Whether you are a US citizen moving abroad or a US Green Card holder becoming an expatriate, numerous financial decisions must be made. Managing your wealth can be an arduous task in itself. To further add the complexities of the various laws across countries, varying time zones and tax codes are a difficult path to navigate. Financial advisories such as Avestar Capital provide clients with comprehensive cross-border financial and wealth planning solutions. Xerxes Mullan, the Founding Partner of Avestar Capital emphasizes on having clear objectives in mind. Once you have made your decision, it is easier for advisors to guide you through tax obligations and reporting.
There can be numerous investment situations that arise when you are deciding to move to an overseas country. Some relevant questions are whether you are a US Citizen or a Permanent Resident (Green Card Holder) who wants to keep your immigration status once you move, why you are making the move, and how long you will spend overseas. Once you have narrowed down which category you fall into, you can consider what to do with your US investments.
If you are a US Citizen or Permanent Resident who wants to maintain the status while living abroad on a US Government assignment, the IRS will consider you a US resident, and your income will be fully taxable. However, since you are getting paid in US dollars, you will also have access to US retirement systems and can maintain US residency. Therefore, it makes the most sense to keep your investment accounts as they are before you leave. Financial institutions may refuse to serve clients with foreign addresses; therefore, you must substantiate your claim as a US resident in other ways. Make sure you have online access to your accounts before moving, and you can use a secure connection or US IP address to access the accounts. Furthermore, you can show that you are a US resident by using 1 US residential address on all accounts, filing state taxes and maintaining your driver’s license and voter registration to match the residential address.
If you spend your time in the US and partially abroad, it is ideal to spend six months in a year in your US residence to maintain your US residency. You need to maintain your accounts as if you live in the US. If you happen to spend a lot of time overseas, you should invest in foreign currency to cover your spending needs. Based on the law & the tax treaty between the country you move to and the US, your investment income or capital gains made could be taxed in that country if you are a resident there. Be careful to do your research when making the move.
Many people travel abroad for the first time with no known end date if they wish to travel, volunteer, etc. If you don’t expect to become a resident of a foreign country and are visiting for a short term, unfortunately, you happen to be in the gray area. These kinds of unique situations will warrant a judgment call from you. Suppose you have a home in the US and do not establish residency overseas, and are not away for over 2-3 years. In that case, you can make the case to show that you intend on continuing your US residency and make your investments accordingly. However, if you do plan to become a foreign resident, you need to find out if your US custodians will provide services for residents of the new country. If they refuse, find another custodian, open accounts with your foreign address, transfer the funds, and close all existing accounts. Your 401(k) will not be affected if you are still a participant, but the custodian will withhold additional taxes if you are at a foreign address. If your custodian closes IRAs belonging to foreign residents, keep the funds in the 401(k) until you find a custodian who opens IRAs for foreign residents. The investment costs in the US are some of the lowest in the world. Therefore you might want to keep some of your investments in the US but partially hedge them against the currency in your new country through holding investments or currency denominated in the new country’s currency. It’s also important to know the US and the new country’s tax treaty and totalization agreement.
The US is a land of opportunities, and many individuals have studied and worked in the US but do not intend to get a permanent residency or citizenship. If you fall into this category, any distribution from your 401(k) or IRA will be subject to penalty, and you may want to keep them in the US to grow further. However, you may be taxed lower if you distribute from the account before becoming a non-resident alien. It is advisable to conduct a cost-benefit analysis based on the amount, the tax treaty between the US and your country and how the next country taxes the distribution. An added benefit of keeping taxable investments in the US is that as a non-resident alien, you will not have to pay capital gain taxes on liquidating the investments. If you want to liquidate your US investment accounts, the best time would be after you leave the US and meet the criteria of a non-resident alien.
If you choose to give up your US nationality or the Green Card, you need to find out if you are a “covered expatriate”. If not, you should not have to incur US tax liability from expatriation. However, if you are a covered expatriate, you may have to pay certain taxes.
Since there are a number of minute details to get into and numerous decisions to make, it is most advisable to speak to a professional to deal with your US investment accounts when moving overseas.