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How to invest your IRA in foreign real estate

08/15/2018/0 Comments/in Articles, Offshore IRA/by Christian Reeves

In this post, we’ll look at how to invest your IRA in foreign real estate. That is real property outside of the United States, including a rental property, commercial property, raw land, and non-traditional high yield investments such as timber. Here’s everything you need to know to invest your IRA in foreign real estate.

First, let’s consider which IRA and 401K accounts can be invested in foreign real estate. Only a “vested” account can be invested in foreign real estate. A retirement account typically becomes vested when it moves from a previous employer to a new custodian… when you leave a job.

That is to say, a vested account is an account from a previous employer. When you left that job, the account left with you and is now under your control. A vested account can be moved to a US custodian that specializes in foreign real estate or into an offshore IRA LLC.

There are cases where a portion of your retirement account will vest if you’ve been with the same employer for many years. If you’ve been with the same company for a decade or so, you might want to discuss this with your human resources office.

There are also cases when a Defined Benefit Plan can be invested in foreign real estate. If you can convert your DB plan to an IRA, then it can be invested outside of the United States. You should ask your plan administrator if you can convert to an IRA.

Now that you know which of your retirement accounts have vested, here are the two methods that allow you to invest your IRA into foreign real estate:

Move your retirement account to a US self directed IRA custodian that is experienced in foreign real estate investments, or
Form an offshore IRA LLC and invest your retirement account into that LLC.

The first of these options has minimal costs while the offshore IRA LLC gives you maximum control over your retirement account.

Because your IRA has vested, you can move it to any licensed custodian in the United States. Yes, you must always have a US custodian, even if all of your investments are held abroad.

So, to invest in foreign real estate with minimal costs, you move your IRA from your current custodian to one that allows for investments in foreign real estate.We call these self directed accounts or SDIRAs.

I’d say 95% of custodians don’t allow for foreign investments. It takes effort to find a good SDIRA custodian experienced in these matters (we can introduce you to one at no cost – info@premieroffshore.com)

Fyi… the reason most custodians don’t allow for foreign real estate investments is that they make most of their money selling investments. When you buy foreign real estate with your self directed IRA, your custodian doesn’t make a commission. Thus, most custodians will try to dissuade you from investing abroad.

In contrast, self directed custodians that allow for foreign real estate in your IRA charge a monthly fee. Your costs are fixed and you keep 100% of the profits from your investments.

The second method of investing your IRA in foreign real estate is to form an offshore IRA LLC. In this structure, we form an international Limited Liability Company for you in a zero tax jurisdiction such as Belize, Cook Islands, Nevis, etc. We then open a bank account and appoint you as the administrator of that LLC.

Once the offshore IRA LLC is incorporated an the bank account is opened, your US custodian invests your retirement account into this LLC. From here, you’re the signor on the account and in total control. You send the wires and write the checks.

Because an offshore IRA LLC puts you in control, it’s best for those that want to manage an active investment account. For example, if you want to invest in cryptocurrency, gold, or trade stocks – in addition to buying foreign real estate – then an offshore IRA LLC is the way to go.

To put this another way, I recommend the offshore IRA LLC to active traders and those who want to hold crypto in their account. Because it costs about $3,500 to setup an offshore IRA LLC, it’s not cost effective for those with smaller accounts and those who plan to make only one or two foreign investments.

There are some advanced tax benefits found only in offshore IRA LLCs. For more, see: What we can learn from Mitt Romney’s IRA.
When you’re appointed as the investment manager of an offshore IRA LLC, you become responsible for following all of the rules. For an example, see: IRA Rules and Prohibited Transactions for Offshore IRA LLCs.

Lastly, there are a number of non-traditional high yield investments found outside of the United States open to IRA investors. The most popular are crypto and timber. Timber is interesting for many reasons. Because of its holding period an stable demand curve, some crypto investors are buying this asset as a hedge against volatility.

The reason I like timer is that you can realize a sold return AND get residency in a foreign country with your IRA. Invest $22,000 in Panama’s Friendly Nations Reforestation Visa and receive residency. After 5 years of residency you can apply for citizenship and a second passport.
I hope you’ve found this article on how to invest your IRA in foreign real estate to be helpful. For more information in forming an offshore IRA LLC or to be introduced to a custodian that’s experienced in foreign real estate transaction, please contact me at info@premieroffshore.com or call us at (619) 483-1708. We’ll be happy to help you to structure your international investments.

Here’s how to take your IRA offshore in 6 steps

04/13/2017/0 Comments/in Articles, Banking Offshore, Offshore Bank Accounts, Offshore IRA/by Christian Reeves

In this article I’ll list the steps necessary to take your US retirement account offshore. Whether you’re looking for asset protection, privacy, or investment diversification, here’s how to take your IRA offshore in 6 steps.

Step 1: Determine if your IRA is eligible to go offshore

Before you can move your cash, you must determine which of your retirement accounts are eligible to go offshore. Only accounts that are vested can be moved out of the United States.

A vested account is one that’s under your control. In most cases, an account vests when you leave your employer and take the IRA with you. So, a vested account is typically a retirement account from a previous employer.

It’s possible that a portion of your account with a current employer has vested. If you’ve been working at the same company for 10+ years, you might be able to move a portion of the account offshore. You should speak with HR to see if any of your IRA has vested.

You can also take certain defined benefit plans offshore. If the plan can be converted into an IRA, and in doing so becomes vested, you can move that plan offshore. Eligibility will depend on your defined benefit plan documents. You’ll need to check with your administrator.

Step 2: Move your IRA to a custodian that allows for offshore transfers

Once you know which accounts are eligible to go offshore, you’ll most likely need to move them to a different custodian. Most US firms make money selling you investments. They earn a commission managing your IRA account and don’t want you to move it out from under their control.

There are a few custodians that allow for offshore IRA LLCs. They charge a fixed annual fee of $400 to $600 rather than making money selling investments.

Note that this move must be done as a transfer and not a rollover. If you have multiple accounts, recent changes to the IRS rules make the rollover a problem. However, you can make an unlimited number of transfer of your retirement account (moving it from one custodian to another). Remember that a transfer is not a rollover.

We’ll be happy to introduce you to a custodian that supports offshore accounts.

Step 3: Setup an offshore IRA LLC owned by the IRA

Once you have an account number at your new custodian you can form an offshore IRA LLC. The owner of this account will be your IRA… not you personally and not the custodian.

For example, if your custodian is Midland IRA, the owner of the IRA LLC might be as follows: “Midland IRA, Inc. FBO John Smith #55-5555555” with the number representing your account at Midland. FBO = for the benefit of.

The offshore LLC must be formed in a zero tax jurisdiction, one that allows for single member limited liability companies. The single member of your IRA LLC is your IRA account.

We also focus on countries with strong asset protection laws. For this reason, I like the Cook Islands, Nevis and Belize. The final selection will depend on your banking needs and other factors.

If you’re very concerned about asset protection, you might read the following on using the Cook Islands for maximum protection: Protect Your IRA by Converting it into an Offshore Trust

Step 4: Draft a custom operating agreement establishing you as the manager of the offshore IRA LLC

Now we need to establish you (the beneficial owner of the IRA account) as the manager of the offshore IRA LLC. This is done by drafting a custom operating agreement which lists in great detail your rights and responsibilities.

The bottom line is that you must manage the money in the IRA LLC just as a professional investment advisor would. You should make decisions based on what will maximize returns to the IRA… and those decisions should not benefit you personally.

For example, you can’t borrow from the IRA LLC, can’t use it to buy a home to live in it (even if you pay fair market rent), and can’t use the funds to pay personal expenses

Likewise, you can’t guarantee any of the investments of the IRA. This means you can’t guarantee a loan made to your IRA LLC. All loans taken out by the LLC must be non-recourse secured only by IRA money without a personal guarantee from the beneficial owner.

Step 5: Open an offshore bank account for your IRA LLC

Your IRA is sitting with a custodian that allows for offshore investments, your IRA LLC is incorporated in a secure offshore jurisdiction, and you have a detailed operating agreement giving you control of that LLC. Now it’s time to open an offshore bank account.

The bank selected will depend on the size of the account. If you plan to invest in real estate, and will thus maintain a minimum balance in your offshore account, I recommend Caye Bank in Belize. This bank has high fees but low minimum balances. For more, see: http://www.cayebank.bz/

For accounts of $20,000 and up I recommend Capital Security bank in the Cook Islands (https://www.capitalsecuritybank.com).

Because CSB does not have branches in the U.S., they have a good handle on FATCA, focus on U.S. clients, and offer a wide range of investment options, I often suggest clients plant their first flag offshore with these banks and then open brokerage accounts or diversify from there.
Another benefit of Cook Islands is that you do not need to travel there to open the account. All of the recommendations below require you visit the bank in person.
Finally, CSB is unique in that they don’t lend against client funds. See CSB Low Risk Profile.

In Panama, I recommend Banistmo (https://www.banistmo.com/en), Uni Bank (https://www.unibank.com.pa/en/index.html), and Multibank (https://www.multibank.com.pa/en/default.html). I also suggest Banco General (which is our bank), Santander, Banesco, if you have a local office.

For private vault storage, I recommend Best Safety Boxes in Panama. See http://bestsafetyboxes.com/

For managed accounts over $2m, I recommend Andbanc in Androa or their branch in Panama (http://www.andbanc.com/).

If you prefer a financial advisor and bank in Europe, I recommend Swiss Partners in Geneva. Their website is http://swisspartners-advisors.com. The minimum account size is about $2.5 million.

Step 6: Transfer your IRA cash from the custodian to your offshore bank account

Once you’re account is opened, the custodian will send a wire from their bank to yours. This will move some or all of your cash out of the United States and into an international account that’s under your control.

You can chose to move all or a portion of your IRA offshore. You can leave some cash with the custodian if you want to make US investments or are new to international banking and want take it slow.

As the manager of the LLC, and the only signatory to the offshore bank account, all investment decisions rest with you. You’re the only person who can send a wire or write a check… which is why we call this an Offshore Checkbook IRA LLC.

This also means that it’s your responsibility to follow the various rules of IRA management. Here are a few articles you might find useful:

If you have a Defined Benefit Plan that you might want to convert to an IRA, see: Maximum Asset Protection for a Defined Benefit Plan

You will also find that there are many tax benefits for sophisticated IRA investors which are only available offshore. For example, the ability to use a UBIT blocker to eliminate US tax in your IRA from leveraged investments. Also the ability to own a portion of an active business, which is operated outside of the United States, whereby the income from the business flows into your IRA tax free.

Of course the main reasons clients take their retirement accounts offshore is to diversify out of the United States, invest in higher returning opportunities, and protect their assets from civil creditors and uncertain times. These are the core principals of the offshore IRA model and goals we can assist you to achieve.

I hope this article on how to take your IRA offshore in 6 steps has been helpful. For more information, please contact us at info@premieroffshore.com or call (619) 483-1708. We’ll be happy to assist to structure your affairs abroad.

How to move your IRA offshore in 2017

04/07/2017/0 Comments/in Articles, Offshore IRA/by Christian Reeves

If you’re looking to diversify your account out of the US, protect your savings offshore, or purchase foreign real estate, here’s everything you need to know to move your IRA offshore in 2017. When done right, moving an IRA offshore is relatively simple.

The first step in moving your IRA offshore is to determine if your account(s) are eligible to be moved. You can move your IRA offshore if the account has vested. This usually means an account from a previous employer… an account that has been transferred from the employer to you.

From time to time, we see clients who have been at the same job for many years. If you’ve been at the company for 10+ years, some of your IRA may have vested. You can check with Human Resources to find out.

Note that you don’t need to be of any particular age to have a vested account. Each IRA from a previous employer is fully vested and eligible to be moved offshore.

Once you have your vested accounts in order, you can begin the process of moving them offshore.

The first step in taking your IRA offshore is to transfer it from your current custodian to one that allows for foreign structures and investments. Most IRA custodians make money selling you investments. So, they don’t want you moving cash out of their control. Note that this is a transfer and not a roll-over. No restrictions apply.

So, you need to move your account to a custodian who charges a flat annual fee, that doesn’t sell investments, and who allows for offshore structures. We recommend Midland, NuView and SunTrust, but there are many good custodians out there.

Once your custodial account is setup, you contact us to form an offshore IRA LLC for you. We incorporate the company, draft the operating agreement, and handle the structuring side of the process.

We also open an offshore bank account for you. Once the LLC and account are ready, your custodian transfers the cash in your IRA to this international bank account.

