04/2020 KIPLINGER’S PERSONAL FINANCE 57to hold an IRA or a brokerage or other
account. That’s what happened to
Jean Nielsen, 77, who had IRAs and
other investments with a brokerage
firm in California when she relocated
to Prague. She found Reilly Financial
Advisors, the firm where CFP Gabrielle
Reilly is employed, and with the firm’s
help transferred her accounts to a new
custodian. Her IRA’s required mini-
mum distributions go into a U.S. fi-
nancial institution’s cash account,
and she can withdraw funds from
it using a debit card attached to the
account.
“I would say probably 90% of the
people who reach out to me from out-
side the U.S.—mostly from Europe—do
so because their financial firm has
notified them that it won’t work with
them,” says Reilly. Her employer has
relationships with various U.S. custo-
dians that allow her expat clients to
hold investment accounts, and she
transfers clients’ assets as quickly as
possible. “If the institution liquidates
an IRA and mails the account holder
a check, that’s a fully taxable event on
the entire amount. That can be devas-
tating,” says Reilly. Well before you
move, ask your investment company
whether you can keep your accounts
after you’ve left the country.
Another sticking point: Most U.S.
financial institutions won’t allow
citizens living overseas to buy mutual
funds, although you may not be forced
to sell holdings you already have
when you move out of the U.S., says
Lachowitz. And if you live in a Euro-
pean Union country, your U.S. and
foreign brokers may prohibit you from
purchasing U.S.-listed ETFs, too. So
future transactions could be limited
to individual stocks and bonds.TA X E S
You may be a bona fide resident of a
foreign country, vowing never to re-
turn to the States. But if you’re a U.S.
citizen and have income—whether
it’s earned through a job or generated
from a pension or retirement or in-
vestment accounts, and whether itoriginates inside or outside the U.S.—
you’ll generally have to file a U.S. tax
return and pay taxes on that income.
(A couple of exceptions: You don’t have
to file if your income falls below cer-
tain thresholds or if it is solely from
Social Security benefits.)
“For those who reside abroad, it’s
not obvious, and it’s usually a rude
awakening when they find out they
have to file,” says Katelynn Minott,
a certified public accountant and
partner for Bright!Tax, which pro-
vides tax services for expats. The tax-
return deadline for those living abroad
is June 15 rather than April 15. You’ll
owe interest on any tax due that goes
unpaid after the regular April dead-
line, but the late-payment penalty
doesn’t kick in until after June 15.
Your former state may expect you to
file a return and pay taxes, too, under
the assumption that at the end of your
time abroad, you will return to that
state, so your residency was never
relinquished.
“Some states are quite aggressive
in their approach,” says Minott. In
particular, California and New York
are known for cracking down on resi-
dents who move overseas, she says.
To avoid such challenges, some people
relocate to a state with no income tax
for a few months so they can establish
residency, then move overseas.
Chances are you’ll have to file a
return in your country of residence,
too. And you may have to pay tax to
the foreign jurisdiction on your U.S.
earnings—possibly even on pension
or other retirement income. Further
muddling the picture, your new coun-
try’s tax year may span different dates
than the U.S. tax year.
Given the complexity of taxation
for expats, enlisting help is almost
imperative. “You need a good accoun-
tant in the U.S. and one in your new
country of residence,” says Reilly.
Your U.S. accountant should be famil-
iar with taxation for expats, and the
tax pro you use in your new country
should work regularly with U.S. citi-
zens. The ACA offers a directory of04/2020 KIPLINGER’S PERSONAL FINANCE 57INVESTING
It’s usually best to keep your retire-
ment and investment accounts with
U.S. firms. If you open investment ac-
counts abroad, you may have to contend
with FATCA reporting rules. Plus, if
you invest in non-U.S. mutual funds or
exchange-traded funds through a for-
eign institution, they’re considered
passive foreign investment companies
(PFICs), and taxes are punitive.
One big caveat: Just as some U.S.
banks reject American customers who
move overseas, investment firms may
tell expats with no permanent U.S.
address that they’re no longer eligible
- Costa Rica
- Panama
- Mexico, 5. Colombia, 6. Ecuador,
- Malaysia, 8. Spain, 9. France, 10. Vietnam