Retire Abroad

What changes if I want to retire in Europe?

You’ve been to a cafe on St. Mark’s square and decided you would not mind having that every day in retirement. Before you pack your bags, sell the house, and book your flights, there are a few items to be aware of.

  • US citizens are taxed by the IRS on “global accreations of wealth” no matter where or how you obtained it, however, there are a few exceptions. Your tax picture can be very different if you retire to France instead of the United Kingdom or Spain.

    For example, the US and France have a tax treaty that says retirement payments such as Pensions will only be taxed “in the source state of income”.

    Source: Article 18 of Convention between the Government of the United States of America and the Government of the French Republic

  • We recommend speaking with an attorney for offical advice on this matter.

    A US citizen can theoritically live outside the US and never return while retaining their US citizenship.

    Maintaining ties to the United States is essential if you wish to retain your US citizenship. This can include returning to the US every once in a while, filing a US tax return, and maintaining a US residence. Although you will want to plan your travel back to US very carefully if you want pass the “Physical Presence Test” and help make getting the Foreign Earned Income Exclusion easier by being outside the US for 330 or more days during any year.

  • For the most part, as long as the clients remain US citizens, we can continue to work with them. It also depends if you will become a "permanent resident" of that country.

We can help you answer these and more:

Am I saving the right amount for retirement?

Am I using the best mix of my tax advantaged accounts (HSA, 401(k), etc)?

Am I making the best use of my company benefits?

What is the best thing to do with my RSUs and stock options my company gives me?

Markets are changing, should I change any of my investments?

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Challenges you will face when moving abroad:

Challenge #1: Unable to buy your favorite American-based mutual funds and ETFs.

This creates are two main headaches:

  1. Rebalancing becomes a pain.

  2. If you buy foreign ones, you risk the fund or ETF being a Passive Foreign Investment Company (PFIC).

What’s the solution?

  1. Plan ahead; this might require you to realize a lot of gains. It might be best to do this over several years. Still, it’s better to realize long term gains at capital gains rates (currently 0% , 15%, or 20% depending on how much in gains you have realized and other items on your tax return).

  2. Buy individual stocks and bonds as they are often not PFICs.

How we help:

  1. We can do the trading and keep the portfolio in balance while the transition from mostly funds and ETFs into individual stocks happens over time.

  2. Manage taxes by employing tax loss harvesting and putting a “gains budget” in place.

Thoughts you might have:

“I’ll just trade the account myself.”

‍ ‍→This is more complex than you might think. Do you really want to do this when you could be enjoying your life?

“I’ll just buy foreign-based ETFs and mutual funds.”

→Great, be ready for a 37% tax, even on some unrealized gains. These are called PFICs.
“I’ll renounce my citizenship, and that will end the tax problem.”

→Maybe, but other countries might have higher tax rates, and depending on your situation, you might be on the hook for an exit tax.