Your LLC is owned by your retirement account and you’re the manager of that company. That means you have total control over the bank account. You make the investments, send the wires, and write the checks. Your custodian has no control over the bank account.

The asset protection component of the structure comes from the fact that the LLC and bank account are outside of the US and out of the reach of a US creditor. Also, the fact that the custodian has no right to force you to return the money to the US provides an increased level of protection.

That’s everything you need to know to take your IRA offshore in 2017.

The most common question we get at this point is, what size IRA can go offshore?

The answer is that it’s up to you. The costs of moving a retirement account offshore are fixed. They don’t change based on the size of the account. Here’s a summary of those costs:

Your US custodian will probably charge a flat fee off $300 per account per year.
The cost to form the IRA LLC is around $3,000 depending on the country.
The cost to open an offshore bank account is $500
The annual fee to maintain the LLC is $500 depending on the country (beginning in year 2)

If you have a reason to take an account of $30,000 offshore and pay these fees, then go ahead. I’d say most clients have $50,000 or more they wish to protect, but everyone’s objectives and investment strategies are different.

I’ll close with a few suggestions for your IRA when you get it offshore. Note that my firm makes money setting up the structure. We don’t sell investments and we don’t earn a commission if you make an investment.

This tip can increase your ROI by 30% or more: When using your IRA, invest in low tax countries! Remember that profits from rental properties or capital gains will flow into your IRA tax free. Investing in a high tax country will lower these returns significantly.

So, hold your stock, FX, and trading accounts in a country that won’t tax your gains. Buy real estate in a country with a low capital gains rate. For example, Belize has a 0% rate, which is about as low as you’ll find!

Next, use your IRA to get a second residency. You can invest $20,000 in Panama, or $35,000 in Nicaragua, using your IRA and get residency for free.

Nicaragua is a great deal if you want to live there. If you spend 6 months a year for two years in country, you qualify for citizenship and a second passport. For more, see: The Best Second Residency Program in 2017

If you want residency without a physical presence requirement, look to Panama. Here you can apply for citizenship after 5 years. For more, see: Best Panama Residency by Investment Program

I hope you’ve found this article on how to take your IRA offshore in 2017 to be helpful. For more information, please contact me at info@premieroffshore.com or call us at (619) 483-1708.

How to invest your IRA into offshore hedge funds and active businesses

02/21/2017/0 Comments/in Articles, International Business, Offshore Bank Accounts, Offshore Banking, Offshore IRA/by Christian Reeves

You can invest your self directed IRA in mutual funds, hedge funds, and any active business. There are very few limitations on how you invest your retirement account. But that’s only half the issue. While you can invest in whatever you like, there all kinds of tax costs associated with investing your IRA into a fund or an active business.

Here’s how to avoid the tax penalties associated with investing your IRA into offshore hedge funds and active businesses.

Let me first frame the issue. When you invest your IRA in an active business taxed as a partnership or flow-through entity, or a hedge fund that pays out untaxed ordinary income, you have what’s called Unrelated Business Income (UBI). The IRS wants you to pay tax on these profits before they go into your IRA tax free or tax deferred.

There are two types of UBI that will trigger unrelated business income tax for retirement accounts:
Profits generated from a business/trade: When an IRA or 401k earns profit from an operating business that has not paid business tax on those profits before distributing them to the retirement account, those profits are taxed in the IRA.
Leveraged Real Estate Investments: When an IRA purchases real estate using a non-recourse mortgage loan, the debt financed portion of the property’s profits is subject to unrelated business income tax. Remember that all IRA loans must be non-recourse and that the owner of the account and the account itself may not guarantee the loan.

Unrelated Business Income is income that goes into your IRA from an active business or a leveraged real estate investment. It’s “unrelated” because it’s not the usual type of income an IRA will receive – passive and investment income.

Most UBI is untaxed profits from an active business. UBI is profits on which the business has not paid tax… such as a business operating as a partnership or within an LLC. If it were taxed as a corporation, the business would pay corporate tax on the profits and pass a dividend on to you. Because it’s a partnership or LLC, the net profits are not taxed before arriving in your IRA.

Unrelated business income is taxed in your IRA at Estate and Trust rates. UBIT doesn’t even get its own tables in the US tax code. You need to refer to the Estate and Trust rates

2016 – UBIT Rates
If taxable income is:	The tax is:
Not over $2550	15% of the taxable income
Over $2550 but not over $5950	$382.50 plus 25% of the excess over $2551
Over $5950 but not over $9050	$1232.50 plus 28% of the excess over $5951
Over $9050 but not over $12300	$2100.50 plus 33% of the excess over $9051
Over $12400	$3206 plus 39.6% of the excess over $12400

Basically, this means UBI is taxed at ordinary income rates.

Important tip: UBIT is reported on IRS Form 990-T. You only pay UBIT on profits from qualifying investments. If you lose money in an active business, you will owe no tax. However, you should file Form 990-T every year. UBI losses can be used to offset UBI profits in future years.

Here’s how to eliminate Unrelated Business Income Tax

Unrelated business income tax only applies to investments and transactions in the United States. If you structure your IRA offshore, setup a UBIT blocker corporation, and invest into foreign businesses and hedge funds, you will eliminate UBIT.

You can still access US investments, but you need to structure your investments offshore. If your hedge fund has an offshore feeder fund, you can setup an offshore IRA LLC and an offshore UBIT blocker, to enter the fund through the offshore feeder.

If you invest in a US fund through their US structure, you’ll pay UBIT on distributions. If you invest in a US fund through an offshore feeder, you will pay no UBIT.

The above is focused on hedge funds and leveraged real estate investments. UBIT also applies when an IRA owns an ongoing active business. Other rules apply to active businesses. For example, you can’t invest IRA money into a business or company you own more than 50% of nor can you invest in a business that pays you a “significant” salary.

The same goes for foreign real estate. If you buy US real estate with a non-recourse mortgage, you will pay UBIT on the gain. UBIT will apply to the portion of the property that was financed. So, if 50% of the cash came from your IRA and 50% from a non-recourse mortgage, you’ll pay ordinary income tax (not capital gains rates) on 50% of the profit when you sell the property.

If you invest in real estate outside of the United States, set up a UBIT blocker corporation, and use a non-recourse mortgage, you’ll eliminate this UBIT tax.

To maximize the benefit of foreign real estate investments with your IRA, you need to plan for both UBIT and local capital gains tax. You want to balance your expected returns against the capital gains tax rate you pay in the country where the property is located.

One of the best return on investment vs capital gains tax is Belize. Returns in Belize have been solid for the last 10 years and Belize has no capital gains tax. Yes, their capital gains rate on real estate is zero.

Some of the highest returns in foreign real estate can be found in Nicaragua. This market is growing quickly and attracting a lot of expats and investors. Their tax on rental profits, and their capital gains rate, are both 10%.

So, someone who buys real estate in Nicaragua with their IRA will pay total taxes of 10%. Had you done this in the United States, your total tax bill would have been 33% to 39% (per the chart above).

Investing with your IRA and a non-recourse loan in a tax free country like Belize will save you 20% on ordinary capital gains and 33% to 39% on the gain from your mortgage (UBI gain). Investing in a higher returning and higher tax rate country like Nicaragua will save 23% to 29% in taxes.

UBIT will also apply to an active real estate business. If you buy a hotel, acquire land that you divide up and build homes on, or buy a multi-unit apartment building, you’re probably a dealer in real estate or a real estate professional. Unrelated Business Income Tax will apply to all income earned in your active real estate business.

That is to say, if your IRA operates as a dealer in real estate, you must pay UBIT tax on your profits.

Note that UBIT does NOT apply to passive real estate investments if you don’t use leverage or a non-recourse mortgage. If you buy a couple of rental properties, you’re probably a passive investor. If you buy a hotel or otherwise operate a real estate business, you have UBIT issues.

I hope this article on how to invest your IRA into offshore hedge funds and active businesses has been helpful. To setup an offshore IRA LLC or a UBIT blocker corporation, please contact me at info@premieroffshore.com or call us at (619) 483-1708.

Move your IRA out of harm’s way – a battle is brewing between Trump and the establishment

02/19/2017/0 Comments/in Articles, Offshore Bank Accounts, Offshore IRA/by Christian Reeves

There’s a battle brewing between the establishment and President Trump. Powerful forces are aligning against our President and we’re left hoping the economy and our savings come out of this unscathed.

Gambling all of your retirement savings on red is a foolish risk. No one knows what will happen, but we do know that there’s a political war coming. Even if Trump brings our country out the other side better than ever, it’s going to be a rough few years.

Leaving your retirement account in the United States is like taking your savings to a Vegas roulette table and betting it all on one spin. You might win and you might lose… no one knows what will happen, but your risks are high.

Get your retirement account out of harm’s way immediately!

Take some of your cash off of the table. Leave what you want to risk in the United States and move the balance offshore. Diversify out of the dollar, eliminate country risk, and secure your investments.

You have the right to move any vested retirement account offshore. A vested account is most often an account you had with a prior employer. If you’ve been at the same job for 10 years or so, some of your retirement might have vested… you’ll need to speak with HR to find out.

You can also move most defined benefit plans out of the country. If your plan allows you to rollover or transfer the DB plan into an IRA, you can get it out of the country.

The process of moving a retirement account abroad is relatively simple. We form an offshore Limited Liability Company in a tax free country and open an offshore bank account for that LLC. Then your US custodian invests some or all of your retirement account into this newly formed LLC.

Finally, you’re appointed as the manager of the LLC. This gives you control and the legal right to manage investments in your retirement account.

There’s no need to move your entire account. You can send as much or as little of your account offshore as you’re comfortable with. Many clients start off small and grow their international holdings over time.

Others just build the LLC structure and open an offshore bank account. They hold their cash at their US custodian, ready to sent it abroad at the first sign of trouble.

The demand for offshore IRA LLCs has tripled since Trump took office. The fear is palatable… we can all see that the establishment and the media are all in on destroying Trump. They hate what he stands for and will do anything, including burning down our economy, to thwart his efforts and remove him from the presidency.

The only way to fully diversify your account, and take it out of play, is to get it out of the United States.

Of course, there are benefits to diversifying abroad in addition to the security provided. For example, there will be many international investments available once you get your account offshore. Most of them offer much better returns than you would find in the United States.

You can also decide to hold your IRA account in multiple currencies. You can open an offshore account and diversify out of the dollar. For example, Capital Security Bank in the Cook Islands, offers 11 primary currencies. If you buy a CD, you can access 26 currencies. No FX or brokerage required… just easy access to multicurrency accounts that allow you to maximize diversification without making an investment.

You can also use your retirement account to plant multiple flags offshore and create an escape hatch should you need it.

For example, you might use your IRA LLC to invest in one of the reforestation programs that give you residency and a second passport. You can get residency in Panama with an investment of $20,000 and Nicaragua with $35,000.

Panama is the easiest second residency program and Nicaragua is the fastest. Panama gives you permanent residency after 3 years and the right to apply for citizenship after 5. Nicaragua gives you permanent resident immediately and the right to apply for citizenship after 2 years.

Panama doesn’t require you spend any time in the country to maintain your residency. Nicaragua wants’ residents to become part of the community. Thus, you need to spend 183 days a year in Nica to maintain your residency.

Remember that you get citizenship and a passport in Nicaragua after 2 years. Once you have your passport, you can spend as much or as little time in the country as you like.

For more, see:

Nicaragua is the fastest low cost second passport

Best Panama Residency by Investment Program

I hope you’ve found this article on moving your IRA out of harm’s way to be helpful. For more on taking your retirement account offshore, please contact me at info@premieroffshore.com or call us at (619) 483-1708. We will be happy to work with you to safeguard your savings.

Can I buy foreign real estate with my IRA?

02/06/2017/0 Comments/in Articles, Offshore IRA/by Christian Reeves

The number one question I get on offshore IRAs, is “can I buy foreign real estate with my retirement account?” The answer is a resounding yes. You can buy raw land, a home, condo, office building, or anything else you like outside of the United States within your retirement account.

In fact, you can buy or invest in just about anything offshore. The only limitations on your IRA are found in Section 408 of the Internal Revenue Code. This says you are prohibited from investing in life insurance, collectibles, and certain coins (collectable coins that are not 99.99% pure). Other than that, you can place whatever you like in your IRA.

Foreign real estate is the most popular investment with our offshore IRA LLC clients. They choose real estate as a way to further diversify out of the US and out of the dollar. To take some cash off the gambling table in the time of Trump and to help grow retirement wealth or turn it into income from rental profits.

