After chasing and living the American dream,
more and more Baby Boomers are considering retiring overseas. According to
Travel Market Report, 3.3 million of America’s 78 million Baby Boomers say they
are interested in retiring abroad. It’s a growing trend that is motivated by
either the desire to develop a second home and financial situation or the need
for a lower cost of living to be able to retire early or retire without
working. In fact, approximately 7
million Americans file an expat tax return and millions more are no longer
required to file a U.S. tax return due to their reduced income.
If you find yourself in one of these two
boats, the good news is that retiring overseas is certainly possible and with
good planning, can be very rewarding.
Sitting down with a tax and financial professional with experience in
international tax is the best first step.
Making sure that your financial house is in order ensures that you will
experience the retirement of your dreams. Typically, at Money Concepts, we
start working with clients about 18-24 months before they move abroad to make
sure that they have their tax and financial worlds in order. The IRS especially targets U.S. expats with
additional reporting requirements and draconian penalties so we help our
clients make sure that they do not have to worry about any IRS surprises when
they are abroad.
Money Concepts advisor, Nick Hodges, CPA/PFS,
MBA, CFP, CGMA, shares the three tax tips he always talks through with
prospective expats:
- Leave from the “right” state: You could save a bundle on state income tax and avoid future harassment from state authorities by making your overseas move from a “no income tax” state. But you have to establish residency there before you leave the U.S. There are nine “no income tax” states you can consider: Florida, Alaska, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. Move to one of these before you head overseas and you can save significantly.
- What you need to disclose: There are as many as six additional federal tax disclosure forms when you move abroad. While these forms usually don’t change your U.S. income tax amount, each form carries a minimum $10,000 per year penalty if not correctly filed.
- Keep important documents safe and accessible: Most of us keep our important documents in a safe deposit box or filing cabinet. But when you need them abroad, consider scanning and saving your files to a USB- or thumb-drive. Alternatively, you can employ a secure, online storage for your important documents and data, which you can then access from anywhere in the world.
For more information, we encourage you to
contact one of our financial advisors and take a look at the following
resources:
- 56 Questions You Need to Ask Before You MoveAbroad
- How U.S. Expats Can Avoid the 13 Most Common Expat Tax Traps
- ExpatTax Lesson Learned from the Gorillas of Rwanda
Sources:
Nick Hodges, CPA/PFS, MBA, CFP, CGMA
Nick Hodges, CPA/PFS, MBA, CFP, CGMA
