Investment strategy if relocating overseas later

[Pinch of salt]

Hi everyone,
We are in the beginning of our journey to FIRE and because I’m from overseas, we’ll likely move overseas to work in about 5-10 years time and eventually retire there as well. We’d both be U.S. citizens then so would always need to file taxes here.

I’d be interested to know what would be the most efficient investment vehicle(s) to use now in our situation where we might want to move these asset overseas or cash in early? Both of our jobs offer 401k.

[MustacheAndaHalf]

The tax implications of becoming a U.S. citizen and moving overseas are probably more significant than you realize.  Are you aware of FATCA, which requires you to file an FBAR if your foreign assets hit $10,000?  The IRS requires forms for $50,000 worth of assets overseas.  Tax laws can determine what you are allowed to invest in (like PFIC in the US and MFID II in the EU, which aren't compatible for some investments), so you might want to ask this over in the "taxes" forum.

[Pinch of salt]

The tax implications of becoming a U.S. citizen and moving overseas are probably more significant than you realize.  Are you aware of FATCA, which requires you to file an FBAR if your foreign assets hit $10,000?  The IRS requires forms for $50,000 worth of assets overseas.  Tax laws can determine what you are allowed to invest in (like PFIC in the US and MFID II in the EU, which aren't compatible for some investments), so you might want to ask this over in the "taxes" forum.

Thanks Mustache and a half. I’m aware of FBAR as I already need to file it, I have foreign assets. Will see about the taxes area of the forum.

[reeshau]

The detailed answer will be very specific to which country you are from (assuming you maintain citizenship) and which you will be moving to. (If they are different)  Tax treatment, in particular double taxation provisions, are in the tax treaties between the US and the other country.

One thing I think is universal is that the tax treatment of Roth IRA's is not recognized anywhere outside the US.  So, if you remitted money from a Roth account overseas, it will be treated as not taxed (you will have no record of US taxes applied on that money) and you will be fully taxed.

Also, pensions, even defined-benefit pensions, are often treated differently (And better for people relocating) than income or savings.  Look for treaty clauses about pensions, and think of your 401k balances in those terms.

Also be aware that the implementation of the OECD deal on 15% minimum taxes for corporations will require changes to all tax treaties among those countries to implement.  And if the treaties are opened up, there may be further changes made.

[Pinch of salt]

The detailed answer will be very specific to which country you are from (assuming you maintain citizenship) and which you will be moving to. (If they are different)  Tax treatment, in particular double taxation provisions, are in the tax treaties between the US and the other country.

One thing I think is universal is that the tax treatment of Roth IRA's is not recognized anywhere outside the US.  So, if you remitted money from a Roth account overseas, it will be treated as not taxed (you will have no record of US taxes applied on that money) and you will be fully taxed.

Also, pensions, even defined-benefit pensions, are often treated differently (And better for people relocating) than income or savings.  Look for treaty clauses about pensions, and think of your 401k balances in those terms.

Also be aware that the implementation of the OECD deal on 15% minimum taxes for corporations will require changes to all tax treaties among those countries to implement.  And if the treaties are opened up, there may be further changes made.

Thanks Reeshau, this is useful. I’m from a country where there is a tax treaty in place and likely moving to a country where there is a treaty in place. I’m inclined to invest in non-tax advantaged accounts and then only pay capital gains to which ever country when we end up residing in - with that tax treaty. It’s the employer 401k matching that I don’t want to leave on the table when maxed out.

[PDXTabs]

I'm in the same boat, except that I never accumulated enough assets overseas to file an FBAR because my entire adult life has been in the USA.

I do max out my 401k because all of the countries that I'm interested in have tax treaties in place that deal with them AFAIK.

I do not contribute to my Roth IRA anymore because of the issues discussed and prefer taxable accounts after the 401k is maxed.

EDITed to add that some people have managed to use the Roth in the UK: https://www.castroandco.com/blog/2019/february/u-s-roth-accounts-are-exempt-from-uk-tax-qrop-lo/

EDIT2: and the obvious work around for the Roth is to come back to the states long enough to withdraw everything after 59.5 years of age. But obviously that kind of sucks.