There are two ways to buy foreign real estate in your IRA. You can setup a self directed IRA and ask your custodian to make the investment. This is best if you will have only one international investment and don’t want to open a foreign bank account for your retirement account.

The other option is to take your entire retirement account offshore. Get rid of your custodian and take over management of your IRA. Get the entire account out of the United States and under your control.

You can do this by forming an offshore IRA LLC owned by your retirement account. Then this LLC appoints you as the manager and opens international bank accounts at institutions that understand US IRA rules.

The last step is to instruct your custodian to invest your entire IRA into this newly formed offshore IRA LLC. Once the cash is transferred into the IRA LLC bank account, the custodian’s control ends and yours begins.

From here you can buy and sell foreign real estate, trade stocks, buy physical gold, and generally manage the assets of the account for the benefit of your IRA. You are to act as a professional investment manager and “always work in the best interest of the account.”

Once you’re installed as the manager of your offshore IRA LLC, you’re responsible to follow all of the US rules imposed on professional investment managers. This basically means that you can’t personally benefit from your retirement account.

So, you can’t buy a house and live in it, can’t borrow from the account, can’t use IRA funds to pay off an existing or personal mortgage, and can’t combine IRA money with after tax money in one offshore account.

These rules are detailed in IRC Section 4975 and referred to as prohibited transactions. A prohibited transaction is any improper use of an IRA by the account owner or account manager (both of whom are now you), beneficiaries, or any disqualified person.

Examples of prohibited transactions include:

Borrowing money from your IRA
Selling your property to your IRA
Using your IRA as security for a loan
Buying property for personal use

Most of these are self explanatory. I should point out that you are allowed to use loans to by foreign real estate in your IRA. You are just prohibited from pledging your account as collateral for that loan. To put it another way, you can borrow money to buy foreign real estate with a nonrecourse loan. You can’t borrow with a recourse loan that’s guaranteed by the IRA or by you personally.

Above I said that these rules apply to you, beneficiaries and disqualified persons. Disqualified persons are defined in IRC Section 4975(e)(2). Here are the most common disqualified persons:

The account owner (obviously)
A person providing services to the plan such as an attorney, CPA, real estate agent, investment advisor, etc.
A business, corporation, partnership or trust of which you own 50% or more (ownership or control / voting rights)
Your spouse, parents, grandparents and great-grandparents, children (and their spouses), grandchildren and great-grandchildren (and their spouses).

The term “disqualified person” does not include siblings (brothers and sisters) or aunts, uncles and cousins of the IRA owner.

With all of those caveats, you are absolutely allowed to by foreign real estate in your IRA. You can do it through a custodian, if you don’t mind having him in control of the property, or setup an offshore IRA LLC to handle the transaction.

I hope you’ve found this article on whether you can buy foreign real estate in your IRA to be helpful. For more information on taking your account offshore, please contact me at info@premieroffshore.com or call us at (619) 483-1708. We have been assisting clients get their accounts offshore since 2002 and will be happy to work with you.

Just remember that there are risks in taking your IRA offshore. You must follow all the IRS rules and act in the best interest of the account. This means you’ll need ongoing support and an incorporator / advisor who’s an expert in these US rules. If you don’t hire Premier, hire someone in the United States. For more on why you need a US expert, see: Risks in Taking Your IRA Offshore.

Enhanced Protection for Your IRA

01/16/2017/0 Comments/in Articles, Asset Protection, Offshore IRA/by Christian Reeves

Many people think that IRAs are protected from civil creditors and the IRS… many people are wrong. Here’s how to get enhanced protection for your IRA and take control of your investments.

IRA assets are protected to varying degrees by each of the states and under the federal bankruptcy law. In order to secure 100% protection from all creditors and the IRS, you need an enhanced protection plan for your IRA. Remove your retirement account from the United States and get it away from US judges and creditors.

First, let’s look at what protection your IRA has. I’ll focus on California here, knowing that many states have similar rules.

In California, 401(k)s and profit-sharing plans are protected from civil creditors but not the IRS. IRAs are not as protected as 401(k)s because they are not covered by federal statutes. Therefore, a civil creditor’s ability to get your retirement account in California will depend on what type of account you have and how much you have in it.

401(k) accounts have better protection is because federal law prohibits civil creditors from going after pension plans that were set up under the Employee Retirement Income Security Act (ERISA). Examples of ERISA-qualified pension plans and benefit plans:

401(K) accounts
pension and profit-sharing plans
group health and life insurance plans
dental and vision plans, and
HRAs, HSAs, and accidental death or disability plans

Plans not covered by ERISA include IRAs, Roth IRAs, SEPs, and SIMPLE IRAs. These are covered by state law only, which offers far less protection than federal law.

California protects only that portion of your IRA which a judge believes you need to survive. This is the amount necessary for the support of you and your dependents at the time you retire. Yes, standard of living you’ll be allowed in your old age is at the discretion of the judge.

In deciding how much to “allow” you to keep from your IRA, the judge will consider the following questions:

Do you need the retirement funds now, and if so, how much?
Will you be able to replenish your retirement account if it’s awarded to a creditor?

Bottom line is, if you have a job and are under age 65, the court is likely to take all of your retirement savings. If you’re retired and in poor health, they’ll leave you enough to support yourself… not necessarily enough to maintain your current standard of living, but enough to keep you alive (think welfare recipient lifestyle without all of the Obama benefits).

Keep in mind that none of these plans are protected from IRS levy!

The most efficient way to enhance the protection of your IRA is to move it offshore. Get your retirement account away from US judges while maintaining the tax benefits. Take it offshore and out of the reach of future civil creditors and IRS levy.

It’s important to note that your IRA will retain its tax deferred (traditional) or tax free (ROTH) status. So long as you follow the rules, you can invest your IRA as you see fit, which includes offshore. The fact that this enhances your protection is a side benefit of investing abroad, not the sole motivating factor.

Here’s how to take your IRA offshore…

We first move your account from your current custodian to one that allows for international investments. Most custodians, such as Vanguard, Fidelity, and Chase don’t allow foreign investments. They want you to buy their bonds and those products on which they earn the highest commission. When you go offshore, your custodian gets no commission and has no control over your investments.

Note that changing custodians is done by transferring your account. It doesn’t involve a roll over and has no limitations.

Next, we form an offshore LLC in a max security jurisdiction like Cook Islands, Belize, Nevis, etc. This LLC is owned by your retirement account and you’re named as the manager of this company.

Then the LLC opens an offshore bank account and your custodian invests your account into the LLC by transferring cash to this foreign bank account. You’re the signer on the account and the one in control over all transfers and investments originating from it. That is to say, you have checkbook control over your IRA once it’s in an offshore LLC.

Tip: The IRS can levy your foreign account if your bank has a branch in the United States. For this reason, I recommend international banks that don’t have branches in the US.

Once your IRA is offshore, it’s your responsibility to manage the money for the benefit of your account, just as a professional advisor would (or should) do. This means you can’t borrow against it, use it for your personal expenses, buy home and live in it, etc.

You’ll find that the rules around offshore LLCs are simple. So long as you transact at arm’s length and act in the best interest of your IRA, you’ll stay out of trouble.

I hope you’ve found this article on how to enhance the protection of your IRA by moving it offshore to be helpful. For more information, and assistance in taking your retirement account offshore, please contact me at info@premieroffshore.com or call us at (619) 483-1708 for confidential consultation.

What Happens to Your IRA when you give up US Citizenship / Expatriate?

10/04/2016/0 Comments/in Articles, Offshore IRA, Second Passport, Taxation/by Christian Reeves

Thousands of Americans will turn in their blue passports in the next few months. Some because of our crazy political climate, some to stop paying taxes into a broken system, and some because of FATCA and the international banking laws which make it impossible to live or do business abroad. This post will consider what happens to your IRA when you give up your US citizenship or expatriate from the United States.

Whatever your reason for giving up your US citizenship, you need to carefully plan the expatriation process. It’s be fraught with risks, costs, and problems for high net worth individuals.

First, let me define who is a “high net worth expatriate.” The IRS only cares about losing high earners and payors. They could give a damn about the rest of us.

When I consider what happens to your IRA when you give up US citizenship, I am referring only to this group high net worth expatriates.

According to the IRS, a high net worth expatriate is someone whose:

Average annual net income tax for the 5 years ending before the date of expatriation or termination of residency is more than $151,000 for 2012, $155,000 for 2013, $157,000 for 2014, and $160,000 for 2015. As you can see, this amount goes up each year and is tied to inflation’
Net worth is $2 million or more on the date of your expatriation or termination of residency, or
Fails to certify on Form 8854 that you have complied with all U.S. federal tax obligations for the 5 years preceding the date of your expatriation or termination of residency.

If you meet any of these criteria, you’re high net worth person (high value taxpayer) for US expatriation purposes, otherwise referred to as a “covered person.”

So, the question more properly framed is, what happens to your IRA when you give up your US citizenship or expatriate and you are a covered person?

High net worth covered persons pay tax as if their IRA was fully distributed to them on the day they expatriate.

The early distribution penalty does not apply.

The only published information from the IRS is Notice 2009-85. The discussion of specified tax deferred accounts Section 6 of this notice.

“The mark-to-market regime does not apply to specified tax deferred accounts. Instead, section 877A(e)(1)(A) provides that if a covered expatriate holds any interest in a specified tax deferred account (defined below) on the day before the expatriation date, such covered expatriate is treated as having received a distribution of his or her entire interest in such account on the day before the expatriation date. Within 60 days of receipt of a properly completed Form W-8CE, the custodian of a specified tax deferred account must advise the covered expatriate of the amount of the covered expatriate’s entire interest in his or her account on the day before his or her expatriation date.”

Note that the covered person is treated “as having” received a distribution. This is not the same as having your IRA account cancelled or closed. In fact, you have the option of continuing your IRA after giving up your US citizenship.

If you were to close your account and take a distribution, you’d be liable for the early distribution penalty. If you close your IRA as part of giving up US citizenship before reaching 59 1/2, you will pay a 10 percent early withdrawal penalty in addition to income tax on the amount withdrawn.

If you decide to keep the IRA open after expatriating, you’ll pay US tax when you take distributions from the account, presumably at age 70 ½. This tax will be calculated only on appreciation in the account from the date of expatriation.

That is to say, a covered person will pay US tax on all the gains in her account on the day she gives up her US citizenship. Then she’ll will pay US tax on the gains earned in that account after expatriating when she take the required distributions.

The IRA remains intact. All you did is “prepay” your US taxes on the account.

For example, you have $100,000 in your IRA on January 1, 2017 when you give up your US citizenship. You pay tax on this $100,000 on January 1, 2017 . You decide to keep the account open after expatriation and begin taking distributions 5 years later, in 2022. As of January 2022, your account is valued at $130,000. You will pay tax on the gain of $30,000 as you take these distributions.

Considering you will remain linked to the US tax system after expatiating through your IRA, you would have to be facing a very large early distribution penalty for it to make sense to keep an IRA open.

If you’re a 45 year old doctor who rolled a two million dollar defined benefit or profit sharing plan into an IRA, then you might keep the account going. If you have $150,000 in your IRA, pay the 10% penalty and be done with it.

I hope you have found this article on what happens to your IRA when you give up US citizenship to be helpful. The bottom line is that 95% of us should close our accounts and be done with the IRA. Only those facing large early distribution penalties should consider keeping their account open.

For more information on how to give up your US citizenship, and how to expatriate from the United States, please contact me at info@premieroffshore.com.

Keep in mind that the first step in giving up your US citizenship is to get a second passport. Until you have a second passport in-hand, you can’t burn your blue passport. For ideas on where to buy a passport, see my article: 10 Best Second Passports.

Top 5 Risks to Your IRA

07/12/2016/0 Comments/in Articles, Offshore IRA/by Christian Reeves

Most Americans think that their IRA is safe… and they would be wrong. Our IRAs and retirement accounts face risks from all sides. Here are the top 5 risks to your IRA and what you can do to protect your savings.

1. IRS Levy of your IRA or other retirement account.

The Federal government and the Internal Revenue Service can size your IRA for any tax debt. If you owe the great collector, or the computer says you do, then your retirement account is at risk.

Note that the IRS doesn’t need to go to court or otherwise prove you owe back taxes. In fact, none of the debtor protection laws apply the the Service. Quite frankly, then can do whatever they like… or whatever the computer tells them to do.

This is true even if you didn’t file a tax return. Let’s say you’re living in Panama and earning $30,000 a year. This is well below the Foreign Earned Income Exclusion, so you figure you won’t bother file your US returns. You won’t owe any money, so why go through the hassle and expense?

