Today I’ll show you how to take your U.S. defined-benefit plan offshore in 5 steps. If you want to maximize asset protection and diversify your defined benefit plan offshore, this post is for you. Taking your plan offshore and placing it behind an added layer of security is the best asset protection available.
Step #1: Convert Your Defined-Benefit Plan into an IRA
The first step in taking a defined-benefit plan offshore is to convert it into an IRA. If your plan documents allow you to convert to a traditional or ROTH IRA, then you can take control of the account and move it out of the United States.
In most cases, a defined-benefit plan with cash value that’s vested can be converted into an IRA. However, not all plan documents provide for vesting in the same way and your right to convert to an IRA will depend on the plan agreements.
Remember that a defined-benefit plan is basically a contract between you and your company. It’s an agreement provided for by the Employee Retirement Income Security Act (ERISA) that allows you to structure a custom retirement plan under certain terms. All aspects of the DB plan are controlled by the plan documents.
The majority of defined-benefit plan agreements I review have sections allowing the beneficial owner to convert them into traditional IRAs without a tax cost. If your plan administrator tells you otherwise, you might get a second opinion.
Remember that he makes money managing your plan assets and is not motivated to turn that responsibility over to you.
The bottom line is that any defined-benefit plan that can be converted into an IRA can be taken offshore.
Tip: If you’re creating a new plan today, be sure to write in clauses that allow you to convert to an IRA and go offshore.
Step #2: Open an Account that Allows International Transfers
Once you know that your plan is eligible to be converted into an IRA, the second step in taking it offshore is opening an account at a custodian that allows for international transfers. Not all custodians permit international investments; so select your custodian carefully.
Here’s a partial list of the custodians I recommend:
These custodians will charge you an annual fee… usually a few hundred dollars a year. They don’t get involved in your investments and don’t have access to your offshore IRA LLC bank account.
Step #3: Set Up an International LLC to Manage Assets
Step 3 in taking your defined-benefit plan offshore is setting up an international LLC to manage its assets. This LLC will be owned by your retirement account, not you directly, and you will be the manager of this structure.
This LLC should be formed in a country that allows for single member Limited Liability Companies and one with strong privacy and asset protection laws. The jurisdiction must allow for single member LLCs because the only member of the Company will be your retirement account.
After years of experience and battles, my preferred LLC countries are Belize, Nevis, and the Cook Islands. The best jurisdiction for your situation will depend on your banking needs, investment objectives, etc.
Step #4: Draft a Custom Operating Agreement for Your International LLC
Step 4 in moving a defined-benefit plan offshore is drafting a custom operating agreement for your international LLC. This agreement, much like your plan documents, outlines your rights and responsibilities as manager of the retirement account.
The bottom line with the operating agreement for an offshore IRA LLC is that you’re required to manage the assets of the account for the benefit of the IRA and not for your personal gain.
That means you can’t borrow against it, can’t buy a home and live in it, and must always be operating in the capacity of a professional investment advisor - managing the assets of the LLC just as an independent advisor would.
Step #5: Open an Offshore Bank Account for Your LLC
The final step in protecting a defined -benefit plan is opening an offshore bank account for your LLC. Once that account is opened, the custodian will wire some or all of your IRA into the LLC. From there, you’re in control. You make the decisions and write the checks. You collect the rents and select the investments.
The bank selected will depend on the size of your account. Defined benefit accounts over $2.5 million can open in Switzerland or Andora. Smaller accounts, or those that will invest in real estate and thus maintain a minimal bank balance, often chose Belize or Cook Islands.
I hope you’ve found this post on taking your defined-benefit plan offshore to be helpful. For more information, please contact me at or call us at (412) 749-0500. We’ll be happy to help you convert your defined-benefit plan into an IRA and then move it offshore.