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BFI Capital
November 29, 2021

U.S. Retirement Plans Under Attack!

Just as we often heard under the Obama Administration during the 2010’s, as soon as Joe Biden was elected to office, it didn’t take long for fears to flare up again in the U.S. regarding potential dangers posed to Individual Retirement Account (IRAs) and other retirement plan holders. With spending bills and proposals flying through congress, it’s clear the US government once again has their eyes on retirement plans.

Published in October, the following newsletter comes from our friends at Sovereign International Pension Services, in New Port Richey, Florida. Mr. Larry Grossman and the team at Sovereign believe in “liberating your IRA”, or compliantly structuring retirement plans in ways to free retirement funds from the constraints that many IRA custodians thrust upon clients. They also highlight how those with IRAs and other retirement accounts should globalize the underlying assets of those retirement funds, further boosting diversification.

In this sobering newsletter titled Retirement Plans Are Under Attack! they shared their fears about what was coming in the flurry of proposals and bills rolling through Congress.

Urgent Action Need to Protect your Self-Directed IRA

The current administration has decided to restart the attack on retirement plans. This is a serious and imminent threat. I urge you to take action now while you can. Here are some of the headlines I’ve come across while researching this new attack.

  • House Democrats’ plan would prohibit individual retirement accounts from holding private equity, hedge funds
  • House Bill Would Blow Up the Massive IRAs of the Superwealthy
  • If plans to cut IRAs succeed, the middle class will be collateral damage

The proposal is part of the infrastructure and tax package advancing in the House. The media has focused on the portion of this bill, which goes after so called mega IRA’s. More on that in a minute. I’m more concerned about the proposal’s direct attack on what you can and can’t invest in with your IRA. I’m confident if they have their way it’s only the beginning. For years I’ve warned my readers about an attempt to force IRA’s and retirement plans to invest in treasuries, as a way to help finance the deficit. This might seem extreme to you, but I promise it’s been openly discussed in Congress.

Text from the proposal:

Sec. 138312. Prohibition of IRA Investments Conditioned on Account Holder’s Status.

The bill prohibits an IRA from holding any security if the issuer of the security requires the IRA

owner to have certain minimum level of assets or income, or have completed a minimum level of education or obtained a specific license or credential. For example, the legislation prohibits IRAs from holding investments which are offered to accredited investors because those investments are securities that have not been registered under federal securities laws. IRA’s holding such investments would lose their IRA status. Translation, your entire account would be considered a taxable distribution, even if you haven’t liquidated the investments. This section generally takes effect for tax years beginning after December 31, 2021, but there is a 2-year transition period for IRAs already holding these investments.

What do you think will happen to all of the money in IRAs and retirement plans once they become liquid…. of course they will find a place for you to invest those funds. Think treasury bonds or maybe something new, like an infrastructure bond or a green new deal bond.

There are a number of other restrictive investment clauses in the bill that are equally concerning. Contact me if you’d like to know what they are or want a copy of the new bill.

Attack on the Wealthy

The bill also attacks high net worth retirement plans. It restricts or eliminates their ability to make future contributions, and in some cases it requires a 50% distribution from the existing IRA and or retirement plan within 1 year of the new law.

In 2019 the number of IRA account holders with more than $5 million was over 25,000. I’d estimate that number is much greater now given the recent market performance and growth in cryptocurrencies.

Why should the government be able to penalize you because you’ve done a good job accumulating assets for your retirement? Aren’t they always telling us to save more because social security is running out of money? And now that you’ve done that, they’re just going to take it from you…

The proposed bill states you’ll have to comply with the new investment restrictions within 2 years or face the disqualification of your IRA, leading to a total distribution. This would/will create a huge mess and massive taxes for those affected, but it would/will create significant income to the government.

There is always a chance the bill won’t pass, but I’d rather not bet my future on it. I think there is a higher probability all, or some of the provisions will become law. (A similar measure was attempted during the Obama administration but it failed.) The political mood seems to have changed since then.

Typically, when there have been significant changes like this, there have been allowances made for existing accounts. It can come in the form of what’s frequently called, “grandfathering”, of existing accounts, phased in allowances or longer time frames in which account holders must become compliant. My personal feeling is, if you own highly illiquid investments the government will be forced to make allowances or grant the grandfathering of some or all of these types of investments. How can the government force you to liquidate an investment for which there is no market? What if you've already invested in something like a small privately held company, or a piece of raw land in the middle of nowhere? Investments such as these are not like traditional investments where you can go online and get the latest right up to the second price and sell them to the next buyer. These are just a few of the alternative investments the new bill wants to put an end to. Why would the government want to stop you from investing in something like real estate or a new start-up company? Because they must have plans for your money, that's why! There is little or no way to liquidate an illiquid investment. Can you imagine the number of court cases that will be filed and the amount of time and money that will be spent arguing over what the value of these investments are? Imagine what will happen if they tell you, your IRA/retirement plan will be distributed and you’ll be taxed on the “value” when you can’t sell the asset or even be sure what the value is.

If this is the road they go down they’ll be creating a huge mess that could actually end up costing them money. What’s the point in that? The fact is they’ll likely go after the low hanging fruit. Assets held in traditional stocks, bond, mutual funds and precious metals are super liquid. Besides, I’m sure more than 95% of the assets the government hopes to get are already invested in these types of liquid, traditional investments. I feel pretty certain they’ll spend their time and energy “harvesting” the easy-to-get accounts.

What can you do to protect your assets?

You should consider getting as much of your IRA/retirement plan as you can into illiquid investments. Put a legal structure around them, which makes them more illiquid. Many consider a non-US LLC as the gold standard for this type of protection. A domestic LLC will also provide some level of protection, but nothing as strong as a non-US LLC. Remember, the greater the nexus is between your assets and those after them the easier they are to get. Why take the risk? Put as many barriers between your hard earned savings and those that would take them away from you as you legally can.

An Important Question!

(Our very own Scott Schamber from the BFI Bullion team, upon reading the article, had the following question for Larry and his team, which was actually included in the newsletter)

I asked a business associate of mine, who works for a precious metals dealer in Switzerland, to read my newsletter prior to publishing. He asked me, are you discouraging the purchase of precious metals because they are a low hanging fruit?

Great question. I apologize if I’ve been unclear. I’m not encouraging, nor discouraging, any investment. I don’t provide investment advice of any kind. What I am doing is encouraging you to structure your assets and investments in a manner that will give them the most protection possible.

Firstly, own your investments inside of an LLC, and if your custodian allows it, own them inside of a non-US LLC. If your custodian doesn’t allow it, you should give us a call.

Secondly, I feel if legislation similar to what I’ve been describing does eventually pass it will allow for, or grandfather in, existing illiquid investments. The window of opportunity to protect your hard earned retirement savings could be closing. Act now!

Sovereign International Pension Services grew out of one man’s passionate belief in the importance of international diversification for investors. Larry C. Grossman was a traditional financial advisor who saw how effectively global investing worked to strengthen client portfolios. He was one of the first financial advisors, and possibly the first, to develop a compliant method for helping clients take IRAs and pension plans offshore for asset protection and greater investment diversification.

Larry began acting as his clients’ IRA Administrator and advisor. As the retirement plan part of his practice grew it began to take more and more of his time. Larry also found himself servicing other financial advisors and their clients. He sold the advisory business in 2008 after 20 years of experience in financial services and became a full-time IRA Administrator and consultant focused on international investing.

,>> Read more here.

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