Take your IRA offshore to invest in ICOs and Bitcoin
The United States has forced most ICOs out and will launch an all out attack on Bitcoin in 2018. If you want to hold Bitcoin in your IRA, you should first move your retirement account offshore. Here’s how and why to take your IRA offshore and invest in ICOs and Bitcoin in 2018.
In 2017, the US Securities and Exchange Commission ruled that ICOs were investments akin to traditional Initial Public Offerings. This determination means that the SEC has authority over ICOs and that ICOs must follow the same rules as an IPO.
This also means that the legal and compliance costs to issue an ICO are about the same as they are for an IPO. While a boon for lawyers and CPAs, these costs mean that smaller high value, and early stage ICOs will never see the light of day in the United States.
ICOs have two options in 2018: 1) go through several rounds of funding (angel plus 2 or 3 rounds of VC) before going public, or 2) move offshore and don’t market in the United States.
VCs are sure to have stripped out most of the pure “startup value” from these ICOs by the time of the offering. Plus, adding hundreds of thousands of dollars, or even a million or more, to the startup costs, means only the largest ICOs will get to market.
Of course, coming into a deal in the late rounds is safer, but most ICO investors are looking for looking for a clean deal. One of the primary objectives of the ICO model was to avoid the costs and greed of angels and VCs.
The SEC will push early stage ICOs out of the United States in 2018. Look for the best ICOs to be offered in Mexico and offshore in jurisdictions like St. Lucia, Dominica, Cayman, Jersey and Guernsey.
At the same time, the IRS is doing it’s best to push high net worth investors offshore. The Service is planning all out assault on Bitcoin in 2018, with most of the early targets coming from Coinbase. This site will be turning over more than 14,000 clients to the IRS in 2018 and the audits will begin.
Because the best way to eliminate US tax on your Bitcoin trades is to buy in your IRA, a lot of investors are creating digital IRAs. I expect this trend to hold and increase in 2018.
There are two ways to create a digital IRA. You can setup a self directed account in the US with a custodian that allows you to invest in Bitcoin, or you can setup an offshore IRA LLC. With a self directed account, you’re limited to US investments and the account is under the control of the custodian. With an offshore IRA LLC, the account is out of the US and is under your control.
There is one way to protect your IRA from government overreach – move your retirement account offshore and into an offshore IRA LLC. For more on buying Bitcoin in an IRA, see: Protect your IRA by moving it onto the blockchain.
As I said above, to buy crypto in the United States, you need a self directed IRA. To take your retirement account offshore, you need to add an offshore IRA LLC to this self directed account. Your custodian invests your IRA into an LLC incorporated in Belize, Cook Islands, Nevis, or some other tax free jurisdiction, and appoints you as the manager of this LLC.
With a self directed account, your custodian follows your investment instructions, but he or she has the ultimate say on how the account is invested. Most custodians don’t allow for offshore investments in a self directed account because they can’t or won’t do the due diligence necessary to review those transactions.
Because a US custodian can be held liable if your investments go south, they avoid risk. To eliminate this liability, you form an LLC and the custodian transfers funds to that structure. What happens from here is totally up to you. The liability and decision making is transferred from the custodian to you, the account owner, with an offshore IRA LLC.
The steps to take your IRA offshore are as follows:
First, you can only move a vested account offshore. A vested account is usually one from a previous employer. When you change jobs, or retire, your IRA account vests and you can move it to a new custodian… one that allows for the offshore IRA LLC structure.
Once you’re account is with a friendly custodian, we can form your offshore IRA LLC. This is a single member LLC where the member of the LLC is your retirement account. That is to say, the owner of the LLC is your IRA.
- Note that a husband and wife can use the same LLC. You can move multiple accounts into a single LLC structure.
Next, the LLC appoints you as the manager of the structure. Again, the IRA is the owner of the LLC and you are the manager. In this capacity, you have total control over the bank accounts, crypto wallets, and investments.
Once the LLC and bank accounts are in place, the US custodian transfers the cash from your IRA to the international bank. You generally can’t transfer stocks or other assets offshore (like kind transfers). You should be moving US dollars into an offshore account.
Finally, you move those dollars into an international crypto trading platform. Now you have control over the account and are the investment manager of the LLC. As such, you must follow all US IRA rules and always act in the best interest of the account, just as a professional investment advisor would.
I hope you’ve found this article on taking your IRA offshore to invest in ICOs and Bitcoin to be helpful. For more information on moving your retirement account offshore, please contact me at info@premieroffshore.com or call us at (619) 483-1708.
