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Financial Planning for Working or Retiring Abroad

Nov. 7, 2016
Managing Money, Personal Finance
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By Winnie Sun

The idea of working or retiring abroad holds plenty of allure, promising the chance to see new places, interact with different cultures and experience amazing travel opportunities. But if you’re a U.S. citizen, Uncle Sam is going to want a word with you before you take that overseas job offer.

The U.S. taxes the income of its citizens, no matter where they live or where they earn it. Failing to file annual income tax returns with the federal government will result in hefty interest charges and penalties. Starting this year, if you owe $50,000 or more in delinquent taxes, you could lose your passport.

The tax code is complex, and differing agreements between the U.S. and foreign governments cause variations from country to country. Consult with a tax professional who’s familiar with expatriate tax rules during your overseas stint, and even before you leave home.

 » MORE: What you need to know about taxes

Working abroad

One important discussion I have with my clients who work in other countries and their tax professionals revolves around currency. Some foreign employers let you choose which currency you’d like to be paid in, or even split your compensation among currencies.

It’s important to navigate currency issues carefully, taking into account such things as conversion rates, percentage breakdowns and varying tax levels. It can make for a lot of late-night Skype calls because of time zone differences, but it’s important. You shouldn’t suddenly find yourself without financial guidance because you left the U.S.

A lack of proper guidance for these complicated financial issues could lead to some drastic steps. A CNNMoney analysis found that the number of Americans who renounced their citizenship or long-term residency jumped more than 20% last year and was 18 times the rate in 2008. The analysis cites the complicated Foreign Account Tax Compliance Act, which took effect in 2010, for at least part of the increase.

It’s not just income taxes you need to think about. Will the American financial institutions where you have your accounts let you keep them there after you leave the U.S.? Do you realize you may not find a bank in your new country that will open an account for you? And that you’ll no longer be allowed to buy shares in U.S.-registered investments?

A 529 college savings plan, for example, gets varying tax treatments depending on the agreement or treaty between the U.S. and the country you’re considering for your new work location. The gains on the account might be taxed in your new country of residence even though they’re not in the U.S.

Retiring abroad

These issues don’t apply only to those who work abroad. If you retire and decide to live in a different country, there are challenges ahead of you as well.

You won’t be covered by Medicare if you move to a foreign country, so make sure you check on the availability of health insurance and the validity of your long-term care insurance policy in your new country. If you change your mind, return to the U.S. and want to sign up for Medicare after you first become eligible at age 65, you can be penalized in the form of higher monthly premiums, with the amount of the penalty depending on how long you delayed enrollment.

Health insurance aside, many retirees find life is cheaper outside the U.S., with some South American or Asian countries proving most popular. If you’re interested in this option, it’s important to do extensive research to identify places that have low rents, bargain food prices, good health care systems, services for seniors and, in some cases, more advantageous tax laws than the U.S.

If your dream is to travel, explore the world and widen your horizons, by all means do so. But before you get that passport stamped, make sure you talk with a financial advisor and a tax pro who specialize in the laws governing Americans abroad. You’ll save yourself thousands of dollars.


Winnie Sun is the founding partner of Sun Group Wealth Partners in Irvine, California.