Foreigners living in the US, with a plan to go back to your home country

[StockBeard]

I'd like to start a thread for foreigners in the US, who plan to ultimately move back to their own country, or more generally, expats around the world.
What are your investment strategies? I've found that everywhere I invest, the tax implications are sometimes so heavy that each cross-country move sets me back a few years.

I moved from Japan to the US last year, and had to close most of my investment accounts there, following the recommendations of my "tax advisors" in the US. Wondering if there are long term solutions that work for people who move a lot.

[klystomane]

I have lived in four countries in the past 8 years, so I can definitely relate with you. Honestly, I was always the type to just stick my money in a savings account (dodges facepunches) or at best, a high yield savings account.

With my most recent move to the US, I have a 401k through my employer, an IRA, and a taxable account.

Based on my research (and it may be different for Japan), there are a few steps to taking out the money when I quit my job/leave the country:

1. Roll 401k into IRA
2. Transfer IRA into retirement account back home (Canadian RRSP for me). If under 59.5, a withholding tax may apply on the US side. This may or may not be claimed as a foreign tax credit on the Canadian side.
3. If the hit can't be avoided, leave the damn thing in the US until 59.5 and transfer without withholding penalty; Canada allows for retirement accounts to be held in the US and tax deferred as long as the funds are not withdrawn.

For you, you should look into the tax treaty between your country/US. I think the two main things would be 1. Can you keep your investments here tax deferred, and 2. What is the penalty for early withdrawal?

I'm interested to hear what other people plan on doing.


Cheers,

[Coloradostache]

Klystomane - Do you know if RRSPs work the other way too?  I'm Canadian, but plan on staying in the US and would like to roll my RRSPs into an IRA, but as far as I know I would have to pay tax in Canada plus penalties?  Is there any way around this?  As of now I just plan on keeping it in Canada since I don't want to deal with taxes and penalties. 

[klystomane]

Klystomane - Do you know if RRSPs work the other way too?  I'm Canadian, but plan on staying in the US and would like to roll my RRSPs into an IRA, but as far as I know I would have to pay tax in Canada plus penalties?  Is there any way around this?  As of now I just plan on keeping it in Canada since I don't want to deal with taxes and penalties.

I don't believe you can rollover a RRSP to an IRA.

I believe you have to report the retirement account on your tax return, but as long as you're not withdrawing from it and your income is not affected (i.e. increased), then you shouldn't get taxed on it.

Maybe somebody else can confirm this?

[KCM5]

So here's a strategy for US/UK

We have a 457 and Roth/Trad IRA here. I'm a US citizen so this probably makes it easier - I don't know what the implications would be if I were not.

When we move to the UK (spouse is a citizen) and eventually draw on our 457/IRAs that money will be taxed in the US at expected US rates. We'll change our address for the 457/IRAs to that of my parents or something. Our UK pension/accounts will be taxed in the UK at UK rates - there is a tax treaty that spells it all out.

So really, we aren't doing anything different than we would normally. Except we'll definitely have taxable accounts when we leave and I haven't yet looked into the implications of that. Other than filing taxes as we're required to do every year anyway, will there be anything I should do?

[KCM5]

Klystomane - Do you know if RRSPs work the other way too?  I'm Canadian, but plan on staying in the US and would like to roll my RRSPs into an IRA, but as far as I know I would have to pay tax in Canada plus penalties?  Is there any way around this?  As of now I just plan on keeping it in Canada since I don't want to deal with taxes and penalties.

I don't believe you can rollover a RRSP to an IRA.

I believe you have to report the retirement account on your tax return, but as long as you're not withdrawing from it and your income is not affected (i.e. increased), then you shouldn't get taxed on it.

Maybe somebody else can confirm this?

Take at look at this: http://www.irs.gov/pub/irs-pdf/p597.pdf

Apparently you can defer tax on your RRSP using form 8891.

[klystomane]

Klystomane - Do you know if RRSPs work the other way too?  I'm Canadian, but plan on staying in the US and would like to roll my RRSPs into an IRA, but as far as I know I would have to pay tax in Canada plus penalties?  Is there any way around this?  As of now I just plan on keeping it in Canada since I don't want to deal with taxes and penalties.

I don't believe you can rollover a RRSP to an IRA.

I believe you have to report the retirement account on your tax return, but as long as you're not withdrawing from it and your income is not affected (i.e. increased), then you shouldn't get taxed on it.

Maybe somebody else can confirm this?

Take at look at this: http://www.irs.gov/pub/irs-pdf/p597.pdf

Apparently you can defer tax on your RRSP using form 8891.

Oh snap...Uncle Sam you dirty dog....