Here’s one of the reasons why: The IRS will get information from your foreign banks and brokerages. They will also receive information from US firms (Form 1099). The computer will interpret 100% of this as income and prepare a Substitute For Return on your behalf.

The SFR won’t consider the FEIE nor any other deductions or adjustments. Once in the system, a tax debt will be created. The IRS will send out a few letters by standard mail, which you probably won’t receive, and then the debt becomes final.

The fun starts when a collection agent is assigned to your case. He will seize any cash he can find in US banks. When that fails, he’ll go after any offshore bank that has a branch in the US.

When those lines come up dry, he’ll issue a levy against your retirement account. He can take 100% of your retirement savings up to the amount of the tax debt. He need not leave you a penny to pay your bills or support yourself.

And it gets worse. When the IRS takes your IRA, it’s a taxable distribution to you. Yes, you get to pay tax on the money the IRS seizes as if you voluntarily took it out. At least the IRS waives the 10% early withdrawal penalty on levys.

Fyi… if you voluntarily withdraw money from your IRA to pay the IRS, the 10% penalty will apply (in addition to it being a taxable distribution). If your IRA is stuck in the US and at risk, you may be better off telling the government to levy the account rather than you taking a distribution.

2. Missed Child Support Payments

If you owe back child support, Child Services can seize your IRA using a Qualified Domestic Relations Order. This is a court order that requires the plan administrator (US custodian) to transfer funds to your ex / baby mama / baby daddy.

You might also like to know that the IRS and child support agencies can revoke your US passport. A passport is not a right, it’s a privilege bestowed on us Americans from on high. For more on this, see Warning: The IRS Can Now Revoke Your Passport.

3. Obama

Obama laid the groundwork for the takeover of your retirement accounts by creating a test program that required IRAs be invested in US treasuries. myRA, launched in 2012 and was “upgraded” in 2016. It’s a retirement plan for new savers that allows them to invest in safe treasuries… because they are obviously not capable of choosing their own investments.

Take a read through the government website. You’ll find all kinds of references to safety, security and protecting the American worker.

Expect these talking points to come into focus in the next two years in an all out push to move your IRA to treasuries.

Note that this is not a partisan issue. I believe that both Republicans and Democrats will be forced to convert our IRAs to treasuries in the near future. Soon enough, it will be Trump or Hillary telling us how the government needs to protect its citizens by taking over management of our retirement accounts.

4. Civil Creditors

If you get sued, your IRA is at risk. The US bankruptcy statute allows you to protect about $1.1 million of retirement assets from creditors. But, that requires you to qualify for and go through bankruptcy. As a part of this process, your creditors will be able to breach multiple domestic asset protection structures and get paid… maybe not from your IRA, but they will collect.

Any time a US judge is making decisions about your finances, expect her to side with the plaintiff. The US system is focused on making the injured party whole. Very little is done to protect your rights (the defendant’s rights).

Proper planning will move your IRA out of the reach of creditors without requiring you go through bankruptcy.

5. Currency and Stock Market Risks

China and every other country is dumping US treasuries and selling off US stocks fast. China’s stash of American stocks sank by $126 billion, or 38 percent, from the end of July through March of this year. China also sold off about 20% of their US treasuries.

Combine this with the fact that gold is on a tear, and the writing’s on the wall for the US dollar. Whether you think we are in for a correction or a catastrophe, it’s time to diversify your retirement savings.

What can you do to protect your retirement account from a government looking to shore up its treasuries, IRS seizure and civil creditors, and diversify out of the dollar?

Take your IRA offshore before it’s too late.

I suggest that the first step in implementing the myRa plan on a larger scale is to block future IRA transfers offshore. The US is likely to eliminate the loophole that allows you to take control of your retirement account and move it out of their grasp in the next year.

Most experts agree that those who are already offshore when the hammer comes down will be safe. It would be nearly impossible to reach offshore IRAs that are invested in immovable assets like real estate and hardwoods (one of the most popular investments offshore today).

However, it will be very easy for the government to close the door. One rule change by the IRS and no more offshore IRA LLC transfers. And, once that door shuts, I guarantee it won’t be opened again.

If you’d like more information on protecting your retirement account, please see my Offshore IRA LLC page. We will be happy to assist you in structuring your retirement account offshore and opening bank and brokerage accounts for that structure.

If you believe your IRA is at significant risk from civil creditors, you might also take a read through Protect Your IRA by Converting it into an Offshore Trust. This is a specialized asset protection structure we have developed for high risk clients.

I hope you have found this post on the top 5 risks to your IRA to be helpful. Please drop me a line to info@premieroffshore.com or call (619) 483-1708 for a confidential consultation on taking your retirement account offshore.

Take Your IRA Offshore Before it’s too Late

06/12/2016/0 Comments/in Articles, Offshore IRA/by Christian Reeves

If you want to diversify your IRA offshore or out of the US dollar, time is running out. From what I hear, Obama is looking to renew his push for myRA and forcing even more Americans to invest their IRAs in treasuries.

If you’ve forgotten the Obama myRA, here’s the new site they rolled out. The Obama retirement account plan is all about “helping” Americans save more and save more securely.

myRA is founded on two principles: 1) we sheep are incapable of selecting our own investments, and 2) we should be forced to invest in the most secure investment available – US treasuries. Fortunately, the government is here to watch over us.

The myRA program is for young Americans who don’t have a company sponsored plan. It will indoctrinate them into a government managed retirement account and is the test case for a nationalized retirement account system. Once they work out the bugs in the system, myRA will be rolled out to employer sponsored plans.

Most expect the process to go as follows:

myRA program acceptance,
Employer plans requiring an ever increasing percentage of treasuries,
Eventually the majority of retirement accounts are in US government securities, and
Prohibiting the placement of retirement account assets in “unsafe” investments like stocks, bonds, real estate, etc.

Somewhere in between steps 1 and 2 above, the government will prohibit the movement of retirement assets offshore. The program will begin with a media blitz on how risky foreign investments are for America’s seniors and will focus on 1 or 2 pensioners lost their shirts offshore.

Then the government will step in to protect us from ourselves by preventing the formation of LLCs owned by retirement accounts. The coupe de gras on offshore IRAs will come as a prohibition of the transfers of retirement money and assets out of the United States.

Note that nowhere in this series of events is the forced repatriation of existing retirement accounts. That’s because I, and most others who study this situation, believe those who are offshore now will be grandfathered in. We have a few reasons for this belief:

First, vast quantities of generational wealth are stored in offshore IRA LLCs. America’s wealthiest families are fine with a program that protects us sheep, but not when it impacts them.

The most well documented of these accounts was back in the 2012 presidential election. Offshore IRA LLCs were in the press that year because Mitt Romney held his IRA investments abroad. Click here for a 2012 article from the Wall Street Journal.

Second, these offshore structures have specific tax usages / benefits for offshore IRAs. Forcing existing IRA LLCs back to the USA would cause havoc with the Unrelated Business Income Tax section of the US code. I won’t bore you with the details, but suffice it to say, this would force hundreds of millions of active investments to be unwound.

If you want to read on how to use an offshore IRA LLC structure to minimize Unrelated Business Income Tax from leverage, here are two thrilling articles on this topic:

Third, many offshore IRA LLCs are invested in real estate and other assets which can’t be seized or easily liquidated to comply with a demand to repatriate. Attempting to bring back offshore IRAs would create an administrative and media nightmare that the government is likely to look to avoid.

For these reasons, I expect existing offshore IRA LLCs to be granted an exception to the new legislation. You might not be able to add to them, but whatever is offshore when the hammer comes down will be allowed to remain there.

Note that this opinion is not based on politics, but on experience backed by research. It won’t matter who our next president is, the demands of our deficit and our currency bubble must be served. The easiest way to shore up the damn is to force retirement accounts to invest in US treasuries and begin again with the unfettered printing of money.

If Obama doesn’t nationalize your IRA through executive order, either Trump or Hillary will be forced to keep the engine running. Expect both to expand on myRA and then require you to invest your retirement account in US Treasuries.

If you want Uncle Sam to manage your investments for you, then do nothing. If you want to take control of your retirement account and diversify out of the US, then you need to act quickly. The window of opportunity on taking your IRA offshore is closing fast.

I hope you have found this article on the future of our retirement accounts helpful… or, at least, food for thought. If you would like more information on how to take your retirement account offshore, see my Self Directed IRA page.

You can also reach me directly at info@premieroffshore.com or (619) 483-1708 to discuss moving your retirement account offshore.

Protect Your IRA by Converting it into an Offshore Trust

05/28/2016/0 Comments/in Articles, Asset Protection, Offshore IRA/by Christian Reeves

You know that offshore asset protection trusts offer the best security available. They’re an excellent way to protect your after tax savings. But, what of your retirement account? In this post I’ll show you how to protect your IRA by converting it into an offshore trust.

Let me start by talking about where to build your fortress, then we’ll review the safety features of an offshore trust. Finally, we will get to how to protect your IRA by adding those features to an offshore IRA LLC structure.

Here are the pillars to solid offshore asset protection:

Jurisdiction: Where you incorporate your offshore trust or LLC is just as important as how you build it out.

History: Select a country with a long history of standing up for plaintiffs rights. One that has been offering international trust services for decades without being broken and at a high / professional level.

Case Law: Select a country where offshore asset protection statutes have been tested in many court battles. If those cases have been heard in both the US and in the foreign jurisdiction, all the better.

Quality Local Representatives: Hire a trust company and protector service staffed by quality attorneys with licenses from major jurisdictions.

For all of the above reasons, Cook Islands is the best country in which to build an offshore asset protection structure. The best jurisdiction in which to make your stand.

A Cook Islands Trust is the strongest form of asset protection worldwide. It has the most proven asset protection case law history in the world. Representatives in Cook Islands are New Zealand or Australian attorneys with decades of experience defending client’s assets. The Cook Islands ticks every box.

Next, let’s talk about the structure of an offshore trust for asset protection. What we call the “trust” is comprised of several components.

Settlor: The settlor of the trust is the owner of the assets going and the person creating the trust. The person funding the trust / transferring their assets to the trust.

Trustee: The person or firm outside of the United States that will manage your trust and handle local filing and compliance. Should you pass away, the trustee will distribute your assets per your letter of wishes (see below).

Protector: The protector, also based outside of the United States, steps in to manage your assets within the Trust if you come under duress. If someone sues you, then you transfer management responsibilities to the protector.

Offshore LLC Management Company: Most clients want to maintain control of their assets until and unless they come under duress. For this reason, we form an offshore LLC to manage the trust. The trust transfers its cash to this asset management firm, which happens to be owned and controlled by the settlor. If the settlor comes under duress or attack, he returns this responsibility to the trust and then the protector.

Trust Document: The trust document is the very long and detailed contract between the settlor, trustee and protector. It’s the heart of your asset protection plan and what must stand up to US, IRS, and creditor scrutiny.

Beneficiaries: Those who will receive the assets of the trust should something happen to the settlor(s).

Letter of Wishes: A letter sent by the settlor to the trustee telling him or her how to disburse the trust assets at your passing. This letter can be as simple or complex as you like.

That’s a very brief summary of how to structure an offshore trust. Now we are ready to apply those tools to protect your IRA. For more information on trusts, see my International Trust page for more detailed information.

Remember there are a bunch of IRA rules to follow to ensure your account remains tax deferred in the United States. So, this is not as simple as forming a trust and putting your IRA money in that trust. That would be an improper distribution resulting in taxes and penalties on your retirement money.

See my Offshore IRA page for the basics of moving your retirement account offshore.

When we take an IRA offshore we form an LLC in a foreign country that won’t tax your investments. When we want to maximize the protection for your IRA, we form that LLC in the Cook Islands.

In this way, the same history, law and professional services will apply to your Limited Liability Company as give the offshore asset protection trust it’s standing.

The offshore IRA LLC has a Member (like a Settlor) and a Manager (like a Protector). By using a Cook Islands protector as the Manager, we maximize protection. The LLC will also have a detailed Operating Agreement which uses many of the same asset protection tools as is found in an international trust agreement.

Before I get to that, let’s talk about the Member. This is a rather strange concept when we have an IRA and an LLC.

In most situations, the Member of an LLC is the person or persons who will control the company. Not in the case of an offshore IRA LLC.

IRA rules dictate that the Member must be the IRA account… not a person, nor you the beneficial owner of the account. The account itself owns the LLC. That is to say, the Member is the owner of the underlying assets of the company, and that owner is the account, not you.

