Here s the Secret to Saving Your IRA Robert E. Bauman, JD

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1 Bob Bauman s December 2012 A Government Mandate to Put 5% to 6% of Your Contributions into Government-Controlled Funds is Just a Vote Away Here s the Secret to Saving Your IRA Robert E. Bauman, JD Thomas Paine, the firebrand penman of the American Revolution, wrote: Beware the greedy hand of government, thrusting itself into every corner and crevice Paine was protesting the taxation without representation of the British King George III and his despotic colonial royal governors the government of what was to become the United States was years and a bloody war away. Tom Paine s perhaps best-known utterance came from his seminal work, The American Crisis These are the times that try men s souls. That battle cry of freedom describes not only the struggle of the American Revolution but today it applies with equally appropriate force to Americans current battle against the restrictions of modern government. As the father of American pensions, Paine would be greatly incensed were he with us today to learn that our national government is laying plans to nationalize our private pension plans. The U.S. Social Security Administration recognizes Paine s last major pamphlet in 1795, Agrarian Justice, as the first American proposal for an old-age pension system. One hundred and forty-one years before the U.S. adopted Social Security in 1936, Paine advocated a 10% inheritance tax on all bequeathed property (more if there were no direct heirs) to be used Published by The Sovereign Society

2 to provide every person age 50 and older with a retirement income of 10 annually, as well as assistance to the blind and disabled. At the time, an able-bodied workman earned an annual income of about 23. Fast forward to January 2012; the total value of U.S. private pensions stood at around $17.5 trillion, more than 25% of which is in IRAs no coincidence, perhaps, that figure is not far from the fast-growing U.S national debt, currently at $16.3 trillion. As our nation s debt is projected to skyrocket to a mind-boggling $35 trillion by 2025, you can bet politicians are eyeing hungrily this mountain of pension cash. The fact is the greedy hand of government is now poised to grab your retirement savings. However, this special Offshore Confidential report will reveal: 1) methods ways you can use to prevent that from happening, and; 2) how you can protect and preserve your pension assets. That is, if you act now within the window of time left. But first If You Don t Think the Government Will Steal Your Pension Think Again! The National Seniors Council has warned that the bipartisan tax and budget negotiations currently ongoing between Congress and the White House encompass radical changes in tax-deferred contributions to retirement plans like 401(k)s and IRAs and not in a good way. You may have never heard about it but what is happening now is not new. The history of these radical retirement plan proposals goes back to fall 2008, when the Democrats had a firm majority in both the U.S. Senate and House. It was then that a plan first emerged for the creation of so-called Guaranteed Retirement Accounts (GRAs) to be imposed on all U.S. employees. Under the proposed terms of this plan, every American would be forced into a Social Security-like retirement scheme with an individual mandatory Guaranteed Retirement Annuity. Each year, the government would deposit $600 (indexed for inflation) into your GRA, with every worker responsible for depositing 5% of each paycheck into the account. The government would guarantee a 3% tax-deferred return on these assets although how this 3% would actually be achieved never has been explained. 2

3 Under this radical plan, workers could keep their current IRAs, 401(k)s and other retirement plans but the gains in those plans would no longer be tax-deferred. Instead, they would be taxed annually, ending the major tax advantage of such plans. Meanwhile, to give workers an incentive, it will be suggested that employees voluntarily trade in their tax-deferred retirement plan assets for the new GRAs, with no tax liability on the conversion. Over time, however, pre-existing retirement funds would be forced into the GRAs and private retirement plans would lose all their tax breaks. Restrictions will likely be placed on certain types of investments that the plans can make, along with a requirement the plans must purchase U.S. government bonds. And, upon the death of the plan owner, 50% of any remaining funds in a GRA would revert to the government, not to family beneficiaries as happens now with private plans. Join or Else Meanwhile, for those who refuse to join this new GRA system, there will be additional withdrawal penalties and taxes imposed on their current retirement plan. At the same time, there will be mandatory minimum holdings for required investments such as U.S. Treasury obligations, and of course offshore investments will also be restricted. Could this GRA plan ever become reality? Mark my words, that day is drawing near; it has its backers on both sides of the political aisle. If it ever becomes law, Congress will be unable to resist the temptation to raid the billions in GRA funds for its own political spending purposes. That long ago was the fate of the now non-existent Social Security trust fund. In reality, there is no trust fund; only records of a debt of $2.6 trillion owed to the Social Security Trust Fund by the U.S. Treasury, secured by electronically recorded IOUs to pay tens of millions of future retirees in the years ahead if the system survives. I predict the GRAs will become yet another giant congressional slush fund to be raided for vote buying schemes aimed at the 50%-plus of voters who demand more free goodies to be paid for by funds robbed from your hard-earned pensions. This GRA proposal is serious. It has been in the discussion stage for at least five years. It s not going away. Some said Obamacare would never become law they were wrong! And if it did, others said it would be ruled unconstitutional by the U.S. Supreme Court they were wrong, too! 3

