Want to Move your Retirement Assets Outside the US?
Maybe you want the asset protection benefits of holding your investments through a non-US entity. Or perhaps you would like to diversify out of the US dollar and USD-denominated investments. Or you’ve found the perfect piece of non-US real estate and would like to tap into your retirement savings to fund the investment.
An offshore IRA can accomplish all of these goals. An offshore IRA can provide the US tax benefits of a traditional or Roth IRA coupled with both (i) the investment choice and control of a taxable investment account and (ii) the asset protection and international diversification benefits of holding assets through a non-US entity.
Jumping into the Deep End
However, an offshore IRA is complicated from a US tax perspective—forming an offshore IRA is definitely jumping into the deep end.
Many believe these structures are simple from a US tax perspective because IRAs themselves generally do not have any US tax filing obligations. That is simply not the case.
An offshore IRA absolutely requires US tax filings, starting in its very first year. Sometimes these filings must be included with a tax return, and sometimes these filings must be made separately. Additionally, the owner of an offshore IRA will likely be required to file an FBAR for the first year and each year after that.
In addition to these filings, these structures can be fragile—expert tax input is absolutely required from the beginning.
You need a US tax attorney to make sure the offshore IRA does not:
- hold assets that can’t be held by an IRA,
- generate “unrelated business taxable income” (which would cause your IRA to be required to pay US tax and file a US tax return), or
- run afoul of the “prohibited transaction” rules (which would cause your IRA to no longer qualify as an IRA, resulting in a taxable distribution of 100% of your IRA’s assets to you).
Use your Offshore IRA with Confidence
Unfortunately, many offshore IRA providers treat the structure as a commodity—they simply want to sell you an offshore IRA then move on to the next customer. They don’t make sure you are fully informed about the tax risks and benefits, and they don’t inform you of the required US tax filings (much less provide you with any guidance or assistance in actually completing those filings).
I do things differently. I provide a complete planning, structuring, and compliance solution that covers offshore IRA investors from formation all the way through the life of their structure. My clients have the knowledge to use their structure without fear of negative tax consequences, and their required US tax filings are completed in a correct and timely manner.
Let’s discuss how I can help you navigate the tax complexity of offshore IRA structures. With my help, you can be confident you will achieve the tax benefits these structures can provide.
Offshore IRA FAQs
What is an offshore IRA?
An offshore IRA is a “self-directed IRA” that holds its investments through an offshore company. Each IRA must have a “custodian” (i.e., the person that holds the IRA’s funds so that they are separate from you, the IRA owner). The large IRA custodians (i.e., Vanguard, Edward Jones, Charles Schwab, etc.) will only allow investments in stocks, bonds, mutual funds, and the like. A self-directed IRA custodian, on the other hand, allows IRAs to invest in a much broader list of assets (including real estate and, importantly for the offshore IRA structure, interests in offshore companies).
You are appointed as the manager or director of the offshore company so that you can direct the company’s affairs but do not have ownership over its assets (the IRA owns the investments through the offshore company). If you didn’t use an offshore company and the self-directed IRA simply held the investments directly, you would be required to obtain the self-directed IRA custodian’s signature and approval for every expenditure of funds. Your role as manager or director of the offshore company simplifies this process greatly—you have “checkbook control” over the assets of the offshore company because you can directly cause the offshore company to receive and spend money.
What can my offshore IRA invest in?
In general, absolutely anything except for life insurance and collectibles. You can hold stocks, bonds, real estate, precious metals, currencies, and many other types of investments through your offshore IRA.
How do I form an offshore IRA?
It depends on where you are starting. If you already have an IRA with a traditional custodian, you can simply cause the custodianship of that IRA to be transferred to a self-directed IRA. If you have a 401(k) (or similar type of retirement account), you may be able to use a tax-free rollover to convert that account into an IRA, which you can open with one of the self-directed IRA custodians. Note that you can have more than one IRA at a time (but the contribution limits apply in the aggregate).
After forming the self-directed IRA, you would (i) organize an offshore company, (ii) cause the offshore company to open a bank account (and any other accounts you may be interested in, such as a brokerage account) and (iii) cause your self-directed IRA to invest in the offshore company (which it then holds as its only asset). You are off and running—as the manager or director of the offshore company, you can cause the offshore company to invest in any asset you like (within the limits of the tax rules).
Why is an offshore IRA so complicated from a tax perspective?
Offshore IRAs exist at the intersection of several complicated tax rules.
First, IRAs provide tax benefits because the funds are sewn up until retirement—the IRA custodian’s role is to insure separation between the IRA owner and the IRA’s assets. An offshore IRA diminishes that separation by allowing the IRA owner to directly control the IRA’s investments.
Second, IRAs are subject to a complex set of rules designed to insure that they do not engage in a “prohibited transaction,” which is basically any transaction where IRA funds are used to benefit the IRA owner or a related person. It is almost impossible to run afoul of these rules when an IRA is held by a traditional custodian and invested in assets like mutual funds. It is quite easy to accidentally cross the line when the IRA owner is directly running the show with an offshore IRA structure.
Finally, the IRS is absolutely paranoid that US citizens will hide assets outside the United States and forget about the income from those assets come tax time. So, the IRS has created a complex web of reporting requirements applicable to offshore assets and draconian penalties that can apply even for innocent foot faults.
Look, I just want to form an offshore IRA—do I really need to get a tax attorney involved?
Absolutely. This structure is complicated from a US tax perspective. A mistake could disqualify your IRA (resulting in a taxable distribution to you) or subject you to large penalties for missing an offshore reporting requirement. You absolutely need an experienced and knowledgeable U.S. tax attorney on your side every step of the way.
Plus, there are sharks in these waters. Several companies can throw together an offshore IRA for you, but when you work with these companies you are only a customer. When you work with me you are a client.
These companies have absolutely no idea about the US tax complexities of an offshore IRA. I have even seen two of these companies publish articles are on their website that show they don’t understand the US tax issues at play.
Also, these companies typically do not follow-up and make sure you understand your structure after the sale. This is evidenced by the many people who have called me after they got the revolving door treatment from one of these offshore IRA mills.
Sounds good! How do you charge for your services?
I charge for my services on a flat fee basis. I provide the following services for an initial and annual flat fee:
- Initial consultation to insure that an offshore IRA structure is right for you;
- Formation of the offshore IRA structure, including forming the offshore company and opening bank and brokerage accounts;
- Insuring the secure and timely movement of assets from your current IRA custodian to new accounts under your offshore IRA structure;
- Preparing the required first-year and on-going U.S. tax filings (and FBAR) for your structure;
- On-going review of potential investments and transactions; and
- On-going advice and answers for the entire life of your structure.
Great! How can we talk?
CLICK HERE to schedule a call.