The ownership statement of your offshore IRA LLC will look something like this: IRA Custodian Company, Inc. FBO Bob Smith IRA Account #55-55555555

Remember that all offshore IRA LLCs must have a US custodian. For more on that, see my Offshore IRA page.

FBO = For the Benefit of

It’s the Manager and the Operating Agreement where we have room to maneuver. We’ve spent many weeks working with experts around the world to convert our strongest offshore trust document into an offshore IRA LLC Operating Agreement.

We’ve also contracted with the very best protectors in the business, who are based in the Cook Islands, to act as the Manager of your offshore IRA LLC. They will manage your IRA investments to your specifications and create a solid barrier between your account and any civil creditors.

By combining the benefits of an offshore trust with the IRA rules, we have developed a custom max protect solution you will not find anywhere else. If you have a high risk of litigation, or otherwise believe your retirement assets will be at risk if under your direct control, we can help you protect your IRA by going offshore through a Cook Islands LLC and adding on a Cook Islands protector as your Manager.

I hope you’ve found this post on how to convert your IRA into an offshore trust to be helpful. Please contact me at info@premieroffshore.com or call (619) 483-1708 for a confidential consultation on how to max protect your IRA when going offshore.

These services are meant to protect your IRA from future civil creditors. We will not build a structure to hide assets from the IRS or the US Government. Also, offshore asset protection is only available if you are not currently in litigation. Going offshore after the harm is done could be a fraudulent conveyance and thus illegal.

Panama Foundation IRA Tax Review

10/13/2014/in Articles, Asset Protection/by Christian Reeves

The Panama Foundation has been approved as the “owner” of a U.S. retirement account in Panama. This means that, those who want to invest in Panama, have access to banks or brokerage services in Panama, or hold their retirement account n the most advanced asset protection and estate planning tool available, may now move their IRA to a Panama Foundation.

This article is a review of the U.S. and Panama tax laws as applicable to holding an IRA in a Panama Foundation. I’ve included cites for those who want to delve in to the U.S. tax code or the ERISA statutes.

I begin by noting that the U.S. code sections that allow you to move your U.S. retirement account in to a domestic or foreign LLC are the same ones used to support the Panama Foundation. The Foundation is conveyed in to a disregarded entity for U.S. tax purposes, just like an LLC, but retains its estate planning and asset protection components in Panama.

The Panama Foundation IRA structure we have created is designed around the U.S. domestic business trust IRA and the offshore IRA LLC. In a business trust, the IRA makes an investment in to the trust by acquiring the “beneficial interest” of the trust. Often the IRA will purchase 100% of the “beneficial interests” of the trust, much like it will acquire 100% of the “membership interest” of a limited liability company or shares of a corporation. Essentially, the term “beneficial interest” is the title for “equity interests” in the business trust.

Using IRC § 4975 (e)(2)(G) and ERISA Reg 2510.3-101(b)(1), we have applied these rules to the Panama Foundation, which is a hybrid trust and corporate entity. In the case of the Panama Foundation, the IRA account is the trustor or settler of the Foundation (i.e., the party who transferred assets to the Foundation) and the beneficiary (the party that holds the beneficial interest of the Panama Foundation). Therefore, the IRA account is both the trustor/settlor and the only beneficiary of the Panama Foundation.

Limitations!

In a traditional asset protection structure, we don’t usually recommend the Founder be the same “person” as the beneficiary. In the case of a Panama Foundation IRA, this is required to maintain the tax preferred status of the retirement account under U.S. law.

Also, the Panama Foundation IRA we have created may not act as both the owner of your retirement account and as an asset protection trust for your after tax (non – IRA) money. You may not mix after tax cash with your retirement savings.

U.S. Tax Classification of a Panama Foundation IRA

When you take your retirement account offshore, the objective is to (legally) eliminate all Federal and States filing obligations. To accomplish this, the Panama Foundation IRA must have only one member/founder and be considered a disregarded entity for U.S. tax purposes. This is quite different than a typical trust used for estate planning purposes or a Panama Foundation used for asset protection.

Specifically, a typical U.S. trust is governed under Subchapter J of the U.S. tax code § 641. The Panama Foundation’s tax status is determined under the “check-the-box” Treasury Regulations.

Under Treasury Reg. 301.7701-4(b), a foreign entity is treated as a business entity and classified for under Treasury Reg. 301.7701-2. Under this section, a business entity with two or more members is classified as either a corporation or a partnership. A corporation is then defined to mean a business entity organized under a state or international statute which refers to the entity as “incorporated” or as a “corporation.” For example, a Panama corporation is by default a foreign corporation, and not a partnership or trust, because it is “incorporated” under the relevant Panama code sections. Likewise, any entity ending in Inc., A.G., Corp., Ltd., or a similar designation is assured to be a corporation for U.S. tax purposes.

Now that your Panama Foundation is classified as a disregarded entity, because it has only one owner of the beneficial interests and/or submitted the form to be classified as a disregarded entity, it will not have to file federal or state income tax returns.

State tax: For example, every corporation doing business in California is subject to the minimum franchise tax of $800. The same goes for any LLC formed in California. But other entities, such as trusts formed outside of the State, are not required to pay this tax. For more information, see the California Revenue and Taxation code and related regulations (§ 23038 and CA Admin Code Title 18 § 23038(a), (b)-1 and (b)-2. As to the disregarded entity status in California, see Rev and Tax Code § 17942(a) and (b).

Plan Asset Rule

Once your retirement account has been moved to a Panama Foundation, and you are the manager of that Foundation, you’ll be required to follow the various Plan Assest Rules as defined in the ERISA Regulations at 2510.3-101(a)(2). As the plan manager, you become a fiduciary of the IRA and must always act in the best interest of the account and the Panama Foundation IRA.

As a fiduciary, you are prohibited from borrowing from the plan, using the funds for your personal benefit, making certain prohibited investments, and engaging in any transaction at less than fair market value. Basically, you are to manage the Panama Foundation for the benefit of the retirement account as a professional investment advisor would. You should act as if the funds belong to someone other than you… which, in fact, they do… cash belongs to the IRA.

I would like to point out here that these rules apply to Panama Foundations and LLCs that hold a U.S. retirement account. They are not applicable to a Panama Foundation used to protect after tax money (personal savings).

For more information on your rights and responsibilities, as well as a discussion of what you may and may not invest in, please see my Self Directed IRA page (top right of the menu).

Documents of the Panama Foundation

Where a typical Panama Foundation consists of a Foundation Charter and a Letter of Wishes, a Panama Foundation IRA is built upon a similar Charter and an Operating Agreement. The Charter sets forth the purpose of the Foundation in general terms and the Operating Agreement (which is a private document not filed with the government) describes the IRA structure in detail.

The Foundation Charter is public record and filed in Panama. The Operating Agreement is essentially a contract between you and the U.S. custodian detailing each party’s rights and obligations with regards to the IRA Foundation. Collectively, these are referred to as the Foundation documents.

The Foundation documents work together to set forth the purpose of the Foundation, which is to make appropriate investments and manage the IRA funds it controls. As such, these documents give the manager (you) the authority to open bank and brokerage accounts, purchase property, and spend money to improve or add to that property.

It is the Foundation Charter that gives the Founder the ability to enter in to the Operating Agreement with the retirement account administrator. Then it is these documents together that allow you, the beneficial owner of the retirement account, to be appointed as the manager.

As the manager of the Panama Foundation IRA, you have the right to make investment decisions, as well as any changes to the Foundation Charter and Operating Agreement. As such, you are taking the right and responsibility to make decisions away from the U.S. administrator.

The administrator agrees to transfer this authority to you, and you agree to indemnify him from any actions you take as the manager of the Panama Foundation. In other words, the Operating Agreements says you must follow all applicable rules (such as the plan asset rule), and can make any permitted investment you like. If you lose money, or break a rule and the IRA is penalized by the IRS, that’s on you… the administrator has no liability. His job is to 1) invest the IRA in to the Panama Foundation and 2) file annual forms with the IRS. For this, he will charge a few hundred dollars a year. He doesn’t get to charge a fee or make a commission on any of your investments and has no liability if you make a bad deal.

As such, you will be the only signatory on the bank accounts. The U.S. administrator will have no right to force the assets of the Panama Foundation be returned to the United States. If you come under attack (litigation), then you decide how to handle those offshore accounts.

Finally, you are not required to seek the administrator’s permission for any investment. You have total control over the check book of the Panama Foundation… and that’s how the administrator wants it.

Active Business in a Panama Foundation IRA

The Panama Foundation, as defined in Law No 25, Private Interest Foundations, issued on June 25, 1995, may not operate an active business. So, while it is legal for a U.S. IRA to operate a business, it is not possible to do so if you move the retirement account in to a Panama Foundation.

However, I don’t see this as much of a drawback… an offshore IRA should not be operating a business anyway. Any business owned and operated by a retirement account will generate Unrelated Business Income in the United States, which will be taxed at 35%. That’s right, active business income earned in a retirement account is taxable.

To eliminate this tax, an offshore IRA structure may form a UBIT blocker corporation to hold the business. Then, the corporation passes interest and dividends up to the Foundation/IRA. This converts the UBI in to traditional investment income and avoids the UBIT.

For more information on UBIT and blocker structures, please see my various posts on this topic. Suffice it to say, any active business owned by the Panama Foundation IRA should be in a Panama corporation.

I hope you have found this review of the Panama Foundation IRA structure helpful. For more information, please call us or send an email to info@permieroffshore.com. We will be happy to work with you and answer any questions you may have.

Note that we are the creators of the Panama Foundation IRA structure. As such, we are uniquely qualified to help you move your retirement account to Panama.

Move Your IRA to Panama

10/10/2014/in Articles, Asset Protection/by Christian Reeves

We have been working for months with lawyers, banks, and government agencies in Panama and are finally ready to announce some great news for those seeking asset protection. You may now move your IRA or other retirement account to Panama and in to the best protection and estate planning tool available… the Panama Private Interest Foundation.

This represents the culmination of a great deal of negotiation and a titanic shift in the offshore IRA industry. While you were previously required to form an offshore LLC, you may now utilize a U.S. compliant Panama Foundation to hold your retirement account. This means you have access to all of the investment service providers, banks, and investment opportunities in Panama without being required to add a Panama corporation to your offshore LLC or getting your LLC licensed to do business in Panama… which is a major hassle costing thousands of dollars to complete.

This also means your IRA is in a Category III entity, which is much more advantageous for larger accounts and gives you access to a wider range of jurisdictions.

Let me explain. Before we created the Panama Foundation IRA, you were required to place your IRA in to an offshore LLC. This is because you needed to move it in to a disregarded entity for U.S. tax purposes to maintain the tax benefits of being a U.S. compliant retirement account. If you wanted to invest in a country that doesn’t have an LLC statute, you needed to create a subsidiary corporation under your offshore LLC. This increased the formation costs and maintenance, as well as the U.S. compliance required to move your IRA offshore. Most notably, the offshore corporation is required to file a U.S. tax return, IRS Form 5471, which creates too many headaches to list here.

* The only countries offering compatible offshore LLCs are Anguilla, Nevis, Belize, and the Cook Islands. Obviously, this limits your investment options unless you form an offshore corporation owned by the LLC.

Being what is referred to as a Category III entity, the Panama Foundation may open accounts and make investments in Panama (obviously) and other countries that have agreements with Panama. This includes Hong Kong and Cayman Islands. Cayman is universally regarded as the most advanced offshore banking jurisdictions for larger investors, but has no LLC statute. Structures from Anguilla, Belize, Nevis and Cook Islands are (basically) prohibited from opening accounts in Cayman, but a Panama Foundation has the same legal standing as a domestic entity… which is a major advantage.

* For more on Cayman, please see my article on this topic.

Also, when designing an offshore IRA structure, you want to ensure you are not required to file any U.S. tax forms. Eliminating filing requirements will save you thousands in compliance costs and greatly reduce the probability of being audited.

Moving your IRA in to the Panama Foundation structure we have created eliminates all U.S. filing obligations. Both an offshore LLC and our Panama Foundation structure are classified as disregarded entities for U.S. tax purposes and therefore not required to file a return… again, unless you add a corporation to the structure.

* There are times when a corporation and filing Form 5471 can be a major advantage. See my articles on UBIT blockers for more information.

I also note that the Foreign Bank Account Report (FBAR) is not required for a bank or brokerage account owned by a retirement account.

The above description covers just the basics of moving your retirement account in to a Panama Foundation. I will be releasing a detailed analysis of the structure and its legal basis in the U.S. in the next few days.

