Paul L. Caron

Tuesday, August 24, 2021

WSJ: U.S. Malta Treaty May Permit Cross-Border Roth IRA Tax Shelters For Wealthy Americans

Wall Street Journal Tax Report, Quirks in a U.S. Treaty With Malta Turn Into a Tax Play:

Have you heard of Malta Pension Plans? They’re offshore tax shelters that are hot with some wealthy Americans.

As usual with tax shelters, the promoters promise they’ll slash tax bills by making clever use of legal quirks. That puts them in a somewhat gray area, meaning the tax savings could bring legal risks.

Malta has caught the attention of advisers due to quirks in a 2011 tax treaty between the U.S. and the small, sunny island that sits at a historic crossroads in the Mediterranean Sea.

Advocates say Malta plans can dramatically lower U.S. taxes on the sale of highly appreciated assets like cryptocurrency, stock or real estate. Instead of paying a top federal rate of 23.8% on capital gains—or 43.4% if a Biden administration proposal is enacted—U.S. investors can fund a Malta pension with such assets, sell them, and soon withdraw large chunks of the money tax-free if the saver is age 50 or older.

Predictably, Malta pensions have also caught the eye of the Internal Revenue Service. In July, the agency put them on its “Dirty Dozen” list of tax scams to avoid. However, the IRS said only that it may challenge some Maltese pensions—not that all plans are abusive, or that it will challenge them.

California attorney and Malta-plan advocate Jeffrey Verdon has posted a YouTube video extolling these strategies as a “unique opportunity” for high-income taxpayers. The video says these pensions are like “a supercharged cross-border Roth IRA” that offer high earners benefits they typically can’t get from Roth IRAs under U.S. rules.

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