International Investing with Your IRA
Tired of the anemic earnings your IRA pulls in? Had enough of the fees, limited investment options and poor service of your retirement account provider? Move your account offshore to maximize returns, cut fees, and out of the reach of creditors or prying eyes with an offshore IRA LLC.
You can eliminate most account fees, diversify your investments outside of the United States, maximize asset protection, and take immediate control over your retirement account by moving it in to an offshore IRA LLC. The process is simple, we take care of the paperwork for you, and you gain complete control over your account and investments.
Here’s how the offshore IRA LLC works:
Your IRA can invest in just about anything - including an offshore LLC. In other words, the law does not limit your investment options…your current investment advisor / account administrator is the one holding you back. He wants you to only invest in products he controls and that pay him the best commission.
So, the first step in liberating your IRA is to move your account from your current provider (such as Prudential) in to an administrator that allows for international investments. And, of course, we have many such providers with whom we work every day.
Once your money has been moved to the new administrator, we form a US compliant offshore IRA LLC in Belize and open an account for that LLC at an international bank of your choosing. Again, there are a wide variety of options to choose from.
Your new administrator now wires your money in to your LLC, and in to the offshore bank account that you control. You are the only signor on the account, you are the only one who can authorize a transaction, and are the one who chooses, vets, and funds the investments you make.
Because you are in control, and solely responsible for all transactions, most of your investment and administration fees are eliminated with an offshore IRA LLC. Where your old account manager was getting paid each time you bought or sold a stock, and probably making a commission on the backend you didn’t even see, your new administrator has only three tasks:
1- get the money from your current provider,
2- send the money in to your offshore IRA LLC account, and
3- report the net value of your account to the IRS at the end of the year
Big Time Tax Benefits
During the recent US Presidential elections, much was said about Mitt Romney’s offshore IRA LLC accounts. He used these structures so effectively that, according to the NY Times, we was able to amass around $100 million dollars in his retirement accounts…quite impressive considering he could only contribute a few thousand dollars each year.
How is this possible? Three reasons: offshore tax breaks on leverage, offshore tax loopholes on leverage, and offshore tax planning related to leverage. In other words, leverage, leverage and more leverage.
You see, when borrow money to make an investment with your IRA in the United States, or use leverage to increase the power of the stock or currency trading account held in the name of your 401k, you must pay tax on the profits generated by that leverage. However, if you take that same account and transaction offshore, you can borrow as much as want and pay ZERO in tax (called Unrelated Business Income Tax, or UBIT).
And the same applies to foreign real estate purchases. Let’s say you want to buy a property in Belize. You can do this within your IRA, and the rental incomes and the gain when you sell it will all be tax free or tax deferred inside of your retirement account.
That’s true of both US and an international transactions…rental real estate purchased in your retirement account is tax free or tax deferred. However, if you buy a US property on credit using your IRA, the profits attributable to that mortgage are taxable. The benefit of being offshore is that you can buy real estate on creditand the profits remain tax free.
So, if you were to buy a property in the US, with $50,000 from your IRA and $50,000 from a non-recourse loan, half of the profits generated would be taxable and 50% would flow in to your IRA tax preferred. If you do that same transaction in Belize, and your offshore IRA LLC structure includes a “UBIT Blocker Corporation,” you pay no US tax and 100% of the profits (both on rental income and sales proceeds) flow in to your retirement account.
For additional information on the tax benefits of taking your IRA offshore, see the UBIT section of my article at PremierOffshore.
Here are the rules:
Your retirement account enjoys the same tax preferred status offshore that it did onshore…with the added benefit of tax free leverage. In order to maintain this status, the manager of the account (you) must follow a few rules.
First, you must always manage the LLC for the benefit of your retirement account…as a professional investment advisor would. You can’t receive any income or benefit from the management of the account, nor can you use any of the assets you purchase in the name of your IRA. For example, you can’t buy a house in Belize to live in. You must buy it as an investment.
- You can take the property out of your account as a distribution when you reach the age of retirement. If you have a ROTH, this should be a tax free transaction. If you have a traditional account, it will be a taxable distribution. In that case, you may want to distribute the property over a few years to minimize the tax cost.
Next, you are not allowed to encumber your IRA or pledge it as collateral for any purpose. Leverage and real estate transactions must use non-recourse loans that are secured only by the property.
Also, you may not invest in life insurance contracts, artwork or collectables, such as coins or certain forms of precious metals (gold bullion is ok), or stamps.
Keeping in mind that you must manage the account for the benefit of the IRA, you are not allowed to borrow against the account or draw a salary from your management efforts.
Finally, it is up to you to keep records of your transactions and provide them to the administrator. He must be able to determine the value of your portfolio and help you determine if any tax is due.
