Thursday, June 5, 2014

The Next Shot Has Been Fired at Your IRA

By Nick Giambruno

It’s no secret that governments strapped for cash commonly turn to plundering retirement savings. They are a juicy, irresistible, low-hanging fruit.
In recent years, it’s happened in some form in Argentina, Poland, Portugal, and Hungary, just to name a few countries. The truth is that it could happen in any country drowning in debt and financial troubles—the US included.
It’s usually accomplished by forcibly converting retirement assets into government bonds under the guise of helping people manage their risk.

I’m From the Government and I’m Here to Help

Anytime any government claims that it wants to help you manage your retirement savings, I believe the best course of action is to run as far away as you possibly can. Taking your IRA offshore and out of reach is the
only way to really protect yourself—more on that in a moment.
Earlier this year, Obama announced the myRA program, which ostensibly helps people save for retirement (though it offers no benefits over existing options).
In case you missed it, an earlier article I wrote spells it all out. It’s a must-read and can be found here.
In short, Obama’s myRA program was the opening shot in the undeclared war on your retirement savings.
And I believe an eyebrow-raising ruling in the US Tax Court is the second shot.

New Risks for IRA Owners

The recent decision in the case of Bobrow v. Commissioner places new limits on a maneuver known as an IRA rollover.
A rollover is used to move your retirement funds to a new account without taxes or penalties if certain conditions are met.
Perhaps the most compelling reason that someone might want to do a rollover is that it allows you to escape the investment straitjacket of a standard retirement account with a big custodian like Prudential, Schwab, Fidelity, or T. Rowe Price. Usually these accounts offer a very limited menu of investment options.
An offshore IRA, on the other hand, can unshackle your retirement savings. It can invest in almost anything anywhere in the world. Whether it’s a rental apartment in New Zealand, a private company in Panama, an offshore bank account in Hong Kong, or physical gold stored in Singapore, your offshore IRA can invest in it.
Another problem with these big custodians is that if the US government were ever to do what many other bankrupt governments have done and forcibly convert retirement assets to government bonds, all they would have to do is simply issue notices to them and Poof!—your account would be frozen, and the holdings would be converted in some proportion to “safer” Treasury securities. For your own good, of course.
However, if your IRA is offshore and some Orwellian-named bill like the Safeguarding America's Retirement Act is passed, your life savings won’t be on the chopping block.
How will the government convert your retirement savings if it’s in the form of physical gold held in Singapore, or foreign real estate, or an offshore bank account, or any type of offshore asset? The answer is: not very easily, and they probably won’t bother. They’ll likely be focused on the sitting ducks—including the IRAs with the large custodians.
In all likelihood, if you have offshored your IRA, you’ll be grandfathered in and exempt from the new requirements.
So, the biggest benefits in taking your IRA offshore are that doing so:
  1. Puts you in the driver’s seat (not the custodian);
  1. Significantly expands your investment options; and most important
  1. Puts your retirement savings out of the immediate reach of the government.
But in order for you to move your IRA offshore, you’ll likely have to do a rollover to move your funds from your existing custodian (likely one of the large firms) to one that allows you to take your funds abroad (likely a smaller firm).
That’s where the recent court ruling comes in.
In Bobrow v. Commissioner, the court ruled that taxpayers can only do one rollover per 12-month period.
Prior to the ruling, the IRS had long allowed—and officially sanctioned in Publication 590—doing one rollover per IRA in every 12-month period. For example, this meant that if someone had two separate IRAs, they could perform two rollovers each 12-month period.
The new ruling, however, throws this completely out the window despite the fact that it had appeared in IRS guidance. Now you can only have one rollover in a 12-month period, regardless of how many retirement accounts you have.

It’s Not the End, It’s the Beginning

There are three disturbing aspects to this ruling.
First, IRA owners now face new risks. People considering multiple rollovers have to be extremely careful. There’s no margin for error, so be sure you consult with a tax professional. If you don’t do it correctly and your rollover is disallowed by the IRS, you will likely be subjected to an enormous bill of taxes and penalties.
Second, it shows that IRS guidance isn’t worth much. The judge in the case said as much when he declared, “Taxpayers rely on IRS guidance at their own peril.” While this is remarkable, nobody should really be that surprised that the government can and will make up the rules as it goes along.
Third and most importantly, this ruling is another incremental step to the eventual end game—the conversion of retirement assets to Treasuries. This ruling hinders the ability of some people to move their IRAs away from the big custodians, which is a necessary step in taking them offshore. Before any potential conversion to Treasuries, you can be sure that the government will have sealed off all the exits from the big custodians to optimize their harvest. This is a step in that direction.
So I don’t think this is the end. I think it’s the beginning. I fully expect incrementally more severe restrictions on IRAs in the future.
With this ruling and the myRA program, the government clearly has its attention set on retirement savings and slowly chipping away your options, as—not coincidentally—it slides further into debt and bankruptcy.
Given the recent history of governments around the world pilfering the retirement savings of their citizens, the jaw-dropping dismal financial condition of the US government, and the creeping measures directed at retirement assets, it’s absolutely critical for you to offshore your IRA before it’s too late.
But it’s not just a defensive measure. Offshoring your IRA will unlock a whole world of new international investment opportunities that would otherwise be unavailable.
The above originally appeared at Doug Casey's International Man and is reprinted with permission. For more on exactly how you can offshore your IRA, check out our Going Global.

1 comment:


    ".C. Memo. 2014-21, held that the limitation applies on an aggregate basis, meaning that an
    individual could not make an IRA-to-IRA rollover if he or she had made such a rollover involving any of the individual’s IRAs in the preceding 1-year period. The IRS anticipates that it will follow the interpretation of § 408(d)(3)(B) in Bobrow and, accordingly, intends to withdraw the proposed regulation and revise Publication 590 to the extent needed to follow that interpretation. These actions by the IRS will not affect the ability of an IRA owner to transfer funds from one IRA trustee directly to another, because such a transfer is not a rollover and, therefore, is not subject to the one-rollover-per-year limitation of § 408(d)(3)(B).
    See Rev. Rul. 78-40 6, 1978-2 C.B. 157.