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Finance

Why You Need An Offshore IRA

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This article discusses why having an offshore IRA can provide greater flexibility than a traditional IRA. You will learn why this method is superior for building up retirement funds by opening up investment opportunities to places where you can enjoy higher yields.

We also look at how using offshore LLCs can be used as part of your IRA retirement strategy.

For information and advice on how to set your IRA offshore, how to set up an offshore company or assistance with international tax planning contact us today. Our team is here to assist you.

Offshore IRA – TL;DR

By investing in an offshore IRA you get far more control over how you can invest plus more choice in what you can invest in, including foreign real estate, and other foreign assets with the potential to enjoy much higher yields. Combine this with an IRA LLC and you can gain even more control, as well as improved asset protection.

Offshore IRA – Overview

An IRA (Individual Retirement Account) is a special retirement savings account that offers specific tax advantages while saving.

IRA accounts are generally aimed at self-employed individuals rather than salaried employees. Rather than gaining access via an employer, the individual opens their own IRA account via a broker or investment firm.

An IRA account must remain untouched until you reach the age of 59.5 years, though that is still earlier than the standard retirement age. Your IRA assets can include a wide range of investment types, including stocks, bonds and funds.

An SDIRA (Self-Directed IRA), is a special type of IRA that puts you in charge of the investment portfolio. While probably most people out there would probably prefer a broker to help them do this, as an entrepreneur or investor yourself, a self-directed IRA is clearly preferable.

Firstly, not only do you get to make the decisions as to how to invest, but you also get more control over what to invest in, with the opportunity to invest in other assets not available in a regular IRA, such as real estate.

Moving Your IRA Offshore

An offshore IRA is a special type of self-directed IRA whereby the investments are all held by a company that is registered offshore.

As with a regular SDIRA, you get more control over how you invest plus a much wider spectrum of assets to invest in.

What you can’t do, however, is interact directly with your IRA, as this is known as self-dealing and is strictly prohibited by the IRS.

For example, with an offshore IRA, although you are free to invest in more diverse assets than you can with a regular IRA, such as real estate or commodities such as gold, you are not allowed to actually own these assets outright. Instead, you earn income from those investments via the offshore IRA.

By moving your IRA offshore, you get to enjoy the benefits of diversification that come with a self-directed IRA but with the additional asset protection that comes with investing offshore.

It also means you’re no longer tied to US-only investments, and you are therefore free to invest in offshore investments, including real estate, provided, of course, you don’t own those assets outright.

With all the obvious benefits, you might be forgiven for wondering why more people don’t opt for an offshore IRA. The answer, of course, is that people generally tend to go with what they know and even seasoned investors remain circumspect when it comes to investing their IRA offshore.

There are two main reasons for this, firstly, a lack of understanding as to the tax consequences of offshore investing generally, coupled with a general confusion as to how they work.

We’re here to tell you that it’s not all as complicated as it looks, provided you get the right advice the first time around. So in this article, we’re going to break it all down for you, to help you get a better understanding of the process. Don’t forget, if you need help setting up an offshore IRA, or with offshore investments generally, talk to us about becoming a Nomad Capitalist client today.

Reconsidering Your US Retirement Account

As an American, if you have a retirement account you can’t access it until you are aged 59.5 without incurring a penalty.

Moving it offshore gives you more flexibility. You gain access to investments that your average American can’t gain access to, giving you a clear advantage.

The whole idea is to invest for your retirement, so why would you want to deliberately limit yourself by restricting yourself to a narrower range of investment opportunities?

With an offshore IRA, you can actually have a far more diverse portfolio than you would with a domestic IRA. Not only can you invest in more different types of assets, but you also get to enjoy greater geographic diversity – allowing you to invest in more countries.

With this comes more diversification of risk. So you can balance safer investments with others likely to yield greater returns, like investing in emerging markets, such as real estate in foreign countries, or even foreign funds which have far greater yields.

Again, keep in mind, that the same rules apply to an offshore IRA as do domestic ones. So you cannot buy a house overseas and use it as your vacation home, you are not allowed to use the property that your IRA owns. (Though that’s not to say you can’t still buy your own holiday home and apply for a second residence somewhere at the same time.)

With your offshore IRA, you can invest in a rental property provided you don’t use it yourself, and potentially enjoy increasing yields over time.

The property might appreciate in value faster and you might get exposure to a different currency. After years of a strong dollar, perhaps you feel that the dollar is going to weaken while other currencies could go up, resulting, again, in higher yields.

So, with an offshore IRA, you get the benefits of both greater diversification and insulation from risk, while at the same time laying the groundwork for far greater yields than you might get with a regular IRA.

Offshore IRAs And Taxes

The word offshore tends to confuse people, as though it’s a special word that magically makes taxes go away, but that simply is not the case. And certainly not for US citizens who have specific filing requirements. In most cases, IRAs are for US citizens, although it is possible for anyone who earns an income in the United States to open and contribute to one. 

So to clarify, it is perfectly legal to have an offshore IRA, provided you do not self-deal and provided you report it to the IRS. You’ll also invariably need to fill out a Foreign Bank Account Report (FBAR).

