Expat Financial Planning: 3 Critical Questions
An international move is an extraordinary opportunity to pursue new life experiences, and planning proactively for the associated financial transition can go a long way toward achieving a positive experience abroad.
When busily navigating challenges ranging from finding housing to learning a new language, however, it can be hard to know where to begin thinking about preparing for your financial life in a new country.
In this Insight, we explain three of the most important questions to help get started.
For a more in-depth examination of the full range of considerations when planning your cross-border move, please see our guide here.
How will you manage expat banking and currency?
Banking is a great place to start planning for your financial life abroad. It is important to recognize that many U.S. banks will not offer the same level of access and services outside of U.S. borders. Contacting your banks, brokerages, and other financial service providers is the best way to understand how your accounts might be affected.
Notifying credit card companies that you will be spending time out of the country is particularly helpful to avoid triggering fraud alerts. Understanding any foreign transaction fees on credit cards is also important for minimizing unnecessary expenses.
To secure reliable, timely access to funds abroad, many expats will find it beneficial to establish a local banking account. Timing can be challenging, however, as many banks will require an address in your new country to create an account. A banking account that offers global ATMs and rapid international transfer can prove valuable for bridging this gap. Note that you must annually report overseas bank and investment accounts to the IRS to avoid penalties.
Finally, expats need a plan for exchanging their U.S. currency for that used in their new country of origin. Many financial institutions charge substantial fees for international transfers, and it is often beneficial to take the time to find a currency broker with the lowest possible fees.
What are your plans for expat investing?
When moving abroad, there are two potential risks for investments: new regulations in your destination country and US investments with restrictions for overseas residents.
In the U.S., for example, regulations may make it difficult for U.S. brokerage firms to offer the same level of services for non-U.S. residents (or may require transfer to a specialized international platform).
Internationally, different countries take different approaches to regulating expat investments. In some cases, regulations will require you to sell U.S. securities before moving.
Finally, you should be prepared to complete some extensive documentation, as the FATCA (Foreign Account Tax Compliance Act) requires foreign financial institutions to report relevant information to the IRS.
Could moving abroad affect your tax bill?
U.S. citizens are still required to file a U.S. tax return when living abroad, and taxable foreign income includes wages, interest, dividends, and rental income.
Generally, expats can keep their U.S. retirement plans and may even continue contributing while living abroad. However, certain tax-advantaged options (including Roth IRA savings and retirement distributions) may not be available to non-U.S. residents.
Your new country of residence will also have its own tax laws (including its own filing requirements). It is important to understand how this country calculates taxes and whether any additional local/regional taxes will be incurred. Not every country employs the same tax year, and your tax preparer may need in-depth information on your investment income in order to calculate taxable income.
Tax treatment of U.S. expats can vary widely from country to country, and it is always best to work with an expert to understand how your plans could be affected. In many cases, the United States' 70+ tax treaties can help avoid potential double taxation issues.
Learn More About Planning for A Move Abroad
The issues highlighted above are just a few of the most important concerns when planning a move overseas. From navigating the immigration process to finding a home abroad to ensuring access to quality health insurance and medical care, the transition to expat living comes with a number of challenges. For a deeper examination of all of these issues and more, we invite you to read our Expat Financial Planning Guide.
While preparing to move abroad is a complex proposition, it can also prove immensely rewarding. There are proven solutions to all of the most common issues in expat financial planning. The key is starting the planning process proactively and assembling the right expertise to streamline your international move while securing your financial future.
If you have any questions or want to learn more about creating your own plan for moving abroad, don’t hesitate to reach out. Our team of professionals is happy to assist however we can!