Offshore IRA’s: Here’s the Scoop
By Jeff Schneider, PassportIRA
Not a day goes by without speaking with someone seeking to diversify their assets into foreign jurisdictions. It’s one of the most rewarding parts of working with clients who have made the decision to take control of their hard earned savings.
However, there are many misconceptions when it comes to how to accomplish these priorities. Many of these may disagree with those who don’t have a client’s best interest in mind. So rather you learn the hard way, there are some key considerations to make prior to taking your assets overseas.
What to move?
First, people properly consider a dollar appearing on a bank or brokerage statement as a dollar saved for retirement. In reality though, an IRA is a completely different ‘pool’ of money.
In order to retain the tax deferral (or tax free) aspect of an IRA, it complies with a completely different set of laws than your after-tax savings. This means the friendly IRS becomes your partner in the IRA funds.
This partner doesn’t exist in after-tax savings, which gives you more freedom to assign the funds to others via trusts, gifts, or charitable contributions. You can also invest in what you what, when you want.
As a result, when it comes to moving assets overseas there is no single product that can accomplish it for BOTH pools of assets.
An IRA structure, which contains a self-managed LLC, can accomplish the task for the IRA funds, and an offshore trust can accomplish it for any non-IRA assets.
The weakest link
The next consideration is whether a foreign LLC is needed to accomplish your goals.
Once again, for non-IRA funds, a direct foreign entity makes a lot of sense. There are no investment limitations and no third parties, which need to approve of the estate plan. (Of course there are reporting requirements that will continue to increase as they prep for capital controls.)
IRA law leaves room for a weak link. IRS law requires an IRA have a US based custodian. Period. There is no work around for having a custodian in the US who does the annual reporting to the IRS.
This means no matter what legal structure you get set up with, there will always be a US company, regulated by state authorities, involved in your IRA.
Through an IRA structure, the custodian’s authority may be extremely limited to give you all the control for investments. You won’t have to worry about receiving an email that they’ve liquidated investments to comply with mandated investment regulations.
So, it’s really the control you need, not necessarily the foreign entity.
The right equation
It’s beneficial to step back for the real reason you are diversifying in the first place. To beat capital controls and reduce risk from a depreciating dollar.
A domestic entity may make international investments that accomplish both of these goals. Storing metals in foreign vaults and investing in foreign companies seem to be two of the top choices right now.
An international entity may very well open you up to investments that may be closed to US entities. For example, some countries may not allow you to buy real estate without a local entity.
This is easily corrected; add a local entity to your IRA structure when you need it.
Ultimately, your goals can be accomplished with a US entity or a foreign entity. Those who are taking action today will have full control of their retirement funds and the international diversification to protect themselves from future regulations as the government continues searching for ways to stay afloat.
Using these considerations will help make sure you are making the best decision for your investment plans while not paying too much for minimal additional protections of an offshore entity.