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SOVEREIGN MAN

Saving your savings overseas

I can barely type today… I’m actually one-handing it this morning. Why? Because my other hand is thrust victoriously in the air celebrating the renomination of Comrade Bernanke to his post at the Federal Reserve.

Yes, the man who has overseen the most unprecedented expansion of the central bank’s balance sheet in history is going to get a few more years in the saddle.

As you know, I normally don’t comment too much about what’s going on in the United States.  Frankly I don’t really care. I occasionally follow the insipid perorations of the Obama administration as if watching silverback gorillas mate at a local zoo… neither impacts my life, and both are curiously amusing.

In this case, though, I am forced to pause and consider the greater implications on my investment portfolio and determine if there is (a) any money to be made, or (b) any money to be rescued.  I think both.

Recent budget figures released by the federal government indicate a ‘higher than expected’ deficit over the next several years… just like the ‘higher than expected’ death toll in Iraq, and ‘higher than expected’ unemployment figures. Clearly these monkeys never get anything right (no offense to monkeys).

With trillions of dollars looming in the administration’s budget shortfall, you can be sure that taxes are going to rise. It is an absolute certainty. Obama may somehow be able to keep his promise to not raise income taxes on ‘the middle class,’ but they will make up for it in other ways.

Namely, I am afraid for people’s retirement accounts.

Pensions, 401(k)’s, and IRAs represent an enormous, untapped pot of wealth for the US government. Rules allowing for tax-deferred contributions are on the books, which means that the government won’t be seeing most of this money for several years… until they change the rules.

In my assessment, US politicians are going to hatch a scheme to levy a one-time tax on retirement accounts, or require that a certain percentage be invested in the great ponzi scheme of US treasury securities.  Either way, you can be sure that your on-shore retirement savings will be beaten senselessly.

So how to save your savings? One idea that may be worthy of your consideration is to park retirement funds in overseas property.  Internal Revenue Code allows you to invest IRA assets in property, and there is absolutely no geographic restriction whatsoever, so that bungaow in Belize or mountain cabin in Boquete are on the table.

Like other IRA assets, the property purchase must be for investment purposes, not personal use; this would include both rental income as well as speculation for capital appreciation.

There are a couple of key benefits to this plan.

First, retirement funds would no longer be on shore and subject to political control.  This is critical if you want to maximize your financial freedom and keep your money away from politicians.

Second, in most cases, buying property in a foreign country will diversify retirement funds out of the dollar. This will protect savings as the world moves away from the dollar as the world’s reserve currency.

The fact that Bernanke is going to be at the helm for another several years buying the Treasury’s debt almost assures the dollar’s demise.  Carefully selected overseas property investments can mitigate this financial disaster, at least for retirement savings.

Talk to your tax adviser to see if this makes sense for you, and let me know if you want more information on the topic.

About the author: Simon Black is an international investor, entrepreneur, permanent traveler, free man, and founder of Sovereign Man. His free daily e-letter and crash course is about using the experiences from his life and travels to help you achieve more freedom.

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Comments on this entry are closed.

  • Bob

    I agree that parking IRA$ overseas makes sense, but in property? Don’t think so. By the (current) rules, one would have to draw down US$ from these accts no later than when one becomes 70.5. At that point I’m sure that the IRS, knowing what a weasel you have been by not buying t-bills, will bless you with a special tax to make up for your nasty ways, therefore rending the entire exercise moot.

    Bob from Brooklyn

    • CC

      I do not feel it is wise to maintain IRA’s funds stateside, or abroad. A deferred account is just that. And Uncle Sam will get his chunk.
      Those IRA’s are a bullseye for the tax man. I forsee the US producing a special tax on any and all assets in the IRA’s whether this forces property or other liquidations….they make the rules, and most likely will change them.
      Lastly, these things will be much easier to confiscate than gold!
      I would not trust any government program including the IRA.

      Offshore….yes…..but not in the form of an IRA.

  • Michael

    Simon,
    I was considering buying oversees property in my IRA accounts for a while now. And, interestingly enough, I was contemplating Belize or Panama.
    More so, I was asking you about Belize recently.
    So, if you have any additional info on the topic, I would appreciate it greatly.
    Best regards,
    Michael

    • Bob

      Michael,

      Check out Boquete Panama. Very nice/charming. Properties are coming down in price but still high in my opinion.