[reeshau]

EDITed to add that some people have managed to use the Roth in the UK: https://www.castroandco.com/blog/2019/february/u-s-roth-accounts-are-exempt-from-uk-tax-qrop-lo/

EDIT2: and the obvious work around for the Roth is to come back to the states long enough to withdraw everything after 59.5 years of age. But obviously that kind of sucks.

Yes, the UK is an exception, at present, with a tax treaty that is up-to-date with regards to retirement savings options.  One might hope that the other treaties might catch up if they are cracked open in the next year or two.

[PDXTabs]

EDITed to add that some people have managed to use the Roth in the UK: https://www.castroandco.com/blog/2019/february/u-s-roth-accounts-are-exempt-from-uk-tax-qrop-lo/

EDIT2: and the obvious work around for the Roth is to come back to the states long enough to withdraw everything after 59.5 years of age. But obviously that kind of sucks.

Yes, the UK is an exception, at present, with a tax treaty that is up-to-date with regards to retirement savings options.  One might hope that the other treaties might catch up if they are cracked open in the next year or two.

I'm not optimistic. The US and Chile signed a tax treaty in 2010 that still hasn't been ratified by the US Senate [more]. There is no expat PAC. We could really use one.

[FLBiker]

I recently moved from the US to Canada, and Canada recognizes Roth IRAs, which is great.  So we converted our traditional IRAs to Roth before we moved.  In hindsight, it may have been better to focus on our taxable account rather than tax deferred (since taxes rates are higher here) but at the same time, since our income in retirement should be pretty low, our taxes here might still be lower.  One thing we've been careful about is avoiding foreign domiciled ETFs in our taxable account so that we don't need to do PFIC filing.  So basically we hold Canadian ETFs in our tax-sheltered Canadian accounts, and then we'll hold individual stocks in our Canadian dollar taxable account.  We're keeping our existing US dollar taxable account in US ETFs, with a Canadian brokerage.  It has definitely been a learning curve, but it ultimately hasn't been that hard.

Another thing to consider is how friendly your brokerage is to expats.  I've asked specifically about Canada, but based on my phone calls Interactive Brokers and Vanguard are NOT friendly to US Citizens living in Canada, while TD Ameritrade, Fidelity and TIAA are.  This can certainly change, though.

[MustacheAndaHalf]

I recently moved from the US to Canada, and Canada recognizes Roth IRAs, which is great ...
Another thing to consider is how friendly your brokerage is to expats.  I've asked specifically about Canada, but based on my phone calls Interactive Brokers and Vanguard are NOT friendly to US Citizens living in Canada, while TD Ameritrade, Fidelity and TIAA are.  This can certainly change, though.

I've read the opposite about Interactive Brokers, that they rank in the top 2 of brokerages for expats (Schwab was the other brokerage).  Maybe you'll know more when it goes further than a phone call.
https://usexpatinvesting.com/educational-materials-for-ex-pats/what-is-the-best-brokerage-for-expats/

[FLBiker]

I recently moved from the US to Canada, and Canada recognizes Roth IRAs, which is great ...
Another thing to consider is how friendly your brokerage is to expats.  I've asked specifically about Canada, but based on my phone calls Interactive Brokers and Vanguard are NOT friendly to US Citizens living in Canada, while TD Ameritrade, Fidelity and TIAA are.  This can certainly change, though.

I've read the opposite about Interactive Brokers, that they rank in the top 2 of brokerages for expats (Schwab was the other brokerage).  Maybe you'll know more when it goes further than a phone call.
https://usexpatinvesting.com/educational-materials-for-ex-pats/what-is-the-best-brokerage-for-expats/

I agree.  I expected them to be good but, for them, the particular combination of Canada and US citizenship is problematic.  They wouldn't even let me keep an IRA there as a Canadian resident, let alone a taxable account.  Fortunately, there are several places in the US that are fine keeping a retirement / tax deferred account, and I moved my taxable to a Canadian brokerage who can hold USD accounts.

[PDXTabs]

I haven't used them (yet) but Schwab specifically says that they support US expats: https://international.schwab.com/expatriate-essentials

The minimum used to be $25K USD, but I no longer see a minimum listed on their website.