The chess players Thomas Eakins

An Overseas Account for your IRA

Setting up a foreign account without Unrelated Business Income Tax (UBIT) or distribution tax problem: Self-Directed IRA

If you search around on the web, you will find that there are many companies offering Self-Directed IRAs. You will find little actionable information on government regulated, registered and recognized foreign pension funds, investment accounts or brokerage accounts. You will find those who want to sell you overseas real estate or storage facilities for commodities. Those are assets that have no market maker and no ability for you to time your liquidity. The definition of retirement income planning includes the requirement for liquidity.

A Self-Directed IRA is where you place your IRA with a custodian and he agrees to take your suggestions and investment requests under advisement. He generally offers a wider range of investment options than a traditional IRA. With a Self-Directed IRA, you direct your investments but you can’t force your custodian to make an investment for which he is not comfortable.

Some plan trustee’s will refuse to make transfers outside the USA. In regards to a U.S. investment advisor they would have liability if your investments go south because FINRA rule 3040 has restrictions that prevent dealing in investments outside of his firm. It is his responsibility to advise investments and he is either not capable or not willing to perform the due diligence necessary to make an informed decision on a foreign investment.

Legal difference between a distribution and a contribution:

Combining two different legal transactions. One transfer is completely neutral because it is a transfer to a self-directed IRA Trustee, and that is not treated as a distribution. The second transfer is treated as a contribution. Therefore, so long as the 402(b) is constructed properly, there is no UBIT and there is no distribution tax problem.

Underlying that is the legal analysis that it is not deemed a distribution – it is a contribution.

Whether there is a Double Tax Agreement (DTA) or not makes no exception to this U.S. domestic tax law. Therefore, if someone were to say, “That the DTA says the transfer is not a deemed distribution” then that statement is incorrect. A DTA is not designed for international pension transfers it is designed to deal with transfers within a jurisdiction between qualified plans.

In a Self-Directed IRA the Trustee takes on IRC 4975 responsibility. 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.
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