4 The 2013 Government Budget includes Automatic IRAs Obama first proposed a prototype GAR nationalized private pension plan as a presidential candidate in Then, in his 2010 State of the Union address, it reared its head again as an effort to increase retirement savings by requiring all businesses to offer automatic IRA accounts. At the time, President Obama also claimed the plan would let employees automatically enroll in direct-deposit retirement accounts and allow them to expand matching tax credits. Nonetheless, at the heart of the proposal was something quite nefarious a requirement to invest 10% of private pension funds in U.S. Treasuries. This is clearly the president s way to bolster the declining demand for Treasuries and finance Washington s deficit spending. Again, in February 2010, Vice President Joe Biden and the White House Task Force on the Middle Class called for enhancing retirement options by the creation of guess what? Guaranteed Retirement Accounts. And the current administration s 256-page 2013 FY Budget plan has revived his 2008 proposal for the Automatic IRA, which by now had evolved into two proposals so-called Secure Choice Pensions and GRAs, both of which automatically mandate 5% to 6% contributions into government-controlled pension funds. The House rejected the Obama budget, and the Senate failed to act on it but introduced a bill that would enact GRAs. The Threat is Far Worse Than You Probably Imagine With Republican control of the U.S. House of Representatives secure at least until the 2014 elections, these radical plans for private pensions are unlikely to occur in the immediate future. But it is only a matter of time until the eventual bankruptcy of the U.S. government occurs. When the U.S. government bankruptcy occurs, when the dollar finally collapses, when the markets crash, when the greenback is no longer accepted as the international reserve currency, the resulting financial crisis that will grip America will be used by demagogic politicians to rush forward with phony nostrums and the demand to nationalize private pensions will be high on their list. As in the days after the terror attacks on September 11, 2001, a panicked U.S. Congress may be willing to go along with even the most radical plans, just as the PATRIOT Act became law and was signed by a weak President George W. Bush and Obama is no Bush. 4

5 And what happens to our hard-earned retirement savings then? What happens when the GRA proposal not only becomes reality, but evolves again from 5% to 6% contributions into a 20% grab by government? If you think it can t happen, consider this History Repeats Itself In October 2009, Argentine President Cristina Kirchner ordered the confiscation of $29 billion worth of that country s 10 privately managed pension funds in a desperate attempt to meet her faltering government s financing costs. Her solution to her country s cash crisis was to simply grab $29 billion worth of private pension cash. This has been pretty much standard practice in Peronista Argentina. In 2001, Argentina defaulted on $95 billion worth of government debt after a three-year economic meltdown that left Buenos Aires in bankruptcy. At the time, it was the largest government debt-default in world history. Although, that number soon paled in comparison with the trillions in government bailouts of banks and private businesses in the U.S., the U.K., Germany, France and elsewhere a few years later. Nonetheless, in a breathtaking piece of bravado, President Kirchner claimed her 2009 pension grab would protect retirees from the global financial crisis. She denied she was trying to grab the cash to pay off debt or to finance new programs or projects. I mention her words because you will soon hear the same false justifications from the U.S. government, current and future, in its attempts to confiscate your pensions. Those who might dismiss Argentina as an aberration should also consider that over the last few years, the governments of no less than six European countries Hungary, Poland, Bulgaria, Belgium, Ireland and France have seized their citizens private pension cash and assets to help make up deficits. But examples of government grabbing its citizens nest eggs are not limited to nations overseas. American Confiscation isn t New Consider our own history Within days of being sworn in as president on March 4, 1933, President Franklin D. Roosevelt, Barack Obama s hero, ordered Americans to surrender all their gold and gold-backed currency, allowing only small amounts for personal jewelry and dental fillings. 5

