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Tuesday, December 9, 2014

3 Tax Tips to Help You Retire Overseas the Right Way

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.
If you are considering retiring overseas, make sure you have a firm grasp on your tax and financial situation, a strong sense of adventure and adaptability, and the willingness to exchange some U.S. comforts for the exotic offerings of foreign locations. 

For more information, we encourage you to contact one of our financial advisors and take a look at the following resources:

Nick Hodges, CPA/PFS, MBA, CFP, CGMA

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