Updated: Mar 30
"In investing, what is comfortable is rarely profitable." — Robert Arnott
One of the most important financial planning considerations you should address when moving abroad is whether to keep hold of your current investments, investment manager, and retirement plans.
In this article, we’ll look at the factors that should influence your decision-making, including which country you’re moving to, and your longer-term plans and financial goals. You should also consider how your estate planning will be affected.
There’s no substitute for expert advice though, so it’s always worth consulting a financial advisor who is experienced working with Americans living in the country you’ll be moving to.
In this article, you’ll learn about:
• Should you keep your current investments and asset manager?
• Should you keep your current retirement plans?
• Tax considerations in the country you’re moving to
• Considerations if you’re moving abroad temporarily
Should you keep your current investments and investment manager?
Whether you decide to keep your current investments and investment manager is a personal choice, but here are some factors that you should take into account.
The main disadvantage to keeping your US investment manager is that they probably won’t have experience working with international clients and the intricacies of cross-border financial planning and investing.
The choice may in fact be taken out of your hands, in the sense that you will need to check whether your current investment manager will want (or be able) to continue working with you now that you are moving to a new country, as not all advisors want to manage foreign residents due to the added complexity.
The idea of finding a trustworthy expat-specialist financial advisor may be daunting, however it doesn’t have to be. Do some research, find some options, check out their reviews, ask around other expats, and then book a conversation to see how they would help, and you’ll soon get a good idea who you like and trust.
If you’re only moving abroad temporarily, such as for a one-year work placement, it sometimes makes sense to leave your investments and manager in place. Conversely, if you are planning to live abroad for longer, it normally makes sense to transfer your investments to an expat financial planning specialist.
The US has some of the lowest investment costs in the world, and you can still keep your current investments in the US when you move abroad (although you might change how and what you trade in depending on the country you reside in), so it doesn’t matter where in the world your new advisor is based as long as they are experienced and knowledgeable about working with expats in your country, the ideal being to find someone who is licensed to invest in both places.
Should you keep your current retirement plans?
The first option is to do nothing and leave your US retirement accounts as they are. This may not be possible though, as some providers, particularly IRA providers, won’t let you keep your US plan when you move abroad and stop contributing. Again though, if you’re moving abroad temporarily, this option, if possible, is worth considering. One downside is that if you retire in another country, the tax benefits won’t apply there. This depends on the details of the tax treaty the US has with the country where you retire. There is also a currency risk involved, if the dollar weakens against the currency in the country when you retire when you’re drawing distributions.
Move to a different US retirement account
This can be a good option if you aren’t able to keep your current retirement plan when you move abroad, as the provider won’t let you, such as moving a 401(k) plan to an IRA plan. The same issues apply though, in terms of currency risk and possible taxation abroad.
Cash them in early
Another option is to withdraw and distribute your retirement funds early, at the time that you move abroad. This frees up your funds, however the disadvantages are losing the tax benefits, and often high withdrawal fees and penalties, too.
Move your retirement accounts to a foreign retirement account
It might be possible to transfer your retirement accounts to a similar foreign program, however it’s not normally possible without losing the US tax benefits. Tax-beneficial foreign retirement plans may also not enjoy US tax benefits, so you may find the advantage negated anyway.
The best advice is to discuss it with your expat financial advisor.
Tax considerations in the country you’re moving to
Knowing and understanding the tax rules in the country that you’re moving to is the single most important factor affecting how you organize your current investments when moving abroad.
The tax laws and regulations in your new country can be very different. If you choose to just move your investments without proper consultation and homework, there is a good chance that you will find yourself facing unexpected fees and taxes, potentially in both the US and your new country!
On the other hand, understanding different countries’ tax rules can help you plan. For example, Belgium doesn’t have capital gains tax, while the UK, France and Canada have tax treaties that reciprocate US retirement plan tax benefits. Professional advice in this regard is highly recommended.
Also, don’t forget that US tax laws require you to file an annual US federal tax return after you move abroad, and if you opt to move your investments and assets to your new country, you might have FBAR, Form 8938, and PFIC reporting and taxation to contend with.
In terms of double taxation, as an American abroad you can claim foreign tax credits to ensure you aren’t double taxed when you file your US taxes.
There may be a Totalization Agreement with your new country, too. Totalization Agreements prevent double social security taxation, both when making contributions and receiving payments in retirement.
Considerations if you’re moving abroad temporarily
If your investment advisor is able to continue despite you being a resident abroad temporarily (such as on a temporary work contract abroad), it may be better to save the costs and hassle of changing and leave your current assets alone, assuming that your current advisor is happy to keep working with you while you’re not a US resident.
It’s still worthwhile having a conversation with an expat financial planner though, as you may want to do some investing while abroad, and they can always work with you or your existing advisor to ensure you make the best decisions, even if you’re only abroad temporarily.
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