6 Executive Order 6102, passed into law on April 5, 1933, criminalized the possession of monetary gold by individuals, companies and associations. The order was rationalized on the spurious grounds that hard times had caused gold-hoarding, which was stalling economic growth and making the depression worse. However, it was essentially a bailout of the Federal Reserve and the U.S. Treasury. During his Fireside Chat on May 7, 1933, Roosevelt admitted that government gold obligations far exceeded the amount of gold held by the U.S. Treasury and Federal Reserve. While foreign gold obligations were paid, in return for their surrendered gold, Americans received devalued paper currency. In the last 25 years, U.S. federal and state police and prosecutors, under the guise of the failed war on drugs, have seized billions of dollars worth of real and personal property under the civil forfeiture program. Only 20% of the property owners were ever charged with any crimes, but very few got their cash or property returned. Just as the raft of bipartisan trillion-dollar bailouts and stimulus packages at GM, Chrysler, AIG, Citibank, JP Morgan Chase, Bank of America, Morgan Stanley, Goldman Sachs and others trampled upon the legal and moral rights of tens of millions of honest American creditors, bond holders and home mortgage holders, so too will government attempt to grab your private pension when the politicians think the right moment arrives. As Washington wrestles with the roughly $600 billion fiscal cliff and the 2013 budget, the far greater fiscal challenge of the U.S. government s unfunded pension and healthcare liabilities remain in the shadows. The truth of the matter is that America s $16 trillion debt only hints at the true extent of our unfunded liabilities. In October 2012, the respected economic historian and Harvard professor, Niall Ferguson, concluded that the total U.S. government unfunded liabilities totals at least $238 trillion, over 14 times the total current $16 trillion U.S. debt claimed by the U.S. Treasury Department. The official U.S. debt in the form of government issued bonds does not include the far larger unfunded liabilities of welfare schemes such as Medicare, Medicaid and Social Security. The most recent estimate for the difference between the net present total of federal government liabilities and the net present value of future federal revenues is $200 trillion, nearly 13 times the debt stated by the U.S. Treasury. 6

7 And even Ferguson s $238 trillion total is incomplete, since it omits the unfunded liabilities of state and local governments that are estimated to be about $38 trillion. The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that is supposed to protect the assets of millions of Americans so that funds placed in corporate retirement plans during their working lives will be there when they retire. The Pension Benefit Guaranty Corporation (PBGC) is an independent agency created under ERISA that pays benefits payable to insured retirees when private plans fail. During fiscal year 2010, the PBGC paid $5.6 billion in benefits to participants of failed pension plans. That year, 147 pension plans failed, and the PBGC s deficit increased 4.5%, to $23 billion. The PBGC has a total of $102.5 billion in obligations and $79.5 billion in assets. From the government s point of view, the assets that make up your private pension are easy pickings. And even if you still doubt that a pensions-grab is a certainty, why continue to put your financial future at risk by maintaining your hard-earned retirement assets in a domestic IRA based within the United States when you can move it offshore? In a global economy, having U.S-focused investments denominated in U.S. dollars can greatly diminish the future value of the payout your nest egg generates for you in retirement. As the dollar continues what is now close to a century of almostconstant weakness, and as the U.S. economy relies increasingly on imports from Asia, Europe and energy from the Middle East, your living expenses will escalate in dollar terms. That means your retirement savings will not go nearly as far as you originally planned. Here s how to get your IRA out of harm s way. The Steps to Moving Your IRA Offshore Right now, your self-directed retirement plan or IRA is being held by a custodian like Fidelity, American Express or T. Rowe Price. What you may not know is that your IRA custodian impacts your selection of investments and the future of your retirement. The custodian decides which funds, bonds and equities you can trade within your IRA. Some push their own investment funds, but it s safe to say that most limit you and your money to U.S.-based solutions. 7

