An IRA with a foreign investment account can add stronger protection. This foreign investment account, (we recommend Luxembourg), is not accessible to anyone who wins a lawsuit against you (or for any other creditor). So what would a court do if it determines that the value of your IRA exceeds your retirement needs and therefore is available to creditors? The only thing it is likely to do is to order the IRA Trustee to pay your creditor part of the amount it otherwise would pay you. The outcome of that is uncertain.
It reduces the risk of being sued in the first place. The first question a plaintiff’s lawyer asks himself is ”IF we win , how do we collect?”. When the answer is ”no way” or even ”no easy, quick way” plans for suing are often abandoned To set this up: Your IRA custodian transfers your money to your foreign investment account without tax consequence.
One simple key to success is to avoid self-dealing. You must have a U.S. IRS approved IRA custodian / trustee between you and the IRA. Additionally:
- You can’t borrow from the plan.
- You can’t pledge your IRA as collateral for ANY purpose
- Debt must be through a non-recourse loan.
- Your custodian must provide an annual valuation of IRA, an annual report to IRS, and handle State filings as necessary.
- You must maintain adequate books and records to evidence your use of funds and investment returns.
- You are prohibited from investing in life insurance contracts and “collectables” such as rugs, works of art, stamps and coins.
- You may not lend to any disqualified persons, such as your immediate family or a business if you own more than 50% of the stock or are an officer, director or highly compensated employee of that entity.
An Offshore Investment Account Adds Additional Asset Protection
Asset protection means making yourself an unattractive target for a lawsuit and making it difficult for an attacker to collect if he wins. An Ordinary IRA /401k helps on both accounts; your IRA with a foreign investment account can be an even bigger help.
LIMITED ASSET PROTECTION
Under Federal bankruptcy law up to one million in your IRA is legally exempt from the claims of your creditors to the extent that you need the money for your support in retirement. Some state laws provide additional exemption. That gives you a substantial measure of protection , but how substantial? The uncertainty comes partly from the elasticity of the concept of ”need”. If the question of how much you really need ever comes up in the concept of litigation, it will be answered by a judge, based on whatever the judge wants to base the answer on.