How to take your defined benefit plan offshore
If you’re eligible to take distributions from your defined benefit plan, you can move it offshore. Eligibility is usually because you’re of retirement age or because the defined benefit plan is from a previous employer. Another way to say the same thing is that you can move any defined benefit plan offshore that’s vested.
Also, some defined benefit agreements include terms that allow you to close or terminate the plan. If eligible to close the plan, then you can take it offshore.
With that said, the first step in determining whether you can take your defined benefit plan offshore is to ask your plan administrator. If you’re creating a new plan now, be sure to write in clauses that allow you to go offshore.
I should also point out that you can take a 401k account offshore. A 401k A is a defined contribution retirement plan where the employee participates in the plan with his own contributions.
The employer may match these contributions up to a certain percentage. If the employee is in a position to receive distributions from the 401k plan, such as when he leaves employment with the company sponsoring the plan, he can roll the 401k money into a traditional IRA without incurring income taxes or penalties on the rolled-over amount and then go offshore.
- So, a 401k is basically a mini defined benefit plan.
As I hinted at above, both the defined benefit plan and the 401k use the same method to get offshore. They’re converted into an IRA and then moved to an offshore IRA LLC. Any defined benefit plan with cash value which has vested can be converted into an IRA. Any defined benefit plan that can be converted into an IRA can be taken offshore.
Once you’ve confirmed that your defined benefit plan can be converted into an IRA, you can take the following steps to get the money offshore:
- Contract with a US custodian that allows for offshore investments and international IRA LLC formations. We recommend Midland, but there are many good custodians out there.
- Convert your defined benefit plan into an IRA and transfer it (don’t roll it over) to your new custodian.
- Setup an Offshore IRA LLC with us in a country of your choosing. We like Belize, Cook Islands and Nevis. Your jurisdiction may vary depending on your investment objectives.
- Open an offshore bank account in the name of your IRA LLC.
- Instruct your custodian to transfer your account balance into the offshore bank account under the control of your IRA LLC.
The LLC will be owned by your IRA and you will be the manager of the company. As a result, once the cash is wired from the custodian to your IRA LLC, you’re in complete control of the account. You make the investment decisions and you send the wires or write the checks.
As a result, you can maximize diversification, returns, and asset protection.
Your assets are protected from creditors and US judges because they’re outside of the United States. So long as you select a bank that doesn’t have a branch in the US, your cash is safe for levy.
And you can maximize diversification by investing in multiple currencies, foreign real estate, and generally reducing country risk by holding your capital outside of your home country. You can diversify further by purchasing physical gold (subject to IRA rules), private equity, and other non correlated investments.
You’ll find that returns in foreign markets are significantly higher than in the United States. 10% to 12% on relatively safe investments is not uncommon in Latin American.
One of the most popular non correlated high return investment for IRAs in 2017 is hardwoods. For example, the return on teak has been around 15% per year for the last decade. For this reason, teak was selected as Best Offshore Investment in 2017.
- We’re in the business of forming offshore IRA LLCs. We don’t sell investments and don’t earn a commission when our clients make an investment. If you’d like to be connected with a hardwoods expert, please contact me at info@premieroffshore.com.
Another popular use of defined benefit plans offshore is to purchase residency for the owner. You can get residency in Panama with an investment of $20,000 and Nicaragua with an investment of $35,000. Both of these come with residency and you’ll need to pay legal fees out of your pocket, not from the IRA account, to avoid self dealing.
Residency in Nicaragua is great if you can put in the time. You need to spend 6 months a year for 2 years in country to keep up your visa. Then, after two years, you can apply for citizenship. Once you have a second passport, you can spend as much or as little time in Nica as you like.
If you can’t spend the time, then go with residency in Panama. This country has no physical presence requirement and you can apply for a passport after 5 years.
I hope you’ve found this article on how to take your defined benefit plan offshore helpful. For more information, please contact me at info@premieroffshore.com or call us at (619) 550-2743 for a free and confidential consultation.
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