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.
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 firstname.lastname@example.org or call (619) 483-1708 for a confidential consultation on taking your retirement account offshore.