Using a Self-Directed IRA for EB-5, tax free

September 26th, 2023 Greg Sheehan

Retirement funds like a Traditional 401(k) or a Roth 401(k) carry significant protection from taxes because they are considered the most valuable asset to your post-employment life. Many people will rely on these funds to pay for all of their essential needs in retirement. As with any investment, when, if, and how to use these funds requires careful consideration.

If you are thinking about rolling over your retirement account funds for EB-5 purposes, here are some points to consider. Note that this information is not financial or legal advice but a checklist for you as you plan your course.

Per the IRS, a rollover can be done without taxation because you are simply changing your custodian. You want stay in the same plan whether Traditional or Roth. Topic 413, Rollovers from Retirement Plans.  According to the Securities and Exchange Commission, Self-Directed IRA’s allows investment into a broader set of assets than most IRA custodians permit, such as real estate, crypto assets and private placements.

Read more here:

Ok so we’ve covered tax protection and risks, here’s how to take the next steps.

  1. Lawful Source of Funds: USCIS (U.S. Citizenship and Immigration Services) requires that the funds invested in an EB-5 project come from lawful sources. A 401(k) rollover is generally considered a lawful source of funds, as long as the funds in your 401(k) were obtained legally.
  2. Documentation: You will need to provide clear and comprehensive documentation demonstrating the source of your 401(k) funds and the rollover process. This may include statements from your 401(k) account, documentation of the rollover, and any other relevant financial records.
  3. At-Risk Investment: EB-5 funds must be invested in a new commercial enterprise and be at risk for the duration of the investment. Ensure that the self-directed IRA is used to make a qualifying EB-5 investment, such as investing in a new commercial enterprise that will create or preserve at least 10 full-time jobs for qualifying U.S. workers.
  4. Compliance with SEC Regulations: When using retirement funds for EB-5, you should also ensure that your investment complies with Securities and Exchange Commission (SEC) regulations, as self-directed IRAs may invest in a wide range of assets, including securities. EB-5 investments often involve securities offerings, so understanding and complying with SEC rules is crucial.
  5. Accredited Investor Rule: Only accredited investors can become partners in a private placement offering so be sure to work with a financial specialist like a CPA or a law firm to make sure you are in compliance. Learn more about that here:
  6. Consult an Attorney: EB-5 immigration and investment matters are complex. It is highly recommended that you consult with an experienced immigration attorney and a financial advisor who specializes in EB-5 investments to navigate the legal and financial aspects of the process.
  7. Ask your employer or IRA custodian: You want to make sure that your fund allows a rollover. Be sure to check with your employer because in some cases the 401(k) account holder is not allowed to rollover their savings.
  8. IRA plan has to allow the investment in the EB-5 fund: At Behring all of our accounts are approved with Alto IRA in compliance with USCIS rules. “IRA funds and assets are separate from Alto’s own cash and assets. Your IRA account funds and assets belong to you, are held for your benefit.”

Behring has been active in EB-5 for ten years and has helped many EB-5 investors use retirement funds as a convenient and lawful source, making the $800,000 more approachable while offering a complex protections and investment options for every investor profile.