      Bob

  • alfonso landa

    YES please give us more info on surviving the Hindenburg.

  • MR

    Yes we would like more information on this.

  • selfreliant1

    I’d be interested to know how to put property into an IRA. I’d also be interested to know how to move an IRA that is invested in stocks to an offshore location. Who can be the custodian?

  • Expat Tax Lawyer

    Good points. I advise clients similarly; even if the tax authorities change the rules, your funds are still overseas and tied up in an illiquid asset that may or may not be able to be repatriated. Plus you’re right, you do get the ex-dollar benefits as well.

  • MattB

    How does investing in foreign real estate within an IRA escape the two Fed money grabs listed: a special tax or a per cent requirement? It’s still an IRA and would seemingly be subject to the requirements regardless. Will they really care that it is ‘illiquid’?

  • tom

    I am interested in more information.

  • Eric

    I’m interested in buying property overseas and am wondering about how much security foreigners have once they do buy a place overseas. I’m sure it depends on the country in question and their political/economical whims. Any countries that you think are quite safe, secure and respectful of foreigners who purchase property.

  • Billy Rice

    I am definitely interested in this opportunity. Thanks again.

  • Pat G

    Yes, please provide additional information on oversees IRA real estate. Anything sounds better than sitting with a target on my back.

  • william whipple

    simon, i like the idea of putting ira money into real estate. i want to consider, Ghana. what are your thoughts concerning Ghana?

  • Raquel

    Simon,

    Thanks for the heads up on the possible future situation with 401k’s and pension funds. My question to you is: What about investing retirement savings in mining or energy stocks in Canada or other countries outside the states?

  • http://www.indiantrailjewelry@yahoo.com Judy

    Yes, we are interested in more information about this subject.

  • billy bob

    Simon, I am based in Hong Kong and frequently in China. Let me know when you are next over.

  • Jai

    I’m sure there are lots of people who want to diversify their IRAs, 401k’s, and other sorts of pensions into offshore real estate. I’m sure there are even more with devastated or non-existent “pensions” who just want to buy good income properties offshore – with sufficient income from the property to pay the mortgage (can foreigners get mortgages on income properties? Where?), and provide retirement income, perhaps a future retirement home (duplexes? 4-plexes?). Without any pension, how else can you hope to retire? Any hopes for the pension-less and all those whose pensions crashed?

    Any LOW-entry-cost income property investment tips, locations, management advice?

    BTW, I did some work for a company a few years ago which managed 401k’s. Got an interesting look at the paperwork for a client company. Of over 1000 statements sent out, only one person had over $100,000 in his 401k and got it. Over 90% of the statements went out with Zero Dollars – they weren’t vested, fees ate up what they had, one excuse after another. Many lost high-5-figures. And this was back around 2004, not post-crash. Any doubts remaining about the numbers of people out there with devastated or non-existent pensions, 401ks, et al?

    Simon, I think you are on to one of your hottest prospective topics!

  • Steve Loy

    do you know ant IRA administrators that unvest in offshore property>?
    What do you think of Belize, a US pushover?
    Steve

  • Alan

    Hello Fellow Readers,
    I’ve been investigating this situation for about seven years now – off and on. I get all excited about some opportunity and then hit an obstacle and run out of steam. I was actually with a custodian that allowed these types of investments but it wasn’t real easy to accomplish purchasing quickly nor was it easy to present the deal to a foreign entity in a way that they could understand the additional paperwork and steps involved.
    MattB makes good points. Will they really care that it’s illiquid? If they’re that desperate for cash, they are going to get our money. This type of illiquid property purchase would compound the problem. If you’re forced to liquidate the property to pay the taxes or the fine or the ?, you’re not going to get the best resale. On the other hand, metals purchased and stored overseas with your IRA or Plan would be liquid and most likely will have a good resale market.
    Be aware that most custodians that allow offshore transactions average about $200 – $400 to open the account and then about $250/year to maintain. There are also transaction fees for directions to buy and sell. If you want to trade foreign securities, you not only need a US custodian for your IRA, you also have to have a US securities advisor on your team.
    My latest obstacle is trying to get my funds rolled over from my present employers 401k to an IRA. Have you tried that one? Wow, what a roadblock that is – even though my plan document says it’s possible, talking to the reps at the 401k drives me crazy!

  • Jim M

    The question is where are the best opportunities in international real estate cash flows and in which countries are they least likely to
    be nationalized etc.

