Day 20: Step #9, Take Your Administrative Life Virtual

Should You Take Your IRA Overseas With You?

Dear Student,

Yesterday, I walked you through options for addressing your investment banking agenda. One related opportunity that I want to address for you specifically today has to do with how you manage your IRA (if you have one) as part of your overseas relocation plan. For many, IRA assets are the bulk of their nest eggs, so they’re worth a little focused attention as part of this go-overseas planning process.

Most IRA holders think that the options for investing their IRA funds are limited to stocks, bonds, and mutual funds. This is not the case, despite what mainstream account custodians would like us to think.

You can, in fact, invest your IRA funds in almost any asset class… as long as your custodian allows it. Mainstream custodians make more money if you invest in stocks, mutual funds, and bonds. They don’t make any money if you invest in real estate or private businesses, for example, or directly in precious metals. And, therefore, they don’t allow those investments in IRA accounts they manage. They simply aren’t set up for that, and there’s no incentive for them to be.

However, custodians do exist that allow you to invest in what would be classed as non-traditional investments. With these custodians, you can invest in real estate and other investments as long as you follow the IRS rules. These rules are beyond the scope of this lesson, but you want to make sure you’re aware of them before you start investing your self-directed IRA.

You can read here for a basic primer on this.

While all IRA are self-directed since you choose the investments, the industry has labeled an IRA with a custodian that allows for non-traditional investments a “self-directed IRA”. You just need the custodian to approve any investment made. Make individual investments into these assets and the IRA custodian’s review and approval help ensure that you’re following the IRS rules.

However, you can take this one step further and provide yourself even more flexibility by setting up what’s called a “checkbook IRA.” To create this vehicle, your self-directed IRA invests in an LLC that you control. As the manager of the LLC, you then invest the funds of the LLC in whatever you choose (still, of course, following the IRS regulations, which specifically prohibit against self-dealing) by simply writing a check from the LLC bank account.

The LLC can be set up in the United States or offshore. The rule of thumb for entities is to put U.S. assets in a U.S. entity and offshore assets in an offshore entity (not necessarily the same country as the investment just not in a U.S. entity). That gives you a layer of protection for the asset.

Because of that rule of thumb, groups that help set up IRA for investing offshore want to sell you an offshore LLC. However, because an IRA is already an onshore entity, using an offshore LLC doesn’t really give you any additional asset protection… and offshore entities cost more to set up and maintain than an U.S. LLC. So it’s usually best to go with a U.S. LLC unless there are other circumstances involved (and I can’t think of any off the top of my head).

The cost of setting up and maintaining the LLC is offset by the savings you enjoy by avoiding the per-investment administration fees charged by custodians for any non-traditional investments.

Being able to bypass the custodian every time you want to buy or sell an investment gives you the flexibility to act quickly when an investment opportunity presents itself and, again, opens the door to investments that you otherwise might be restricted from participating in.

You can set up a checkbook IRA on your own using a self-directed administrator that allows LLC investments (not all do). However, using a tax attorney or investment advisor to help set everything up doesn’t cost much and can make things much simpler.

Get in touch with our recommended service provider here.