International Self Directed IRA Defined

In this post we’ll define the international self directed IRA. What’s the difference between a traditional IRA account and a self directed IRA account? What the heck is an international self directed IRA? Finally, what are your options when you want to invest your retirement account outside of the United States?

First let’s compare a traditional IRA account and a self directed account.

What I call a “traditional” account is one held at an old school brokerage such as Fidelity or Charles Schwab. These firms usually offer you a free account and make money… a lot of money… selling you investments. Once they have your account, you’re locked into their world of investments.

In many cases, traditional IRA providers will push very conservative investments that have nice commission structures (nice to the seller, anyway). They expect you to be happy earning 4% on your money while they take .5%.

Firms that offer a self directed option have the opposite business model. They charge a flat fee for each investment and leave it to you to select those investments. That is to say, you tell the custodian what to invest in and the charge a fee for making that investment.

To put it more properly, you “direct” the custodian to make the investment you want him or her to make. You request that they make an investment. They have the right to refuse to make that transfer for any reason.

For example, many custodians will only invest in traditional US businesses. They want you to buy stock and bonds. They don’t like real estate, crypto, or anything they consider high risk. And, they certainly don’t want you to invest your retirement savings outside of the United States.

Some of these custodians are double dipping… charging a fee for the investment and then pushing you towards investments on which they make a commission. This should be disclosed in the fine print of your custodial agreement, but who reads that?

And this brings us to the international self directed IRA. A few custodians allow you to invest your retirement account outside of the United States. They’re experienced in offshore investments and foreign real estate. They can help you make any type of international investment you wish to make.

I suggest that an international self directed custodian is the best firm to hire if you want to invest your retirement account offshore. Even if you make one international investment and leave the rest in a US brokerage, you need a specialist. You need a firm that understands all the international transactional rules and can keep you out of trouble.

An international self directed IRA is the way to go if you’ll make a few international investments each year… the best option for those that buy and hold. It’s also the best solution for those that will keep some cash in the United States and some in foreign investments.

A self directed account might not be efficient for those that trade often or invest in cryptocurrencies. Not many custodians will invest into an exchange account and allow you to trade your own funds.

If you want to trade your own account, you might convert your international self directed IRA into an offshore IRA LLC. In this structure, your custodian invests into an offshore limited liability company that you control. You make all the investments and manage the LLC for the benefit of the account just as a professional investment advisor would.

The drawback with an offshore IRA LLC is that you must pay to set up the structure. The typical cost is $3,500, including a bank account. So, this only makes economic sense for those that are planning to move a large account offshore and to trade frequently… or those who want total control over their retirement account(s).

You can put all of your IRAs and 401Ks into a single LLC. A husband and wife can use the same LLC structure.

The benefit of an offshore IRA LLC or an international self directed IRA is that you can place your tax-advantaged retirement dollars into investments that you understand. You can find the highest returning investments around the world and direct your custodian to make those transfers.

Of course you’re the only one that will spend the time and money to search out the best investments for your personal situation. Only you will travel to conferences and personally visit real estate or other foreign projects. Only you are financially motivated to find the best alternative investments to maximize your returns and protect your savings offshore.

If you would like more information from the IRS on self directed IRAs, see Publication 590-A for contributions and 590-B for distributions.