The first step in the process is to have your IRA administered by a custodian that will allow you to self-direct. A lot of IRA administrators are offering this service now, and my clients get unbeatable flat rate pricing when they work with my preferred custodians and administrators.
Once your IRA is self-directed, you’ll need to invest your IRA funds into a limited liability company. Such a limited liability company is typically called a “Checkbook LLC.”
Depending on your situation, you can either be the manager of the LLC, or you can elect to have someone else be the manager. If you’re worried about potential judgments or garnishment orders against your IRA (something that could easily happen in the context of a divorce or even a normal lawsuit if the judge orders “surcharging”), then you can use an offshore LLC to hold the IRA’s checkbook.
Offshore IRA – Asset Protection for Retirement
When your LLC and the LLC’s manager are offshore, orders from U.S. courts regarding payment of funds from your IRA will most likely be disregarded. That’s provides a high degree of protection for your retirement funds, and it gives you the total flexibility to invest your IRA (and make gains tax free) as you see fit.
A couple warnings are in order: First, it’s highly advisable that you use your Checkbook LLC – whether domestic or offshore – for passive investments, like stocks, bonds, rental real estate (commercial or residential), ownership of private placements, notes, etc. If you conduct an active business inside your asset protection IRA, then your IRA could become subject to Unrelated Business Taxable Income and/or Unrelated Debt-Finance Income.
The second warning concerns what the IRS calls prohibited transactions. In essence, these are transactions between your offshore IRA (or domestic Checkbook LLC) and certain relatives and businesses owned by such relatives. The prohibitions go way beyond the scope of this introduction to offshore Checkbook LLCs, but suffice it to say that we have you covered. We know the rules, and we’ll do everything possible to make sure you’re protected in every way possible.
Finally, there are certain classes of assets in which you’re simply prohibited from investing IRA funds. Things like classic cars, art, and other collectibles are off limits as IRA investments.
If you have questions about offshore IRA accounts or Checkbook LLCs, please feel free to call us at (850) 803-1166.
If you need a Florida Checkbook LLC for your self-directed IRA, and you want your IRA to be the sole owner of the LLC, then I’ve created a Do-It-Yourself Kit that is the most cost effective method available. You can access the Kit here.