Please understand that the Panama Foundation IRA has a different objective than our typical asset protection structure. As this Foundation must meet all U.S. requirements for a retirement account, and we wish to prevent the need to file U.S. returns, it uses a different legal system than a Panama Foundation for protecting after tax income. That is to say, not all my comments and articles on the Panama Foundation apply to a Foundation which holds an IRA.

Basically, what we have done is take those aspects of the Panama Foundation that maximize asset protection and estate planning for U.S. persons, and convert them in to a structure that can support your retirement account. Once the account is inside the Panama Foundation, you are the manager and have complete control over the investments and the checkbook of the Foundation.

As the manager of the Foundation, and the fiduciary of the retirement account, it’s your job to manage the assets of the Foundation for the benefit of the retirement account, and not for your own gain. I will address this in more detail in my next post.

Our design also incorporates legal components from the U.S. business trust (which is quite different from a U.S. grantor trust) and the offshore LLC structures we have offered for the last several years.

The Panama Foundation IRA may hold any investment permitted under the U.S. IRA statutes. This includes physical gold, bank and brokerage accounts, and real estate. In fact, the Panama Foundation may hold land or other property to be improved by the Foundation, or a rental where the Foundation is to collect rents and pay expenses.

So, moving your IRA in to a Panama Foundation rather than an offshore LLC, will allow you to invest in and open accounts in Panama without a corporation or other expensive maneuvers. If Panama is where you would like to keep your investments, or you need access to other advanced markets (such as Cayman), you should consider forming a Panama Foundation IRA.

Please send an email to info@premieroffshore.com for additional information. We will be happy to review this unique structure with you.

Stay tuned for my tax and legal analysis of the Panama Foundation IRA…

Physical Gold is the Ultimate Investment

10/01/2014/in Articles, Asset Protection/by Christian Reeves

Physical gold has served as the universal currency for 5,000 years and will continue to do so long after We the People, and this nation of ours, have ceased to exist.

Physical gold is also the only reliable hedge against political instability, government debt, and inflation. It is a borderless currency whose value comes from supply and demand, not how ever much the government decides to print. It’s not based on a government promise or regulation, but is a physical precious metal.

Need proof? Physical gold has the highest liquidity value in the world. You can exchange it for cash in any major city in the world, and at just about any time of day. If you hold your gold outside of the reach of Uncle Sam, you can access it at any time, and exchange it for local currency, or goods and services, with minimal effort and at a guaranteed rate.

And gold thrives during inflationary times. Not if, but when, the United States and the U.S. dollar go through a revaluation, it will be physical gold that soars and where everyone is rushing to. Don’t be the sheep. Invest outside of the U.S. in physical gold now, while prices are low and access is assured.

* Note that I write about physical gold because I believe in its value and the need to diversify abroad. Premier doesn’t sell gold and we are not investment advisors. We can introduce you to firms in Panama and Switzerland that can assist you, but we earn no commissions or other income from these transactions. My advice here is independent and without financial motive.

More importantly, the price of physical gold is not dependent on investors or the markets. In fact, investors accounted for only 16% of the gold supply in 2013 (World Gold Council). The largest mover was consumer demand at 51%, then reserve banks at 17% and industry use at 12%.

If you’re like me, you start your day by watching the financial channels (I go with CNBC). The news is often hostile to gold and gold ownership as an investment class. They are too busy pushing viewers towards the U.S. stock market… it is at all time highs don’t you know! That means it’s time to buy!!

Well, regardless of this BS, and the industry news you get from the brokerage firms, the investment in physical gold (not paper gold), remains strong. I suggest that physical gold is one of the most important elements in your onshore or offshore portfolio.

The demand for physical gold has never been higher. TV viewers would be shocked to learn that investment in 2013 was up 28% from 2012… some people must know something the talking heads on TV don’t.

This represents about 44% of the total gold market of $170 billion and compares favorably to the paper gold market for exchange traded funds, which saw a loss of $40 billion. That’s to say, $40 billion moved out of paper gold and in to physical gold in 2013. There is now more money in physical gold than in ETFs by a factor of 8 to 1 (the last two paragraphs are according to the World Gold Council).

What you will find in the industry is that paper gold and hypothecation of gold is manipulating the price… pushing it down. If these are eliminated from the market, such as during a realignment of the dollar or demand in gold because of hyper inflation, the price of physical gold will skyrocket.

* This is because gold doesn’t correlate to any investment class. It went up in value during the 2008 recession.

You will also see that those who invest in physical gold take the long view. They recognize it as the ultimate hedge. Buyers see it as a superior asset allocation… not just seeking to buy low and sell high, as is attempted in the EFT market. Investors in physical gold buy to provide support for their other investments. The price they buy in at should be of little consequence. Yes, it’s low today, but if it were to double in the next few months, my advice would be the same: buy physical gold and hold it outside of the United States.

That’s right, you can buy physical gold offshore. It can be held in a vault or you can take possession. We work with a number of offshore providers and will be happy to make introductions.

You can even purchase physical gold in your IRA. You first form an offshore LLC in a country like Belize, or a Panama Foundation, and move your retirement account in to that structure. From there, you can write the checks and make any permitted investment you like… which means you can buy physical gold in Panama and hold it in a vault.

* You can buy gold in an onshore or offshore IRA LLC structure, though we only offer international formations.

Once you have physical gold in your IRA, you can take required distributions in gold, rather than cash… keeping the investment in gold without the need to convert to cash. If any tax is due (traditional IRA rather than a ROTH), you will need to make those payments with good ole American greenbacks.

In fact, about 50% to 60% of our clients now take distributions in physical gold rather than USD. This is becoming one of the most interesting uses of offshore IRA LLCs, and one of the highest demands, in the industry.

Physical gold will also allow you to maximize privacy and asset protection. Gold held in a vault outside of the U.S., and outside the reach of the U.S. courts, has little risk of being seized by an aggressive creditor. More importantly, you are not required to report physical gold held in your name.

While you have probably heard much of the new IRS laws that require just about anything you have offshore to be reported to the U.S. government, physical gold is exempt. You may hold gold in an offshore vault and are not required to report it to any agency.

From here, you can pass physical gold down to future generations, keep it outside of your U.S. estate, minimize estate taxes, and do as you like without interference from the IRS or creditors.

I hope you have found this post on why physical gold is the ultimate investment interesting. For more information on taking your retirement account offshore, or buying gold in Panama, please give us a call or send an email to info@premieroffshore.com. We will be happy to work with you to structure your affairs in a tax efficient and compliant manner.

I think you will find physical gold to be a unique and valuable addition to your international portfolio. I also believe the price is set to jump. Quantitative easing, and other factors, have been holding down the price of gold since 2011, but this is going to change. QE will be stopped this month and a number of forces are coming to bare on the U.S. dollar (take a read through my posts on the USD vs. Russia and France).

When the flooding of markets with cash, the artificial support received by the U.S. stock market, and other fakery ends, we’ll come back to physical gold. It will increase in price and we will all benefit from our offshore portfolios. Remember that physical gold is where the stability lies. It is the one and only hedge against a significant market correction or currency realignment.

Offshore IRA LLC Tax Analysis

09/24/2014/in Articles, Offshore IRA/by Christian Reeves

Moving your retirement account in to an offshore self directed IRA LLC is the best (and really, the only) way to diversify out of the U.S., protect your assets from future creditors, and boost returns by investing in more dynamic markets.

I write quite a bit on why and how to move your account into an offshore self directed IRA LLC. This article is for those who want to get in to the nitty gritty of how it works from the IRS’s perspective. This post on the self directed IRA will include all relevant U.S. Internal Revenue Tax Code (IRC) and ERISA sections.

The first step in taking your IRA offshore and moving it in to a self directed IRA LLC is to open an account with a self directed custodian that allows for this type of structure. Note that you are required to use a U.S. custodian, but this custodian has no control over your assets or investments once they reach the IRA LLC.

We work with a number of self directed custodians/administrators, and will be happy to setup the account for you. If you prefer to do your own research, please Google Midland IRA and Entrust… these are the most efficient and specialize in offshore transactions. There are others found on domestic structures (IRA Services, for example).

Once your account is established, your administrator will give you an account number that will look something like: Midland IRA FBO Christian Reeves #55555-00. This is your self directed IRA account name and the “owner” of the offshore IRA LLC that we will form for you.

More specifically, this account will acquire a 100% of the “beneficial interest” of the offshore IRA LLC and hold 100% of the “membership interest” in your offshore company. According to IRC § 4875(e)(2)(G) and the ERISA Regs at 2510.3-101(b)(1), the beneficial interest in an LLC is the equity interest in the assets of the entity, as well as the beneficial owner of the entity.

So, all of that is to say that your IRA account is the equity holder and legal owner of the assets and the offshore IRA LLC we form for you. The custodian’s job is to manage IRS reporting and make the investment of your retirement account in to your offshore IRA LLC… that’s it. From there, the owner of the offshore IRA LLC is your self directed IRA.

Your control over the offshore self directed IRA LLC is defined in the operating agreement of the LLC which we provide. This document has been reviewed and approved by various banks and the custodians with which we work. It ensures all parties the proper levels of protection and your rights to control the investments and open bank and brokerage accounts in the name of the offshore LLC.

The operating agreement and its importance to the structure is defined in what we call the “plan asset rule” under ERISA Reg. 2510-3-101(a)(2). This regulation allows you (the beneficial owner of the IRA account) to act as the manager and exercise control over the offshore IRA LLC and its investments. As such, it requires you to manage the assets for the benefit of the retirement account, just as a professional fiduciary would. This means you must do your due diligence in all investment decisions and not use the assets for your personal benefit. You are to manage the offshore self directed IRA LLC as if it where someone else’s money.

This operating agreement also sets out the rights and duties of the owner of the LLC (your account). These terms are always very broad, giving it the authority to open accounts, modify the documents or the LLC, and appoint the manager (you). Most importantly, the document allows the account to transfer these authorities to the manager… so, you can take control over the LLC.

Note that the operating agreement is signed by your custodian on behalf of the IRA, you as the beneficial owner of the IRA, and then you again as the manager of the LLC.

The operating agreement also transfers all authority and control over the offshore self directed IRA LLC to you, and away from the administrator/custodian. You are thus the only one authorized to make investments, open accounts, and operate the offshore LLC. The custodian is relegated to filing annual reports with the IRS.

That is to say, the custodian makes only one investment: your IRA account in to the LLC. From there, you are authorized to:

Make all investment decisions,
use funds for the upkeep and improvement of your investments (such as for improvements in real estate), and
control the sale/disposition of assets.* A corporation can be used as a UBIT blocker, but not as the primary (parent) entity. We are working on a new structure for investments in Panama, which doesn’t have an LLC statute, but their Foundation laws can be used to create a trust/LLC hybrid.So, because the offshore IRA LLC we have designed is a disregarded entity (has only one member and is a limited liability company), it is an eligible entity under Treasury Regulation 301.7701-3(a) and (b). As such, it is not required to file either federal or state income tax returns. Also, no State Franchise Tax or other reporting will be required.There is an exception to the default rule that your offshore IRA LLC will have no filing obligations… and that the U.S. administrator/custodian will handle any reporting obligations other than those described here. If you generate Unrelated Business Income in your IRA, or use a UBIT blocker corporation, you’ll need to file IRS Form 3520 and may have other reporting obligations.When your IRA invests in an active business, or uses borrowed funds (such as a mortgage or leverage in a brokerage account), then you will generate UBI and will be required to pay Unrelated Business Income Tax. Because your structure is offshore, you may use a UBIT blocker corporation to eliminate this 35% tax. This allows all profits to flow tax free (ROTH) or tax deferred (traditional) in to your IRA LLC, and thus in to your IRA. This is one of the major benefits of moving your IRA in to an offshore self directed IRA LLC. UBIT blocker structures are not available in the United States.
So, if you employ a UBIT blocker, or generate active income in your IRA LLC, then you will need to file additional forms.
There are a number of UBI and UBIT blocker corporation articles on this site, so I will just describe it briefly here.
Also, none of the international forms are required for a typical offshore IRA LLC structure. The big one is the Foreign Bank Account Report, which is required for bank or brokerage accounts outside of the United States that hold more than $10,000. This form is specifically excluded for offshore self directed IRA LLCs (search FBAR at IRS.gov for additional information).
Your objective in an offshore self directed IRA LLC structure is to eliminate all U.S. tax filing and paying obligations. Therefore, your offshore company must be a “disregarded entity” under the IRS “check the box” rules. This is achieved by 1) using an LLC rather than a corporation and 2) that LLC having only one member. A single member LLC is a disregarded entity, while a multi-member LLC is considered a partnership. (For more information, see: Treas. Reg. § 301.7701-2(b), (c)(1) and (c)(2).)
The tax classification of an offshore IRA LLC is quite different than an offshore corporation, and an LLC is generally the required entity – not a corporation. Because very few offshore jurisdictions (those that won’t tax your returns) offer compatible limited liability companies, we usually form IRA structures in Belize and Nevis.