8 But there are a few custodians that allow alternative assets like gold, real estate, coins and offshore investments. And they also allow you to use alternative managers like international money managers located in Switzerland, Denmark or Asia. By moving your current selfdirected Qualified Retirement Plan or IRA to the right custodian you have the freedom to work with a variety of investment advisors to find better and more profitable ways to achieve your retirement income goals. Before I go much farther, I want to point out that when you decide to switch custodians, some retirement plan providers will tell you that it is illegal to move the assets of your IRA offshore. This is false. Over the years, I have had subscribers fax me the letters they have received from well-known firms where someone in middle-level management tells them that their IRAs can t be moved offshore. When they push the issue, the accounts are always transferred, but only after a senior member of the firm has been forced to get involved. These institutions simply want to keep your money in-house. I believe some firms resort to lies and falsehoods in an attempt to scare you away from liberating your wealth. You are perfectly within your legal rights to move the assets of your retirement funds offshore. But, you may need to be persistent it s your money so it s worth the fight. Step #1: The process begins with your Individual Retirement Account (IRA), which you will have established through one of numerous financial institutions that offer these tax-advantaged retirement savings plan. If you are actively employed and contributing to a 401k plan, you will not be able to move your account. This solution is suited for IRAs only. There are two major tax advantages of an IRA, as explained in IRS Publication 590: The contributions you make to your IRA may be fully or partially tax deductible. Generally, gains and earnings are not taxed until distributed, and may not be taxed at all in some instances. IRS Publication 590 also describes what can and cannot be purchased in your IRA and with whom the IRA can deal. I suggest you become familiar with what the IRS outlines as it explains penalties that can be assessed for premature withdrawal of funds and loans. 8

9 Step #2: Any U.S.-based retirement plan is required by law to have a U.S.-based custodian. However, the plan s administrator and the cash and other assets owned by the IRA and its brokerage or other accounts can be located offshore, outside the jurisdiction of U.S. courts and government. The main function of this U.S. custodian is filing annual government tax and reporting paperwork, giving the value of your IRA account, contributions and distributions. Several firms in the U.S. act as custodians for retirement funds. California-based Entrust Group and Texas-based Goldstar Trust are open to alternative investments and are experienced in transferring IRA accounts. When transferring your IRA, which is also referred to as a rollover, it s critical to work with an experienced professional. A lot can go wrong with a do-it-yourself rollover. If you make a mistake, the IRS can view it as an early distribution. If this should happen, it will trigger penalties as well as a loss of tax deferral. The safest way to do a rollover is to have the money rolled directly from one institution to another. Transferring your IRA to a new, more liberal custodian such as Entrust or Goldstar will take two to six weeks. As I mentioned, your current IRA custodian may take 30 days to release your funds. The fees for such a transfer range, but the average cost is approximately $250 to $400 for a basic account. Step #3: Once your funds are successfully transferred to the new custodian, you can have multiple options. You can self-direct the account by opening a brokerage account in the name of your IRA. Some custodians will allow you to purchase foreign real estate with the cash in your IRA or you can purchase physical gold. However, many of you may choose to send your money overseas to be managed by a professional money manager. 9

10 Pick an International Manager to Grow Your Retirement You may wish to have the assets of your retirement account transferred to an offshore money manager. Putting your money in the hands of a manager with a non-u.s. vantage point can give a big boost to your portfolio in a way not many people consider. Foreign managers have insights into markets and companies that U.S. advisors overlook. International managers have experience with foreign currency diversification and stronger currencies such as the Swiss franc, the Norwegian krone or the Singapore dollar. Offshore IRAs can also purchase and hold Swiss annuities and life insurance, neither of which is subject to attack or repatriation under Swiss law, or you can invest in precious metals. By moving IRA assets outside of the U.S. and opening a bank or investment account in the IRA name, it becomes very difficult to attack those assets or force them to be repatriated. That is especially so if you invest in real estate or land. And, last but certainly not least, moving your IRA assets abroad means that your retirement cash is outside the U.S. banking system. In the event of a catastrophic banking meltdown here at home, your nest egg will be safe miles away. We recommend a number of offshore advisors and money managers. Jyske Global Asset Management, or JGAM, is the American-client assetmanagement arm of Jyske Bank, Denmark s second-largest bank. JGAM is qualified as a broker by the U.S. Securities and Exchange Commission (SEC) and is headed by veteran banker Thomas Fischer. Portfolio managers at JGAM will invest your IRA funds based on your investment goals. Or depending on the size of your account, they will roll your retirement cash into a self-directed IRA that will allow you to manage your own money, using brokerage firms overseas with which you might already have a relationship. JGAM requires a $200,000 minimum to open an offshore IRA. If you prefer a traditional Swiss base for your offshore IRA, Robert Vrijhof, head of the private wealth management firm WHVP, works with IRA accounts. For a $500,000 minimum deposit, Rob will manage the account on your behalf, also using Goldstar as the U.S. custodian. WHVP invests in stocks, bonds and currencies. It is a fee-based firm. Daniel Zurbrügg, Managing Partner of Alpine Atlantic Asset Management, and the staff at his firm are also able to accept IRA accounts. And, like WHVP, the minimum deposit is $500,000. All of the firms I have mentioned can assist you with your IRA transfer as all work with at least one, if not both, of the custodians listed. 10

