When it comes to offshore investing, Americans are usually at a disadvantage to most other nationalities. Even while living overseas they are still not able to escape the grasp of “Uncle Sam”. Most offshore investment products offer no tax advantages, in fact they are likely to increase your tax accounts bill from all the extra paperwork he is going to have to do. There is however one investment product that will allow you to invest offshore and at the same time stay on good terms with the IRS. That product is the Offshore Deferred Variable Annuity.
Like its onshore cousin, the Offshore Deferred Variable Annuity allows money that you have saved for your retirement to grow tax free. There are however a few key differences.
Greater Investment Choices
With the onshore variety you are usually limited to a very narrow range of mutual funds. With the Offshore variety you can hold a much wider variety of assets. These can include Stocks, Bonds, Mutual Funds, Hedge Funds and Commodity Certificates as long as you maintain sufficient diversification to meet OID rules.
Real Creditor Protection
Most states in the US only offer limited protection for Deferred Variable Annuities. With the Offshore DVA the creditor would be faced with the challenge of going to court in an offshore jurisdiction that is a lot less friendly to claims by creditors.
Capital Guarantees
The Offshore DVA’s that we recommend are covered by Isle of Man depositor protection that Guarantees you a minimum of 90% of your assets, in the unlikely event that the Insurer should become insolvent.
Beneficiaries
Should you die before you have received full value from your Annuity the residual value will be paid to your beneficiaries. With the onshore variety this is usually retained by the Insurance company.
Advantage Over Other Offshore Schemes
Because this qualifies as a 403B scheme, non periodic withdrawals taken prior to the annuity start date will be treated as income less the percentage of assets within the plan that make up the original investment. For example if you invested $250,000 in your offshore DVA and the plan was now worth $500,000, and you decided to withdraw $50,000 then the taxable portion as income would be $25,000. If this was done through a non qualifying plan such as a Portfolio Bond everything larger than your original investment would be considered the first money to come out and would be subject to full taxation as income.
Like the onshore variety you should in most cases only contribute to an Offshore DVA if you have fully used up your IRA contributions or other tax deductable opportunities. But having said that, if you are an American Taxpayer purely because of your Green Card or are an American Citizen who intends to retire abroad, then you should definitely consider the advantages offered. You can contribute by way of cash or doing a tax free rollover of your onshore DVA, Roth IRA, non ERISA Pension Plan or Offshore Portfolio Bond.
To find out more please feel free to contact me.
Photo credit: Jon Wallach via Visual Hunt / CC BY-NC
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