Will I incur a tax penalty for using my 401(k) funds to buy real estate in a country outside the U.S.?
I'm 60 years old. I plan to retire in five years, and expect to have approximately $400,000 in my company 401(k) at that time. Is there a way to take a cash portion of the 401(k) and buy real estate in Costa Rica? Will I incur some kind of tax penalty?
You won't technically have a penalty for taking money out of your 401K- but you will be penalized on your tax rate.
If you are over 59.5 (you are) you won't be subject to the 10% IRS penalty for early withdrawals from your 401k.
That being said- if you take large withdrawal from your 401k you will end up paying more taxes on those withdrawals. Essentially inflicting a tax penalty on yourself.
Sounds like you could benefit from sitting down with a fee-only fiduciary financial planner to map out how to get your to Costa Rica - with minimum taxes paid on your 401k- and MORE IMPORTANLTY how to fund you retirement so you don't run out of money.
I believe what you are referring to here is using the cash in your 401k to buy real estate directly? I am not aware of anyway to do this within the 401k vehicle itself. If you pull money out of your 401k, you will incure taxable income. Because your over the age of 59.5 you will not be penalized. I do not generally advise that clients buy real estate with their retirment assets directly, which you could do if you roll your money to an IRA. However, investing money in an IRA in real estate comes with significant considerations.
Since you are over the age of 59.5 years, you will not pay any penalty for withdrawals from your 401K. However, it will be included in your income and taxed accordingly. If your plan allows it, you can take out a loan upto $50,000 from the 401K plan. However, you will probably have to pay it back with (a nominal) interest within 5 years or upon termination. Here is some more information on the loan from the IRS website. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-loans