As you might expect, Uncle Sam and the IRS have very specific rules on how an offshore IRA can be managed and what types of investments qualify and herein lies the problem. It’s altogether possible for someone to run afoul of the IRS without realising it – and pay the penalty for doing so.

So don’t let an innocent mistake catch you out and make sure you get the right advice the first time around.

This is your nest egg, after all, so don’t leave your future up to chance. Talk to our expected team at Nomad Capitalist today.

Types Of Foreign Investments

At Nomad Capitalist we’re all about expanding your investment options, so an offshore IRA makes the most sense, since it allows you to invest in the broadest range of assets.

With an offshore IRA, you can enjoy just about any investment and, although you don’t get to own the assets outright, the upside is that this nonetheless allows you to enjoy some perks that would have otherwise been unavailable to you.

For example, you can invest in precious metals that are privately vaulted overseas. Or you can open offshore bank accounts in some of the most exclusive jurisdictions in the world, such as Switzerland, which generally doesn’t take Americans.

We mention this time and time again, America’s overall tax situation and FATCA just make it too much hassle for many foreign banks to accept US citizens. But with an offshore IRA, you can circumvent that.

We have one bank in Switzerland we recommend for clients for this exact purpose, another in Liechtenstein and another in the UK. So again, although like many jurisdictions, they reject Americans under normal circumstances, they will accept US clients with offshore trusts or IRAs.

So if offshore banking is also something you would like some assistance with get in touch with our team today.

Investing In Offshore Assets

As mentioned, in addition to expanding the possibilities for offshore banking, with an offshore IRA you can also make a broad range of foreign investments. You can hold term deposits, you can hold multiple different currencies. You can buy real estate overseas, provided it’s done correctly.

You can also open a brokerage account and buy stocks from all over the world, potentially granting you much higher yields than you might by investing in US-only stocks.

Sure, you don’t necessarily need to have an offshore IRA to open brokerage accounts, but the point is you have more options to invest if you do.

There are also certain foreign mutual funds that Americans are usually not allowed to own but if you invest in them via an IRA structure, then you can enjoy the returns that way instead.

Investing In Foreign Real Estate

You can purchase international real estate through an offshore IRA structure and enjoy the returns on rental real estate, in addition to yields from other assets.

Since foreign rental property can often bring you much higher yields than domestic properties, this can be an excellent way to build up your retirement savings quickly.

But before you go globe-trotting to find the right properties, save yourself the hassle and check out our real estate yield index to see which countries currently have the highest rental yields.

Offshore LLC Strategy

One strategy for helping you to get the most out of your IRA is to set up an offshore IRA LLC.

This is an offshore corporation, very much similar in structure to a regular US LLC – a limited liability company that holds your offshore IRA assets.

You can, of course, also set up a self-directed IRA LLC domestically, however offshore IRA LLCs, once again, provide you with more flexibility to invest in far more assets than you would with its domestic equivalent, not just in terms of what you can invest in, but also where.

An offshore IRA LLC not only enjoys the protections of a limited liability company, the fact that it’s offshore also helps add further security from an asset protection perspective.

Do note, however, if you do set up an offshore company (or indeed an offshore trust, open an offshore bank account, etc.) you will need to report it and you will need to be aware of both the reporting requirements and the investment restrictions as laid out by the IRS.

This uncertainty is actually one of the main reasons why so many people miss out on all the huge advantages that offshore IRAs provide. That’s why our team of experts is on hand to give you the direction you need.

We can assist on offshore IRAs, not to mention a wide range of other offshore topics including trusts, company formation, banking and taxes. So save yourself a ton of time and guesswork and instead start building your nest egg today, contact us to learn more.

Get Complete Control Over Your Retirement

By taking your IRA offshore you gain complete control over how you build your nest egg, with more investment options and more assets and places to invest in.

Don’t limit your range of retirement assets, enjoy the full benefits of offshore investment with the opportunity to invest in overseas assets and real estate, for greater flexibility and higher yields.

This gives you a clear advantage, putting you out in front of most Americans who feel that going offshore can be complicated, but it doesn’t need to, not with Nomad Capitalist as your investment advisor.

We help HWNI clients to move offshore and go where they’re treated best, though we can also advise on a wide range of other matters, from legal tax reduction to building your retirement plan.

But why do these things individually when you can tie everything up nicely as part of a fully holistic, custom-created Nomad Capitalist Action Plan? For more information contact us today.

Offshore IRA FAQ

What Are Self-Directed IRAs?

A self-directed IRA (SDIRA) is a type of IRA that gives you more control over what you can invest in. Not only do you get more autonomous control over the IRA, you also get more choice over what you can invest in.

What Is A Self-Directed IRA LLC?

Self-directed IRA LLCs are limited liability companies that are established specifically for the purposes of managing a self-directed IRA (SDIRA), whereby assets are controlled via a company structure.

What Is An Offshore IRA LLC?

An offshore IRA LLC is an offshore limited liability company established solely for the purposes of managing an offshore IRA.

As with offshore companies generally, this structure provides a greater degree of asset protection.

Offshore IRAs give you more control over what to invest in, which can potentially allow you to enjoy much higher yields. For example, you can use the LLC to purchase international real estate and obtain regular rental income as part of your retirement account.

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