    Simon, where are the best opportunities in your estimation
    and foresight.

  • John S

    Simon,
    I just set up an offshore savings account in Panama where the minimum balance is $5,000. This amount has to be kept in dollars — conversion to gold or silver or safer currencies isn’t possible. My concern is that this will get inflated away, thanks to the Federal Reserve. Do I just resign myself to that eventuality and be glad for the offshore venue, or is there anything I can do to protect this savings while $5,000 still buys something?

    Thanks,

    John

  • Dave

    Yes, please provide us with additional information concerning the use of IRA’s to purchase offshore property and what the current tax consequences of doing so might be.

  • Art

    I’ve read quite a bit about self-directed IRAs and 401(k)s, the vehicles you need to use to do what you propose, and chatted with providers recommended by, inter alia, The Sovereign Society. In every case, I’ve found the plans to enrich disproportionately their US trustees & fiduciary agents, most of whom feel they are entitled to a PERCENTAGE of your account’s value, in addition to line-item charges for every transaction. In case of property, you are usually required to get (read: pay for) a fair-mkt valuation every year, and in English to boot. You, Simon, can really help us by finding a trustee that does not do these things and has reasonable fees.

  • Gary Hall

    Simon:

    Interesting article, and yes send me more information on the topic. Not only are properties less expensive in attractive foreign countries, their property taxes are much lower than the U.S.

    Gary Hall

  • Howard

    I would like you black paper on Panama for 197.00 I am going there sept 9 th sure it would be a big help Thanks for all your help
    Howard

  • Captain

    Black, your newsletter is worth more than its weight in gold (a lot more — I print on both sides). I’ve been expecting the government to pull some shenanigans with IRA’s ever since I started mine, which is why I’ve intend all along to use it for a down payment on a home with attached rental(s). As I understand it, that’s a loan situation, however, meaning the money has to be paid back in. I like the idea of foreign RE purchase instead. I share the concerns expressed on this board. Please do comment.

  • Captain

    Addendum — what about using an IRA to buy property in the Panama Canal expansion area? That seems like just a swell idea!

  • Pat Riehl

    You can get a US trustee to manage your self-directed IRA, form an LLC in its name, and then have checkbook control. You’ll have a few thousand feddies tied up between the manager and the bank account, plus annual fees.

    Since this type of LLC is a ‘disregarded entity’ – meaning no tax filing – my question is how do they know whether you’ve made or lost money offshore, if for example you were buying property through a local offshore account?

    Any ‘experts’ I’d love to hear from you.

  • Eric

    I’m interested in investing in some of the Chinese and other Asian companies. I’m looking for the best, safest way to do it. Most of the money I have to invest is in New Zealand dollars and I don’t want to exchange it back to USD, as I lose money on that exchange. Would it be best to move it into Hong Kong dollars or Chinese yuan? I have an account in each of those currencies in HK and Shanghai. If so, then do I just need a reputable broker over there and/or the equivalent of an ETrade or AmeriTrade over there?
    Any of you worldly investors know these answers? Thanks

  • Martin

    It’s an interesting equation, to fund or not continue to fund IRAs based on this 9-20 Trillion dollar debt that is being generated by the Treasury. I tend to agree, it sure looks like a juicy target for the feds to tap into.

    My wife was wondering if people would be better off paying the taxes on current income earned, and investing that privately, offshore, rather than taking the tax deferral carrot now and risking a big bite in the not too distant future. There is also the question of how such a tax bite might affect Roth IRAs which are funded with after tax dollars. I would think if the government is tempted to tap into your traditional IRAs because they can’t stand waiting for you to pay taxes upon withdrawal, then they would probably really be salivating over all of you TAX FREE gains on a Roth IRA. Almost like an addict looking at their next fix.

    Conversely, funding a traditional or Roth IRA does have its advantages under current rules. So, it can be a challenge to assign a potential risk value to either scenario and pencil out the right option for one’s situation.

    I had done some research into solo401Ks and self-directed IRAs. I appreciate Simon bringing up the potential risks, and recommending a good service provider.

    I am relatively new to this community. Does Simon sometimes answer these posts privately, or in the forum? I saw his comment that he reads the comments. I’m just wondering if the comments we provide are more a guide to future posts, or if there is specific feedback at times.

    I thoroughly enjoy all the posts. And I appreciate everyone’s feedback and comments. Very informative.

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