I hope this article on the taxation of an offshore self directed IRA LLC has been helpful. If you have any questions, please give us a call or send an email to info@premieroffshore.com. We will be happy to work with you to move your retirement account outside of the U.S. and ensure it remains in compliance with all applicable U.S. tax laws.

UBIT: IRA As a Dealer in Real Estate

09/23/2014/in Articles/by Christian Reeves

If you’re going to invest in one or two rentals with your IRA, then you won’t have a tax problem. You can operate these properties through a U.S. LLC (if domestic) or an offshore LLC (if abroad) and net profits will flow back in to your retirement account tax free.

If you buy in to a hotel, acquire land that you divide up and build homes on, or buy a multi-unit apartment building, which you improve and convert to condos, then you are probably a dealer in real estate and expected to pay 35% in Unrelated Business Income Tax (UBIT) to the IRS. That is to say, if your IRA operates as a dealer in real estate, you must pay 35% tax on your profits. Then and only then does the net flow in to your retirement account, to be taxed again on distribution (if a traditional IRA, or tax free in a ROTH).

Let’s take a step back for a moment. UBIT is a tax levied on IRAs that operate as a dealer, any kind of active business, purchase real estate with a mortgage, or use any kind of leverage in a brokerage account owned by the IRA.

In the case of an IRA buying with a mortgage or using leverage, UBIT applies to the portion of income driven from that leverage. If you purchase a rental with $100,000 down and $100,000 from a non-recourse mortgage, then 50% of your net profits will be taxed at 35% and 50% will flow in to your retirement account tax free.

In the case of an IRA doing business, including the business of a real estate dealer, 100% of your net income is taxable. You’ll need to file a corporate return, or a UBIT return, pay the tax, and report the after tax net as gains in your retirement account.

Now, here’s the problem. The IRS hasn’t bothered to define what makes an IRA a dealer in real estate. All we know is that it is someone in the “business” of real estate, rather than someone who is a simple “investor.” The bottom line is that being defined as a dealer, and thus getting to pay UBIT, is based on your intent.

If your intent is to buy, refurbish and sell multiple units, you are probably a dealer. If you buy a single family home and turn it into a rental, you are not a dealer. If you build up your rental portfolio to 20 units, or adopt a “flip this house” model, you have probably flipped your way in to UBIT.

If your intent is to invest, then no special planning is required. You simply form an offshore limited Liability Company and invest your retirement account in to that entity. From there, you control the transactions and can write checks on your account for the improvements, collect the rents, etc.

If your intent is to engage in a business, or if there is any risk of the IRS classifying you as a deal now or in the future, you need a UBIT Blocker Corporation added to your international structure. An offshore UBIT blocker corporation is one of the few remaining loopholes available to Americans and will eliminate UBIT.

A UBIT Blocker corporation eliminates the 35% UBIT tax by moving the transaction it in an offshore corporation in a tax free jurisdiction. It effectively converts the ordinary income earned in to dividends or other payments from the corporation to the retirement account. The UBIT Blocker moves income from “ordinary” and “unrelated” categories in to traditional investment returns. As such, business income, including profits from an IRA classified as a dealer in real estate, can avoid UBIT.

Please note that this requires the business be entirely offshore. The IRA, the LLC, the UBIT blocker, AND the real estate must all be outside of the U.S.

I hope you’ve found this post on UBIT helpful. For more information, please give us a call or send an email to info@premieroffshore.com.

Retire abroad with Maximum Privacy

09/17/2014/in Articles/by Christian Reeves

If you are thinking about retiring abroad, here is how to maximize your privacy. We start with the premise that the U.S. government wants you to disclose all assets, holdings, transactions, and investments. We then look for exceptions to those rules to find the legal loopholes that will allow you to retire with maximum privacy.

As you know, U.S. persons must pay tax on their worldwide income no matter where they live. Even if you retire outside of America, the IRS wants theirs. To enforce these laws, the U.S. requires you to disclose your assets each and every year on the Foreign Bank Account Report form and the Foreign Asset Report. Both of these force you to tell the U.S. what you have and where they can find it.

Well, there are a few … and I mean a very few … exceptions to these reporting requirements. In this article, I will describe each to give you an idea on how to retire abroad with maximum privacy.

My favorite tool to maximize privacy offshore is physical gold held in your name. You are not required to report physical gold on the FBAR or the Foreign Asset statement. Physical gold is gold bars or bullion, and not gold stocks. Paper gold must be reported while physical gold is exempt.

So, you may hold gold in Panama or Switzerland, in a vault in your name, and you are not required to report it to the U.S. I suggest gold is an excellent hedge if you have any concerns about the U.S. economic system or the USD.

Two quick sidebars:

When I say something is held in your name, I mean that you are the owner. If gold is held in a corporation, trust, or foundation, you need to report the entity on the appropriate form and the asset on that entity’s balance sheet. If no structure is used to hold the exempted asset, then no reporting is required.
I am talking about living abroad with maximum privacy, not reducing or eliminating U.S. tax. I will leave that topic for another day. Suffice it to say, if you buy physical gold, you are not required to report its existence. However, when you sell that gold, it is a capital gain, taxable on your U.S. return unless it is inside a U.S. compliant retirement account.

The next best way to retire overseas with maximum privacy is to invest in foreign real estate and hold that property in your name … again, not an offshore company. So long as you live in it, or it is vacant, you have no reporting obligations on foreign real estate.

If you decide to rent it out, then it is reported on your IRS Form 1040, Schedule E, just as a U.S. property. Though, there is nothing that necessarily denotes it as an offshore property. If it is your primary or vacation home, there is no reporting until you sell it. Then it goes on Form 1040, Schedule D as a capital gain. Because you will probably pay significant tax on the sale in the country where the property is located, you usually don’t have any tax due to the U.S. You will find several detailed articles on this site discussing offshore real estate transactions.

The best way around the FBAR form is to open your offshore bank accounts in the name of an offshore IRA LLC. The LLC is owned by your U.S. compliant retirement account and thus exempt from the various reporting requirements. While all savings accounts must be reported if you have more than $10,000 offshore, a bank account owned by your retirement account is excluded.

And if you think about it, that makes sense (a rare convergence of law and logic). When you take your IRA offshore, it is the IRA that owns the offshore LLC, and you act as the manager or fiduciary of that structure. Because the account is owned by an IRA, and not a person, it would be confusing at best to require an FBAR.

If you have questions on this, or would like proof of my claim, search FBAR at IRS.gov. You will see that accounts held by an IRA are exempt.

The same goes for an IRA account inside of a Panama Foundation. This structure allows for maximum asset protection, as well as offshore estate planning, and remains exempt from the FBAR form. Please see my recent posts on the Panama Foundation IRA structure for more information.

Another option for avoiding the FBAR is to invest in an offshore life insurance. If it’s a U.S. compliant policy, a single pay policy will usually allow your income to grow tax free and won’t be reported.

Though, there are many variations of offshore life insurance. I suggest you talk with your insurance provider and confirm that the structure you are considering does not require you to report the account on the FBAR and is exempt from all other U.S. filing obligations.

The last option I will offer on how to retire abroad and maximize privacy is to hold any business interests or projects in joint venture structures where your partner is not a U.S. person. If the other owner of the offshore company is neither a U.S. citizen nor a U.S. resident, you will have a lot more freedom.

For example, if you own and/or control 50% or less of an offshore company, then you need only report the formation of the structure on IRS Form 5471. You are not required to report the company each year … just when you incorporate it and when you sell it.

Likewise, if you are not a signatory on the offshore company’s bank account, you will not need to file the FBAR. In that situation, you could be a partner in an investment company for decades and have no U.S. reporting obligations until the company is sold.

I hope you have found this article on how to retire abroad with maximum privacy helpful. Please call or send an email to info@premieroffshore.com for additional information. We will be happy to work with you to structure your retirement abroad to keep you compliant with the IRS.

Attack on Your Retirement

09/15/2014/in Articles/by Christian Reeves

The U.S. Government has launched an all-out attack on its retirees, crushing their investment returns with low interest rates. Be it intentional, or ignorance, the government is artificially pushing down returns, which does the most harm to our nation’s seniors.

As the United States attempts to stimulate its economy with cheap money, it’s the seniors, who need safe U.S. investments, that will suffer. Just when you should be invested in boring, stable, and guaranteed, the returns on U.S. treasuries are miserable. Adding to this mess, the U.S. economy is the epitome of risk, but returns are lower. When treasury returns should be higher to compensate for this risk, you are lucky to net .5% after an adjustment of 2% for inflation.

* That is to say the yield to maturity on a 20 year treasury is 3% and inflation is 2%. At least you’re not retiring in Europe, where returns are 1% … and my see .5% this year (before inflation).

This all means that America’s seniors are left with two choices: 1) stick with treasuries and reduce your lifestyle, or 2) diversify out of the United States. I suggest there are equal or lower risk investments available offshore that are paying for better returns.

But, first, let me talk about my premise that America’s seniors are under attack from their own government. The Federal Reserve has been pushing law rates for the last six years. This has resulted in miserable returns for those who stuck with treasuries. Obviously, it’s Seniors and Retirees who most often look to protect their nest egg with conservative investments and are thus hardest hit by this policy.

As you’ve read in my previous posts, returns on treasuries are about half of what one would expect from the market. These low rates are the result of Obamanomics. Lower returns mean you have less to live on or that you must take on more risk … a Hobson’s choice for a retiree living on a fixed income.

Next, let’s talk about my claim of 2% inflation over the next decade. I extract this from the yield to maturity of 20 year U.S. treasuries at 3% (going to 2.5%). U.S. the yield to maturity of inflation protected treasuries, which is about .6%. The spread between these is the break-even inflation rate of 2.4%.

Some of this 2.4% represents a bonus for taking a risk on the inflation adjusted treasury (called a TIPS). When you buy a treasury, you get a “guaranteed” return. When you buy a TIPS, you get a return fixed to inflation. If it goes higher than expected, you make more. If it goes lower, you earn less … thus, TIPS include a bonus for taking that risk.

Most financial analysts agree that this risk is worth .4%. Therefore, the expected inflation is 2%. Of course, expectations are often wrong, but that’s the rationale behind TIPS and how we get to a 2% inflation number.

And this can bring you, my valued reader, to why holding U.S. dollars in your retirement account results in a net return of -2% per year. If you hold your account in cash, its value is going down by the rate of inflation.

All of this is based on the assumption that the United States dollar, and treasury, are the world’s safest investments. I believe this is a deeply flawed assumption. Now, I’m not a doomsayer, but I do think that America and the dollar face significant risks and that these risk are not priced in the market.

For example:

the Federal Reserve is printing money as if it’s going out of style,
quantitative easing is artificially propping up the stock market and the dollars,
France has begun to move away from the dollar as its transactional currency,
Russia wants to denominate all oil and gas contracts in Rubles or Euros, eliminating the petrodollar, and
The world’s emerging markets (the BRICS, Brazil, Russia, India, China and South Africa) have united against the IMF and Worldbank in preparation of a concerted effort to push the dollar from dominance.
The Fed’s balance sheet is 25% larger than it was just one year ago ($4 trillion – see Grant’s Interest rate observer).

You will find detailed articles on each of these risks on this site. My point here is that these risks exist. It’s up to you to figure out how much they must be protected against.

So, where might you turn for higher secured returns? Most analysts agree that the United States is in for a decade of flat, slow growth. From the Economist to Forbes, everyone is predicting tough times ahead. You can also find an article here explaining why the U.S. stock market, which is at record highs, is likely to be quite average over the next several years.

I believe it’s time for the American retiree, or anyone looking to boast the returns in their retirement account, to invest abroad. I also believe you should be defensively minded as you decide how to diversify your portfolio. Now is not the time to gamble or to play a risky gambit. Focus on safety, security and diversification out of the dollar.

The most basic form of defense, and one I certainly don’t recommend, is to the buy the 10 year U.S. treasury and hope for better by the time it matures. This means your inflation adjusted return over that decade will be around .3% rather than the lofty .6% found in the 20 year.

You can do much better than that offshore. Here is what I recommend.

