Some investors often have questions such as:
‘What happens to my US investments if I move abroad?’
‘what happens to my 401k if I move abroad?’
‘Can a US citizen living abroad invest in mutual funds?’
‘What happens to my bank account if I move abroad?’
‘What happens to my investments if I die?’
If you are looking to invest as an expat or high-net-worth individual, which is what I specialize in, you can email me ([email protected]) or WhatsApp (+44-7393-450-837).
Selling US investments is not always necessary when relocating overseas. Expats mainly have to consider tax implications, among other considerations. Getting necessary advice will go a long way.
This article first appeared on adamfayed.com. Some of the facts might have changed since we wrote it, and nothing written here is formal advice.
For updated guidance, please contact me.
What happens to my US investments if I move abroad?
Even after living abroad, foreigners are typically still allowed to own and manage their US financial accounts and assets.
However, US citizens and holders of green cards who reside overseas can be subject to more tax and reporting obligations. They might have to report their foreign income to the IRS and complete extra tax forms, such as the FBAR.
However, there may be limitations on the services that certain financial institutions can provide to non-resident customers. If investors’ present provider does not permit it, they might have to move their accounts to brokers who focus on serving expats.
Why keep your US Investments?
Streamlining Tax Filing
For expats, maintaining investment accounts with U.S. institutions is crucial for seamless compliance with U.S. tax laws.
Regardless of current residence, U.S. citizens are obligated to file an annual U.S. tax return.
This includes reporting all earnings, including investment income.
Having accounts for US investments facilitates the tax reporting process, ensuring adherence to U.S. tax requirements.
Avoiding PFIC Challenges
Investing as a U.S. expat requires caution.
This is particularly essential to prevent unintentional investments in Passive Foreign Investment Companies (PFICs).
Foreign mutual funds are categorized as PFICs under the U.S. tax code, subjecting them to punitive taxation.
Maintaining U.S. investment accounts provides access to compliant U.S.-domiciled investment funds.
This assists in minimizing the risk of PFIC-related challenges.
Convenience
Surprisingly, managing investment accounts from the U.S. while living overseas can be more convenient than opening new accounts locally.
Navigating overseas account regulations can be time-consuming and complex, especially without fluency in the local language.
Most U.S. financial institutions offer online banking and investment services.
Such services help in facilitating easy account management, fund transfers, and bill payments from anywhere globally.
Lower Fees
U.S. investment accounts generally incur fewer fees compared to accounts held in other parts of the world.
The U.S. financial market, with its extensive range of investment products, offers cost efficiencies.
Lower investment expenses, including brokerage fees, trade commissions, and advisory fees, contribute to potential cost savings.
U.S. laws also allow the transfer of funds or foreign-earned income from other countries, enhancing investment flexibility.
FDIC and SIPC Coverage
The United States provides financial protections, including Federal Deposit Insurance Corporation (FDIC) and Securities Investor Protection Corporation (SIPC) coverage.
FDIC insurance safeguards up to $250,000 per depositor in insured banks.
SIPC protects up to $500,000 of an individual’s brokerage account assets, providing valuable peace of mind amid recent bank closures.
What happens if broker closes your investment account when you move abroad?
Clients, particularly those of major firms often receive notices to close their accounts and transfer funds within 30 days.
Moving funds to a different U.S. money-market fund becomes difficult when identifying oneself as living outside the United States.
The banking industry’s increased focus on compliance, adhering to laws restricting cross-border sales of unregistered mutual funds.
This makes U.S. expats ineligible to purchase U.S.-domiciled mutual funds or money market funds.
The treatment by brokers varies based on policies, procedures, and the country of residence.
Some brokers allow existing accounts but disallow new ones, while others request overseas customers to close their accounts.
IT security policies may prevent logging in from overseas IP addresses.
Once the decision to close an account is made, recourse is limited, as agreements often allow closure without prior notice.
Challenging this decision involves significant legal fees and an uncertain outcome.
Opening an account with a brokerage firm that welcomes international clients is a practical solution.
Brokers typically have lists of countries where U.S. expats can open or maintain accounts, based on international laws, local regulations, and the firm’s structure.
Predicting if an account is at risk is challenging, and the broker may not have this information.
One approach is to withhold information about residing outside the U.S., providing a U.S. mailing address for communication purposes.
This strategy, akin to Don’t Ask, Don’t Tell, doesn’t violate any laws and allows continued interaction with the broker as a U.S. resident, keeping the mailing address in the US.
What Happens to My 401k if I Move Abroad?
With the increasing mobility of the workforce, understanding the implications and options for handling foreign retirement plans is essential when making such a significant move.
Researching your plan’s offerings in terms of tax-free international options is a good starting point.
You may have the possibility of moving your 401k to your new country of residence, considering the tax laws and regulations.
Alternatively, rolling it over into an IRA or another accessible retirement account is another option to explore.
Leaving funds in the 401k, transferring funds to a local retirement account, rolling over funds into an IRA, or withdrawing funds are potential choices.
Each option has its implications, and seeking advice from a financial advisor or tax expert in the new country is crucial for making well-informed decisions about the 401k.
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