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Plans To Retire Abroad? Here’s What You Need To Know!



Manasa Nadig- Traveling Abroad

Twenty Eighteen was a tumultuous year my friends and unfortunately my blog posting went on hiatus. I have a perfectly good excuse I must say, it was my big FIVE-OH birthday last year!! Yes, yes, I did hit that number in spite of my various attempts to stop Father Time! Besides starting a copious collection of AARP invitations promising me travel bags and blue-tooth speakers if I joined their ranks, I traveled a lot in 2018. One trip over early Fall was to Bilbao, Spain. We took the train from Madrid to Bilbao, the first thing to greet us at the Train Station was the stained glass facade (in the picture above), I was in Basque heaven after that, I was hard pressed to leave but work beckoned back home after a lovely week of the famous Bilbao hospitality. That got me thinking…how wonderful it would be to retire abroad! Wouldn’t it?

If you did decide to retire abroad, you should keep the following points in mind:

  1. Continue Filing Taxes in the US: First thing to remember about retiring overseas that the United States has a Citizenship-Based-Taxation regime or CBT, so your US tax filing obligations do not stop just because you moved abroad. The income to be declared on your US tax return should include your world-wide income. Your filing deadline maybe June 15th or April 15th depending on the category on income you have. All foreign bank accounts with highest balances over $10,000 should also be declared via FinCEN Form 114.
  2. Retirement Income From the U.S: You might have various sources of income from the United States including but not restricted to Rental Income, Interest, Dividends, Pensions, IRA Distributions etc. You will have to make arrangements so you will have access to your income even though you are not a resident of the United States. These funds will have to be repatriated to your country of residence. If you have reached qualifying age, you can also apply for and receive Social Security Benefits. More information and tools about receiving Social Security benefits while living abroad are on the Social Security Administration’s website and that helps you figure out what your eligibility is.
  3. Getting Back To Work While Abroad: Let’s say you are one of those lucky people who gets a second shot at working after you move abroad, and you are paid a salary. You may be eligible for the Foreign Earned Income Exclusion {FEIE}. There is a primer on this topic here on my blog. You may be able to exclude some or all of your foreign earned income from being taxed by the U.S. The 2019 FEIE amount is $105,900 which means you will be able to exclude the first $105,900 from being taxed in the U.S.
  4. Tax Treaty Provisions Or Double Tax Avoidance Agreements: The United States has entered into Tax Treaties with many countries around the world. This means that if you live in a country which has a tax treaty with the U.S. you may be able to take advantage of it’s provisions and avoid double taxation by both countries on the same income. Under these treaty provisions, you may be able to take credit for taxes paid in either country. Some countries have Totalization Agreements with the United States and that helps you to also avoid taxation of your Social Security benefits earned in either country.
  5. Filing State Taxes: Sometimes, the U.S. State where you had residence before you moved abroad may still require you to file tax returns. This is especially true if you have rental properties in certain states in the U.S. Many U.S. states do not recognize Tax Treaties or offer foreign tax credit. You may have to establish residence in a non-taxing U.S. state tax before moving abroad.
  6. Some Challenges Moving Abroad: From the many, many online forums for Expat Americans and many expat clients, we have learnt that the Foreign Accounts Tax Compliance Act {FATCA} has caused them a lot of headaches in conducting their business with financial institutions in their countries of residence. Many financial institutions, brokerage firms, and retirement fund administrators in the United States do not allow online access from outside the country. This double whammy for a lot of people who move abroad is definitely a huge challenge. Navigating these hurdles requires knowledgeable support in the United States while you live abroad.
  7. Relinquishing Your U.S. Citizenship or Surrendering Your Green Card: The challenges in dealing with one’s financial life in 2 countries causes many expats to take drastic steps to relinquish their citizenship or surrender their Green Cards. This is indeed a huge step and one must not to try to do this on their own.

Moving abroad is a huge endeavor and one must make sure they have worked out a plan with their tax adviser before they undertake this. We have pre- and post-immigration planning services available for clients planning to move for work or retire outside the United States. Whether you are planning to move because you believe your retirement dollars will stretch further, or you are moving to enjoy warmer climates and moving back to your birth countries to be closer to family. Immigration planning helps the taxpayer understand the tax implications of moving abroad and planning for it. Till then happy travelling folks, may you satisfy your wanderlust and find a dream retirement home if you are looking!

