Record numbers of Americans are moving abroad. Up to 9 million Americans live outside the US, and the number keeps growing. High costs at home, especially in housing and healthcare, and a desire to experience life in another country are main factors.
Political and social issues also play a role. Political polarization in the US and concerns about the economy are also driving the trend. Healthcare is another major factor, as the US has one of the world’s most expensive healthcare systems.
Work-life balance is another important factor. Countries across Europe, Latin America, and Southeast Asia offer a more relaxed lifestyle. Top destinations for Americans include Portugal, Spain, Mexico, Costa Rica, the UK and Canada. These countries offer affordable living, strong healthcare, and welcoming communities.
Spain and Portugal are leading destinations. Many Americans now enjoy coastal living there for less than $2,500 a month. Strong healthcare, slower lifestyles, and affordable costs draw expats in record numbers.
Visa programs, including Digital Nomad remote work visas and ‘Golden’ investment visas, make international relocation easier than ever. The trend is clear: Americans are moving overseas in record numbers.
If you’re thinking about moving abroad, make sure your financial planning is in order. Without a clear financial strategy, you could face some unpleasant unexpected surprises after you move and end up paying more in tax and compliance fees than you need to. Here are some factors to bear in mind.
Can your US financial advisor and brokerage firm still work with you?
Most US financial institutions and advisors will not work with clients living abroad. Many face regulatory limits and compliance hurdles due to Know Your Client and anti-money laundering rules. Even if they can, few have the cross-border experience to help you manage the new financial challenges and make the most of your new opportunity financially. Before you move, ask your providers if they can keep working with you. If you don’t, you risk frozen accounts, closed services, and trying to back-track later.
How will your investment strategy change?
The strategy that worked in the US might not work abroad. Cross-border investing brings new challenges. MiFID II rules in Europe may prevent you investing in US ETFs, while IRS PFIC rules can make investing in foreign funds unwise. You will also have to consider currency investment risk and will want to minimize losses when transferring money internationally. Talk to an expat wealth advisor before you move to protect and optimize your investments based on your unique circumstances.
What happens to your retirement accounts?
You can keep your US retirement accounts when you move abroad, and you may even be able to keep contributing, but tax treatment can be different in other countries, depending on individual tax treaties. In some countries, such as Portugal and Italy, Roth IRA and Roth 401(k) growth and withdrawals may be taxed, even if the US sees them as tax-free. In contrast, Canada and the UK offer more favorable treatment. Before moving, it’s worth finding out how your new country taxes retirement accounts.
Will you pay taxes in two countries?
The US taxes its citizens on worldwide income, so even if you live abroad, you must file a US tax return every year. If you qualify as a tax resident in your new country of residence, you might also have to file local taxes.
Many countries have tax treaties with the US, however they don’t prevent you having to file in both places, and they don’t innately prevent double taxation. Instead, you will often need to claim tax credits.
Work with both a US and local tax expert who are familiar working with expats. The possibility for double taxation can affect your investment strategy too, and owning foreign investments (and foreign companies) can complicate your US filing and potentially lead to a new tax liability.
How does estate planning change for Americans living overseas?
International estate planning for expats is complex, as many countries don’t recognize US wills, and some have forced heirship laws that control who inherits your assets.
Seek advice in your new country from an attorney familiar with working with international Americans to create a new estate plan based on the laws of your new country. This often involves having two wills, one in the US and one in your new country of residence.
You may also need to sign new powers of attorney and healthcare directives in your new country.
Do Americans need international health insurance when moving abroad?
Many residency visas require proof of private health insurance in your new country. US-based insurance often doesn’t cover you internationally. You may be able to obtain local private health insurance, or you may prefer an international policy that would repatriate you to the US in case of an emergency.
Record numbers of Americans are moving abroad for a better life, but an international move brings significant financial planning challenges.
Taxes, investing, retirement accounts, and estate plans all change when you move overseas. Without proper advice, issues that can easily be avoided with planning can become more serious.
Ideally, start planning six months to a year before your move, getting informed and contacting expat financial experts. The earlier you prepare, the easier and smoother the transition.
If you have any questions about financial planning as an American living abroad, get in touch.
This article is for informational purposes only; it is not intended to offer advice or guidance on legal, tax, or investment matters. Such advice can be given only with full understanding of a person’s specific situation.
