Non-US citizens in the USA

As a non-US citizen living in the United States you face financial considerations that may be quite different from those in your home country. Pension plans, taxation of income and investments, estate tax, and retirement and education savings accounts work differently in the United States than in other countries.

For individuals and families with assets in both the United States and other countries, it is necessary to consider the cross-border implications of managing these assets. Cross-border tax, estate planning, and portfolio management are highly specialized fields – at IAM we have in-house expertise and a network of cross-border professionals who help our clients address such financial planning concerns.

IAM also provides consulting services to US companies with non-US citizen employees. If such employees are new to the USA they may not fully understand such issues as how their pension plans work and the treatment of these plans should the employee at some point return to his or her country of citizenship. Furthermore, new US residents may face difficulty in establishing credit or obtaining a mortgage and may be unfamiliar with how the US financial and tax system works. IAM contracts with companies to consult one-on-one or in a seminar format with such employees to familiarize them with the US financial system and advise them on their specific financial needs.

Pension plans, taxation of income and investments, estate tax, and retirement and education savings accounts work differently in the United States than in other countries

Issues to Consider for the Non-US Citizen Living in the United States:


Tax planning

Many non-US citizens may have investment accounts, pensions, or property outside the USA. There are important issues that should be addressed with respect to such assets before a non-US citizen becomes an American taxpayer. A consultation with our knowledgeable cross-border financial planners and tax professionals prior to permanently moving to the United States can save considerable expense and financial headaches later on.

US taxpayers are subject to additional tax reporting on their assets held outside the United States. Whether such assets are subject to tax on an ongoing basis or only when liquidated will depend on the provisions enshrined in the relevant tax treaty, if any. Non-US pension plans can generally not be transferred to US plans and distributions from such plans may be taxable in either the country of the plan or the country of residency depending on the relevant tax treaty. Non-US mutual funds may be “Passive Foreign Investment Companies (PFICs)” under us tax law and may carry burdensome reporting requirements. These are just a few of the many cross-border tax issues that should be considered by non-US citizens moving to the United States.


Estate planning

In the United States we have an estate tax; which is a tax assessed against the estate of a decedent. In other countries, such as the United Kingdom for example, there is no estate tax but instead there is an inheritance tax which is assessed against the beneficiary of an estate.

Estate tax in the United States differs considerably depending upon whether the decedent and his or her spouse is a US citizen and/or resident. For example, the unlimited marital deduction, which allows a US citizen to pass an unlimited amount to their US citizen spouse upon death does not apply when the spouse is not a US citizen. Further considerations may be the amount of jointly-held assets included in the estate, as well as to what extent the estate tax deduction applies in the case of US assets held by a non-US resident alien.

Finally, there are non-financial issues to be considered in estate planning that are often even more important than the financial issues, especially for US residents whose family ties may be elsewhere. For example, in the event of a tragic accident, how to deal with guardianship issues for children or repatriation of remains. Proper financial planning can mitigate or eliminate many of these issues so that family wealth goes where it is intended rather than to government tax coffers and family members are provided for in the desired manner.


Education and retirement planning

In the United States there exist many types of education and retirement savings vehicles, many of which offer attractive tax benefits. However, globally-mobile families should take care when utilizing such vehicles since the tax benefits may not be available once no longer a US resident.

As an example, consider US 529 plans, which are an education savings vehicle where the savings can grow and be distributed tax free in many instances. However, these tax benefits can only be realized if the education is undertaken at what is called an “accredited” institution – which includes most US colleges and universities but relatively few non-US institutions.

Other questions that should be considered are what to do with an employer pension plan, such as a 401k plan, when moving permanently outside the United States, or how such a plan should be handled in case of divorce or death of the plan owner where the new owner of the plan is not a US citizen or resident.