order to reserve the property until the legal structure is in place, in this case you have to be sure you include that amount in the total due so you get your money back from your IRA at closing.

What if your IRA doesn't have enough money?
If the property is financed, you must structure the purchase correctly so as to avoid adverse tax consequences down the road. Also keep in mind that if the property is leveraged, the debt must be a non-recourse promissory note. But it is possible for your IRA to take on a debt. Another way is to purchase an interest in the property along with others, such as a spouse, business associate, or friend.

Operating property in your IRA

Because all property expenses, including taxes, insurance, and repairs, must be paid from funds in your IRA, you'll need liquid funds available in your account. Of course, all income generated from the property will be deposited in your IRA account so you might use that money to cover your costs. Or you can make annual contributions within federal guidelines: $5,000 annually to a traditional or Roth IRA ($6000 if you're age 50 or older); and as much as 25 percent of your annual compensation, up to $46,000, if you're a self-employed individual with a SEP-IRA. If your account doesn't have funds to cover property expenses, you will have to withdraw the property from your IRA and pay taxes on the value of the property, as well as possible penalties for early withdrawal.

Selling or Distributing the Property from Your Portfolio

The buyer cannot be a family member. Once a deal closes, your IRA account now holds the cash — ready for you to make your next move. A great way to build up your retirement portfolio is to sell property with seller financing so that all payments made by the buyers are paid to the IRA.
Distributing your property
You can withdraw real estate in Costa Rica from your IRA and use it as a residence or second home when you reach retirement age (age 59½ or older for a penalty-free withdrawal). Either the IRA can sell the property, or you can take an in-kind distribution of the property. In that case your IRA custodian transfers the property title to you. If you expect the property to appreciate and you want to eventually take it as a distribution, then the Roth IRA is your best vehicle (see below) Whether your retirement strategy is to hold properties or buy and sell for gain, real estate investing through your IRA can yield extraordinary returns toward your future retirement.

IRA Custodian

You will need an independent IRA custodian that allows real estate investments and work with that company to set up an IRA account. Most banks and brokerage companies, limit your choices to products they sell. However, section 408 of the Internal Revenue Code permits individuals to purchase real estate with funds held in many common forms of IRAs, including a traditional IRA, a Roth IRA , and a Simplified Employee Pension plan, or SEP-IRA.
To find a custodian that specializes in real estate, search under terms such as "real estate IRA" or "self-directed IRA." In Costa Rica or Panama, your realtor or the developer may be able to help you find a reputable tax attorney or organization who can assist you with this. You can't serve as the custodian of your own account. It is important to select a custodian knowledgeable about the types of investment you're interested in, because the custodian holds title to the real estate. It is vital that you find a custodian who will permit foreign property or leveraged property.

IRA Options

• A traditional IRA lets you deduct annual contributions (currently set at $5,000, or $6000 if you're age 50 or older) from your income. However, once you begin withdrawing money, those funds will be taxed as regular income.
• A Roth IRA gives you no deduction on your current contributions (again $5,000), but does allow you to withdraw funds tax-free. If you expect to buy a real estate investment in an IRA and hold it for a long period, this is probably your best option, particularly if the property increases in value over that period. If the property was held in a traditional IRA, you have to pay income taxes on the current value of the property when you sell it or take it as a distribution. With a Roth IRA, you won't owe taxes at distribution, this is the best way if you anticipate that your real estate investments will appreciate over time.
• A SEP-IRA is designed for self-employed individuals and small companies. You can contribute up to 25 percent of your compensation, or $46,000, whichever is less. However, keep in mind that if you have employees, you must make contributions for them as well. This option is a great alternative for real estate practitioners who can make the higher contributions because they can build up funds more rapidly to purchase properties. Withdrawals from a SEP-IRA are treated like those of a traditional IRA for tax purposes.