First, get your retirement account out of the U.S. and out of harm’s way. Form an offshore IRA LLC and move your IRA into that structure. This will give you control over the account and allow you to invest in just about anything you like offshore. For more information, see my page Self Directed IRA at the top right of this site.

Next, consider investing in foreign real estate with your savings or your IRA. This is an asset which has a high ROI compared to the treasury, and you can invest in a country (such as Panama) with a strong history and appreciation curve. I also note that inflation, if it exceeds the 2% anticipated above, is likely to help your returns in Panama rather than hurt them.

I also suggest it is time to acquire a foreign residency in case you want to remove yourself from the United States. While times are good, these residencies are easy to get in countries like Belize, Panama, Colombia, etc. If things don’t go well in the next few years, some of these programs are likely to be eliminated.

My preferred residency program is offered by Panama. If you combine an investment in teak (around $15,000) with the favored nations visa, you can get residency in no time. Considering the minimal commitment, compared to other programs that require real estate purchases in the hundreds of thousands of dollars, this is a very efficient solutions.

Finally, I suggest you buy physical gold and store it outside of the United States. Gold is the best hedge against a system wide collapse and the only guaranteed investment that will increase in value if the dollar declines. If you’re like me, you think a realignment of the dollar and America’s way of life is more likely than a total failure. Even so, you should move some of your portfolio to physical gold as a hedge against this 10% to 35% realignment.

I never recommend paper gold. Stocks, funds, and gold certificates, are of little value in a major crisis. I also avoid the gold documents offered in Australia and the Perth Mint. Those are gold allocations, not physical gold you take possession of.

Note that physical gold (like real estate) need not be reported to the U.S. government. Gold certificates and stocks are subject to the FBAR or Foreign Assets reporting requirements, and thus are not private if you wish to comply with U.S. law … as we all must. Physical gold held in your name is exempt from these forms.

I hope this post has been helpful. If you would like more information on any of these topics, please give us a call or write to info@premieroffshore.com.

* Premier is not a gold dealer and we don’t make a commission on any sales. These suggestions are meant as a guide. We are happy to introduce you to qualified professionals.

The IRS Can Seize Your IRA

09/12/2014/in Articles/by Christian Reeves

I want to use today’s post to clear up a common misconception. Yes, the IRS can seize your IRA or other retirement account. Yes, the great collector is exempt from state laws protecting your retirement account and can take what it wants at any time … unless you take steps to protect yourself.

Specifically, the IRS may seize your Keogh, 401(k), IRA or SEP by sending a letter to your administrator demanding all the cash, up to the amount of taxes, interest and penalties they claim you owe. You have very little recourse to protect your retirement account once the IRS has issued this letter … known as an IRS levy of your IRA. Your administrator will be required to sell all assets under his control to pay the government.

If you wish to get some of the money back, you must prove that the taking of your IRA is going to create a significant and undue economic hardship on you and your family. As someone in the business for many years, I can tell you that this claim usually falls on deaf ears … unless you are going to be homeless and have near zero to pay for food and rent. If you are a person of means, the IRS may take your retirement account at will.

The same goes for ERISA plans, but the IRS may take only the amount that is vested. If you have a right to the money, then the IRS can get to it.

Now, here’s the kicker. When the IRS sizes your IRA, you must pay tax on that money as if it were distributed to you. If the IRS takes $75,000 from you on June of 2015, you must pay tax on that amount as an IRA distribution when you file your 2015 tax return. Obviously, this creates a new tax debt in 2015, but at least the IRS has theirs.

* You don’t need to pay an early withdrawal penalty on the amount the government takes.

You do have options. If you are concerned with the IRS and what might happen in the years to come, you can take control of your retirement account away from your administration. You can prevent the IRS from seizing your IRA by moving it to an offshore LLC and investing it out of the United States.

While it’s illegal to move assets offshore for the purpose of keeping them away from the IRS, you do have a right to seek higher returns and more diversification offshore. You may for an offshore IRA LLC, open bank and brokerage accounts, and invest in more secure assets – primarily foreign real estate and physical gold.

Though, I suggest it is best to take these steps before you owe the IRS. If they are actively coming after your assets, it may be a problem to take your IRA offshore … unless you have a good reason, such as you are going to move to that country. If you are going to retire to Panama, it makes sense to move your IRA to Panama.

Note that the IRS can also seize your account if your foreign bank has a branch in the United States. Putting your IRA in HSBC or Citibank makes little sense if you have a tax issue or are concerned with government interference. If you are going offshore, you should separate yourself from country risk by holding assets in local banks and consider diversifying out of the dollar.

I hope this is helpful. For more information on moving your retirement account offshore, please see my Self Directed IRA page. Feel free to phone or email to info@premieroffshore.com with any questions or suggestions. As always, consultations are confidential.

Retire Overseas Tax Free

09/10/2014/in Articles, Taxation/by Christian Reeves

First, let me tell you about my inspiration for this post. France has been in the news and on this site quite a bit recently. They are pushing hard against America’s recent extortion of $9 billion from one of their banks, and I think this could have a major impact on the dominance of the dollar.

You might be wondering what this has to do with how to retire overseas tax free. Well, let me tell you. Like the United States, France taxes the heck out of its citizens … with the maximum rate reaching 75% on incomes over $1 million. These new tax measures have brought in about € 70 billion Euros ($94 billion) over the last three years, but are now driving French citizens out of the country in waves.

Even with this extreme tax rate, I’d swap my U.S. passport for a French one in a heartbeat. You see, France, like most countries, only taxes citizens who live in the country. Anyone can leave France and retire overseas tax free without making any special arrangements … just be out of the country for 163 days a year and you can live, work, and/or retire overseas tax free.

As a result, French citizens are moving to Portugal. This country doesn’t tax foreign pensions and, again, France doesn’t tax its citizens living abroad, so a French citizen may retire to Portugal and live tax free.

In our part of the world, there are many countries that won’t tax your U.S. pension (or your business income, for that matter), such as Panama, Belize, and Chile. Other nations, like Colombia, will only think about taxing you if you are there for more than a few years. In other words, you get to try them out before becoming subject to their tax laws.

Now, here’s the problem. While a French citizen can retire overseas tax free rather easily, Uncle Sam wants his cut no matter where you live. The U.S. taxes its citizens on their worldwide income, including pensions, retirement income, passive and active income, and all forms of compensation. No matter where you live and no matter where the income is generated, the default rule is that you must pay taxes. The rest of this post is about the exception to this rule.

For example, if a U.S. person retires to Panama, and earns $30,000 in capital gain, Panama won’t tax you, but the U.S. will. You are looking at standard U.S. long term (20% ObamaCare tax if applicable) or short term (ordinary) income rates on your income earned in Panama.

Here are four options to retire overseas tax free.

Retire to Puerto Rico

The U.S. territory of Puerto Rico is a special case and is exempt from U.S. Federal Tax laws. As a territory, their rules take precedent over the IRS.

If you retire to Puerto Rico, live there for 163 days of the year, and become a (tax) resident of the island, you can retire overseas tax free. Puerto Rico will not tax your pension or other income, and their long term capital gains rate is 0% on assets (stocks, bonds, real estate, etc.) you acquire after moving. You will pay tax on things you owned before the move, but all stock bought and then sold after becoming a resident is tax free.

Let me clarify. If you retire overseas to Panama City, Panama won’t tax your passive income, but the U.S. IRS will. You will pay 20%+ on all long term capital gains.

This is the case because the default U.S. Federal tax laws control U.S. citizens in foreign countries. If you move to Puerto Rico, and become a tax resident of that U.S. territory, their laws govern and supersede those of the U.S. IRS … because Puerto Rico is a territory and not a foreign country.

Puerto Rico also offers business tax breaks and the above is just a summary of their tax deal for Americans who want to retire “overseas” tax free. Please see my two detailed articles on Puerto Rico for additional information.

Give Up Your U.S. Citizenship

As I have said a few times, the U.S. taxes its citizens on their worldwide income. If you give up your U.S. citizenship, your duties to Uncle Sam are terminated and you may retire overseas tax free … you can’t retire in the U.S. tax free, but you can do so anywhere else you like.

The two most common issues or questions I get on this topic are:

If I give up my U.S. citizenship, can I visit America from time to time? Absolutely. If you have a quality second passport, you can enter as a tourist at any time. If your passport doesn’t allow for visa free travel to the U.S., then you can apply for a visa just like everyone else.

I have had a number of clients do this without issues. They dumped their U.S. passports and returned as a tourist to visit friends and family several times a year. Not one ever had a problem going through immigration.

I even had a client who gave up his U.S. citizenship and then was forced to return to the U.S. as a tax resident by his wife. She decided she couldn’t live so far from her family, so they both became U.S. resident/green card holders using their foreign (second) passports. Now, he is free to burn his green card at any time and go back to his tax free existence … so long as his wife allows it. Giving up your citizenship is a big deal, leaving and no longer being a resident for tax purposes is simple.

This first question begs the second: Do I need a second passport? Yes, you must be a citizen and have a second passport from a country before giving up your U.S. citizenship. If you don’t have a second passport, you would be a person without a country and unable to travel. It’s impossible to give up your U.S. citizenship until you have a second passport in hand.

You can obtain a second passport in three ways: 1) If you have family ties to certain countries, you can come a citizen through lineage … usually because your parents, or maybe grandparents, were born there. 2) You can become a resident of a country like Panama and may qualify for a passport within 5 or 6 years. 3) You can buy a passport from countries like St. Kitts and others.

For additional information on how to obtain a second passport, please see my page (top right menu of this site). We will be happy to help you buy a passport through one of these programs or to become a resident of Panama or Belize.

Eliminate Most Capital Gains or Passive Income Sources

Assuming you don’t want to get rid of that blue passport just yet, you can minimize your taxable income by investing in tax free vehicles offshore.

*Of course, this assumes you don’t need capital gains to live on … that you can rely on your savings.

One option is offshore life insurance. So long as it’s U.S. compliant, the cash in your offshore policy will accrue tax free and may get a stepped up basis when you pass (transfer to your heirs tax free).

Another option to retire overseas tax free is to take only required distributions from your IRA or retirement accounts. These accounts can travel with you overseas, if you move them into an offshore IRA LLC or a Panama Foundation. Then, you can open offshore bank accounts and transfer your IRA or other retirement accounts to your country of residence. The same rules will apply offshore as they would onshore, so you can maintain the tax benefits of your retirement accounts overseas.

Finally, you might create an offshore Trust or Foundation and move your assets into that structure. While you will pay tax on any sales, you can accrue capital gains in the trust and use certain estate planning techniques (such as gift tax exclusions) to minimize or eliminate U.S. tax.

I also note that your IRA or trust can hole gold and real estate. You are not limited to stocks, bonds or treasuries. Certain rules apply to offshore retirement accounts, so please see my other articles for more information.

Convert Passive Income in to Active Income

One of the best ways to retire overseas tax free … is to start a business! While this might sound strange, please allow me to explain.

If you are living and working outside of the United States, and qualify for the Foreign Earned Income Exclusion, you can earn up to $99,200 tax free from your foreign corporation in 2014. If a husband and wife both work in the offshore company, they can both draw a salary and get about $200,000 tax free.

The most common way to qualify for the Foreign Earned Income Exclusion is to move overseas and become a resident of a foreign country. So long as your business doesn’t involve selling to locals, nations like Panama won’t tax you and you can “retire” overseas tax free.

So, if you are an active investor, and spend most of your time trading stocks, maybe you are a professional trader and should incorporate offshore. If you are managing a number of rental properties, or buying land to develop into a multi-unit complex, maybe you are a professional real estate developer and should run that through an offshore company. Maybe your retirement includes selling goods or books over the internet and that should escalate from a hobby to a business. Any of these can become active income and qualify for the Foreign Earned Income Exclusion.

The key to operating a tax free business overseas rather than generating taxable capital gains is how much effort you put in to it. If you are spending 40 hours a week researching, reading, training, and trading, then you are clearly a professional trader. If you are spending 25 hours per week, then you might qualify. If you are regularly and continually searching for and managing real estate projects, you are probably a professional.

So, to retire overseas tax free, you need to spend as much time as possible on your income generating efforts, qualify as a professional in your trade or business, operate through an offshore corporation, qualify for the FEIE, and draw out your profits as tax free salary up to the FEIE and retain any excess in the offshore company.

I hope this article on how to retire overseas tax free has been helpful. If you have any questions, please give us a call or send an email to info@premieroffshore.com. We will be happy to discuss these options with you and plan your new life overseas.

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