Have questions? Contact Manasa Nadig.

 

 

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I am Manasa Nadig, enrolled to practice and represent taxpayers with the Internal Revenue Service. I have been in the business of Tax Preparation & Tax Planning since 1999. My firm, MN Tax Solutions, LLC is based in Michigan, USA. Please connect with me on TaxConnections for more information about myself & the services provided by my firm.

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6 thoughts on “Plans To Retire Abroad? Here’s What You Need To Know!

  1. Another grEAt post – thank you Manasa!

  2. Avatar kjm in Geneva says:

    The US is the only tax jurisdiction in the world (along with Eritrea….) to use CBT as a standard for taxation. Every single other (242 out of a total of 244 tax jurisdictions) uses residence-based taxation (RBT). Unlike the rest of the world, the US doesn’t understand that taxation is about citizenry (residing, partaking members of society) not citizenship. The US diaspora receives nothing more from the US than other diasporas from their respective countries, namely limited embassy and consular services that are charged a fee.

  3. Avatar kjm in Geneva says:

    The article doesn’t mention clearly enough that financial services providers (banks, insurance companies, financial institutions, etc.) in many countries simply do not want to deal with US “persons” due to legal risk (of falling afoul of US laws) and its possible huge financial consequences. Existing US clients (retail clients especially) are either asked to leave or have their scope of services limited to checking accounts. They are denied investment portfolios, personal and mortgage loans, credit cards, life insurance policies, etc. Personally, I was kicked out of my pension plan for being a US citizen. What is quite rightly experienced as discrimination by US citizens is in fact simply companies protecting their shareholders’ interests from the arbitrary, extra-territorial overreach of US law; something no other country in the world can get away with. This discrimination also extends to the job market (especially executive positions). I was denied a job because of my US fiscal status. If the US used RBT like everyone else, these problems wouldn’t exist and US citizens would not be renouncing their US citizenships by the thousands each year because of the US’s archaic mentality and quasi-feudal concept of fiscal serfdom.

    • This post is really directed toward “Retirees Abroad” – people who want to live outside the USA and have no intention of becoming tax residents of other countries. For the most part, “retirees abroad” and (for that matter) “digital nomads” will not experience the problems you are describing. Although they may experience problems getting bank accounts abroad, most of them have no need for bank accounts abroad. They simply continue to use their accounts in the USA. In fact, they just continue to use a U.S. address as a permanent address. I have gradually reached the conclusion, that it is impossible for U.S. residents to understand the problems inflicted on U.S. citizens who want to leave American and fully integrate into other country/society. It can only be achieved by renouncing U.S. citizenship (as the numbers are making clear). For long term Americans abroad the situation (without legislative and/or regulatory change) is simply hopeless.

      • Avatar Ron Henderson says:

        For an expat who leaves the US behind but needs to remain compliant with US taxes because of retirement savings or other assets in the US, renouncing may ultimately be the only solution for their long-term financial health (after acquiring another citizenship of course.

        But for dual citizens with no US financial ties, such as Accidental Americans or those who left at a young age, there is simply no reason to come into US tax compliance. If FATCA reporting or limitations on accounts become problematic, renounce without ever filing a 1040 or an FBAR. Otherwise, for those fortunate enough to live in countries like Canada where there are no restrictions on accounts available to US persons, the IRS can be safely ignored.

        Best of all is to avoid FATCA completely by failing to disclose US citizenship to financial institutions. This very easy in countries where birthplace is not shown on the ID used to open accounts.

  4. Avatar Anonymous says:

    In an otherwise helpful article you write, ‘All foreign bank accounts with highest balances over $10,000 should also be declared via FinCEN Form 114’. This masks the fact that the rule is if the total of all accounts reach 10,000 at any point in the year then all accounts must be declared, not simply 10,000+ accounts. If tax professionals don’t get such basics right how can ordinary people be expected to? Even more worrying when you consider that the penalties for getting it wrong are huge.

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