Why Your Offshore IRA Needs an LLC
A few months ago I interviewed Erika Nolan, executive director of the Sovereign Society, a consultancy that specializes in asset protection, for a magazine article on offshore investing. Among other things, she said this:
Historically, offshore solutions have been reserved for very high net worth individuals. But starting in about 2001 we started to see people in the 'mid-tier millionaire' stream -- $1 million to $30 million net worth -- saying "I've worked really hard, I don't want to have my assets at risk." Most recently we've been seeing a big demand from Americans saying "I just want to put $100,000 or $500,000 offshore. I'm reporting it; it has nothing to do with taxes." It's just asset safety at this point.
I also spoke to Dan Prescher, publisher of Ireland-based International Living Magazine, on trends in offshore real estate. He noted that it's possible to buy and hold real estate in an offshore IRA, "which can make the rental and capital gains income tax-free."
Ever since then I've been toying with the idea of moving an IRA overseas and using it to buy a sweet little condo on some Costa Rica beach. So last week I called the Sovereign Society and asked how something like that would work. They put me in touch with Larry Grossman, a Florida-based financial planner whose Sovereign Pension Services specializes in moving IRAs offshore. He confirmed that it's legal to move an IRA to a foreign bank or broker, and explained how a U.S. citizen can do it. As we were talking it occurred to me that a lot of other people might find this of interest, so we did a brief Q&A, some of which appears below.
DollarCollapse: How's business? And what are you hearing from your new clients about their reasons for moving money overseas?
Larry Grossman: Our business is as good as it's ever been. Clients are very nervous about the current administration either nationalizing pension plans or stopping them from going offshore.
DC: There are lots of ways move money overseas. What are the best starter accounts for a U.S. citizen?
LG: Very true, there are a number of ways to do it including opening a foreign bank account, buying property, direct offshore investing, and Swiss annuities. But in my opinion the best way to do it is by forming a non-US LLC that would be owned by the client's retirement plan.
We try to establish them in Nevis unless the client's ultimate investment doesn't allow for a Nevis LLC or there would be other adverse investment consequences. We use Nevis as the jurisdiction of choice because it is known for having the world's best asset protection. Right off the bat this type of a structure will give the retirement plan greater asset protection and privacy. Additionally after the whole UBS mess a lot of non-US financial institutions no longer want to deal with US citizens but will gladly open the door for you if you come in under the umbrella of an LLC. The account holder is also the manager of the LLC and as such can open accounts and transact business for the retirement plan but under the guise of the LLC, simplifying the day-to-day operations of the retirement plan and lowering the operating costs.
The last reason is a little more technical, but for the sake of illustration let's say that someone buys a piece of real estate with their retirement plan and someday they want to take it out and use it. If they own it in the name of the plan then 100% of the value of the property would become taxable at once, probably triggering a pretty negative tax implication. But if they did it through an LLC then all they would have to do is move a small portion of the ownership of the LLC from the retirement plan into their name, thereby spreading the distribution out over a number of years. That would allow them to control the taxes far more efficiently and probably keep them in a lower tax bracket.
DC: What's your role in all this?
LG: I am what they call an IRA administrator. My company offers custodial services through an FDIC insured bank. From the client's perspective we are the front office for the custodian and they deal directly with us. From a federal perspective I never have custody of your assets and you have the safety of knowing they are held with a US Bank. (Actually most of my clients move or invest their money offshore and the bank really only has title to the IRA or retirement plan.)
DC: Is a brokerage account in, say, Switzerland or Panama insured the way a U.S. based account is?
LG: I am not aware of any institution anywhere in the world that carries insurance like the FDIC or SIPC for brokerage accounts. I think you would want to look at the look banking commission and in the case of Panama the National Securities Commission.
DC: The offshore financial world is full of con artists and incompetents. How do we avoid them?
LG: I always tell everyone the most important thing you can do when deciding where to put your money is look at who ultimately has custody of your funds and under what title. If we set up an LLC for your IRA and you and you alone are the only authorized signer and you do your homework and decide you want your IRA held by a Swiss or Austrian bank or want to buy property, then the only risk is how good you feel about those institutions. I think most people would agree it's pretty easy to ascertain [the risks], especially since those types of banks don't fail like they do here in the states. If you buy property in a stable country outside of the US, use an attorney and get title insurance, I think you can be sure you will have a good experience.