11 No Matter What Washington Decides, There is No Downside to Liberating Your Pension I can t tell you when Congress will get enough votes to mandate the Automatic IRA. And it is possible that the government could mandate that all tax-deferred accounts hold a set amount of government approved investments even if your funds are invested offshore. My advice? If this happens, I would suggest you break your IRA, pay the tax penalties and leave the money safely overseas in a taxable account. If the day should come that we are forced to hold U.S. Treasuries in an IRA, it speaks loudly to the state of emergency in America. The fate of the dollar and our economic stability will be highly in question. I would much rather keep my money safely overseas in my own private bank account. The worst thing we can all do is wait and do nothing. Appendix Offshore Advisors and Money Managers (All of the following are registered with the U.S. Securities and Exchange Commission): Weber, Hartmann, Vrijhof & Partners (WHVP) Robert Vrijhof, Managing Partner Schaffhauserstrasse 418, CH-8050 Zürich Switzerland Tel: info@whvp.ch Website: Alpine Atlantic Asset Management AG Daniel Zurbrügg, Managing Partner Usteristrasse 19, 8023 Zürich Tel: info@alpineatlantic.com Website: Jyske Global Asset Management (JGAM) Thomas Fischer, Senior Vice President H.C. Andersens Boulevard Copenhagen V, Denmark Tel: fischer@jgam.com Website: 11

12 U.S. Legal Advice As those of you who are familiar with my advice concerning going offshore, the first consideration should always be obtaining proper legal advice from an experienced U.S. attorney, who is wellversed in the issues involved, as well as in U.S. tax and reporting requirements. If you want to move your IRA offshore, or to establish a new offshore retirement account, as a first step I recommend you contact: Josh N. Bennett, JD 440 North Andrews Avenue Fort Lauderdale, Florida Tel: (954) josh@joshbennett.com Website: Faithfully yours, Publisher...Erika Nolan Editor...Bob Bauman JD Managing Editor...Mark S. Smith Graphic Designer... Bruce Borich Bob Bauman s Offshore Confidential is published 12 times per year for $495 by The Sovereign Society Offshore Confidential 98 S.E. 6th Avenue, Suite 2 Delray Beach, FL USA, USA Toll Free Tel: (888) Contact: Website: Copyright 2012 Sovereign Offshore Services LLC. dba The Sovereign Society All international and domestic rights reserved, protected by copyright laws of the United States and international treaties. No part of this publication may be reproduced in any form, printed or electronic or on the worldwide web, without written permission from the publisher, Sovereign Offshore Services, LLC. 98 SE 6th Ave., Suite 2, Delray Beach, FL Legal Notice: This work is based on what we ve learned as financial journalists. It may contain errors and you should not base investment decisions solely on what you read here. It s your money and your responsibility. Nothing herein should be considered personalized investment advice. Although our employees may answer general customer service questions, they are not licensed to address your particular investment situation. Our track record is based on hypothetical results and may not reflect the same results as actual trades. Likewise, past performance is no guarantee of future returns. Certain investments such as futures, options, and currency trading carry large potential rewards but also large potential risk. Don t trade in these markets with money you can t afford to lose. Sovereign Offshore Services LLC expressly forbids its writers from having a financial interest in their own securities or commodities recommendations to readers. Such recommendations may be traded, however, by other editors, Sovereign Offshore Services LLC, its affiliated entities, employees, and agents, but only after waiting 24 hours after an internet broadcast or 72 hours after a publication only circulated through the mail. Also, please note that due to our commercial relationship with EverBank, we may receive compensation if you choose to invest in any of their offerings. (c) 2012 Sovereign Offshore Services LLC. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This Newsletter may only be used pursuant to the subscription agreement. Any reproduction, copying, or redistribution, (electronic or otherwise) in whole or in part, is strictly prohibited without the express written permission of Sovereign Offshore Services, LLC. 98 South 6th Ave, Suite 2, Delray Beach FL