The Malta Pension Plan

The Malta Pension Plan

How a little country south of Italy can help fund your retirement.

Dear Clients, Colleagues and Friends, 

Janet Weiss founded her software company shortly after she earned her MBA. Under her watchful eye, it grew from a two-person startup into a company valued at $75 million. Taking the time to enjoy her hard-earned success has become increasingly important to Janet.

At the ripe old age of 49, Janet began to consider retirement. She planned to sell the company but the prospect of paying millions in capital gains taxes might delay her plans to sell. A fellow entrepreneur she knew set up a Malta Pension Plan (MPP) for his retirement and to mitigate tax liabilities.

These pension plans provide U.S. citizens with the ability to plan for retirement while also providing attractive tax benefits based on a treaty between Malta (just south of Sicily) and the United States that has existed since 2011. There are some 66 such treaties the US has with other countries, but the Malta treaty is the most favorable. Like a Roth IRA, it is funded with after-tax dollars while the growth inside the Roth grows tax free.

Janet would be able to contribute almost any type of asset to a MPP, including cash, private and public business interests, partnership, limited liability, company interests, appreciated real estate and securities. She could begin receiving distributions upon turning 50 — perfect timing for Janet.

Like a Roth IRA, transfers of assets into the plan are not tax-deductible, nor is investment income taxed within the plan. The sale of appreciated assets within the plan are not taxable either. For estate-planning purposes, all plan assets are included in the participant’s gross estate, so the MPP will not help avoid the death tax when the participant dies. Janet plans to leave the bulk of her estate to her nieces, so prudent postmortem planning would be recommended.

Janet is advised that if she elects to go with the MPP, she will need to resign as the CEO and remove herself from any management decisions prior to the time of sale. She should place into the MPP no more than half of her net worth and delay any withdrawals from the plan for at least two years following her 50th birthday. Then, she may withdraw up to 30% of the MPP assets tax free.

Three years later, Janet can start taking additional tax-free lump-sum payments. If sufficient retirement income (based on the annual national minimum wage) remains in the plan, Janet can withdraw 50% of the excess each year, tax-free.

Remaining funds continue to grow free of income tax, like a Roth IRA. This seems like the perfect way to fund her retirement and legacy planning.

Janet wonders if this sounds too good to be true. She consulted with our firm to be certain everything was above board and legal. While MPPs are based on a legal treaty, they need to be carefully designed and implemented and managed.

We informed Janet that the IRS placed Malta Pension Plans on the list of offerings they are watching to determine if any changes are necessary. We continually monitor IRS decisions and the wisdom of all planning vehicles. There are other capital gain mitigation options for Janet to consider in funding for her retirement and tax planning, and we assist our clients in evaluating which one or a combination of them are most suitable. If you find yourself in similar and would like to discuss your options, visit our website (www.jmvlaw.com) and view our library of videos on this and other topics. We will be happy to schedule a complimentary phone call to discuss it. 949 333-8152

Jeffrey M. Verdon, Attorney at Law

Jeffrey M. Verdon, Esq.

For more information about any of the information discussed in this Client Alert, or any other income or estate tax planning or asset protection planning assistance, please contact the: Jeffrey M. Verdon Law Group, LLP at jeff@jmvlaw.com or 949-333-8143.

Posted in Client Alert, Trust Advisement.