Ep 35: Guided By The Stars No More: A Roadmap To Retiring Abroad! Part 2
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In Part 1 of this podcast, we discussed figuring out your "why", for wanting to retire abroad, the residency/visa requirements, and the practical aspects of moving overseas.
In Part 2 of this episode, we answer specific tax and financial questions. Some examples of the questions (amongst others) that we answer here are:-
Do I still need to file U.S. taxes when overseas, and what does that entail? What about State taxes?
How do I access my retirement income from overseas? How do I get my RMDs?
Will my custodian allow a foreign address? How do I transfer my funds from the U.S.?
Should I roll over my 401k to a rollover IRA before I leave the U.S.?
Will I have enough SS credits to claim social security from abroad?
Should I buy a home overseas?
What about healthcare expenses? How do I deal with that?
Are there other countries you should consider besides the usual?
Episode Links & Resources
Ep 23: Receiving Social Security From Overseas: Answering FAQs
Are you Tax-compliant With Your Overseas Assets? - Free Guide - Scroll to the bottom of the page.
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The speakers' views and opinions discussed in this episode should not be considered financial, tax, or legal advice. Consult your advisor for any legal, cross-border tax, and financial advice.
Be sure to join the conversation by visiting our page The International Money Cafe
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Jane Mepham, CFP® (00:05.73)
We are back with another episode of the International Money Cafe Podcast. In today's episode, is, we're calling Exit the US Part 2, we're going to revisit a topic that we started on a few weeks ago, where we talked a lot about what it takes to retire abroad. One of the things, Manasa and I,
talked a lot about after the elections was that the search for how do I retire abroad went up by something like 1500%. So this seems to be a topic that a lot of people are interested in. So a quick recap of episode one or part one of this show of this episode, we talked about
the three groups of people retiring abroad, right? We talked about people like us, Manasa and I, who grew up elsewhere. We've now lived in the US for a long time, and now we are ready to retire back home, whatever home is. We also talked about people who may be worked overseas at some point, and of course we're talking about US tax residents.
And then now they really they want to go back to that country. And then there was the third group, which is people that just visited this country as as as as a tourist. And now they want to actually move back. Now, for each one of those groups, we did address the fact that there are a lot of things you need to take into consideration. One, what's your motivation for wanting to retire abroad?
That's going to be so key because that's what's gonna make you stay on the path. Even when you run into different challenges, right? And there's gonna be many. Two, we talked about how do you choose the country that you end up retiring to? Part of this is what kind of a visa do you need? What are the residency requirements, right? What kind of income do you need?
Jane Mepham, CFP® (02:24.736)
And then we talked about the practical steps needed to prepare for the move. So in today's episode, we're going to talk about taxes, retirement income, accounts in the U.S. and that type of thing. And we figured the best way to address this is actually take all the questions we've been getting back.
from all our listeners and there's a lot of questions and dive into some of those questions. So Manasa, what question do you want to answer first?
Manasa Nadig, EA (03:05.974)
I know. So the first one that I'm going to answer is the big one, which is, do you have to continue to file taxes in the US even if you retire abroad? And the answer to that is yes, if you are a US citizen or a green card holder. And if you remember, we talk about this on our other episodes.
the US has a citizenship based taxation system. So if no matter where you live, as long as you are a US citizen or a green card holder, you need to file your US taxes. And this means your tax obligations don't end. And some of your FBAR and FATCA reporting obligations also do not end.
One thing about filing taxes is if you live abroad, your filing deadline is different from if you lived in the US. So you get two more months, which is June 15th is your new deadline. Extensions are still available, but only up till October 15th. So it's not six months from June 15th, it's still six months from April 15th.
You can extend your returns, but you need to file it by October 15th. You can possibly extend it further to December 15th, but only under very special circumstances. And remember, you also may have to file taxes in the country that now you live in and are a resident of, so be aware of that. that having said that,
You know, that was one of the big questions that we got. And then the other one was, what if I get back to work after I move abroad? So remember, when you are retiring abroad, if you are on a so-called retirement visa from the country where you've moved,
Manasa Nadig, EA (05:27.246)
there may be clauses in the visa about your ability to work. So you may have to keep that in mind. And also we did address double taxation in another episode of ours, which was, I think it was episode 13, Between a Rock and a Hard Place. So there are ways to mitigate double taxation if you happen to work abroad. So we will definitely link that episode in our show notes.
So those are the two big questions, Jane, that we had from our listeners. And I guess I hope we answered that one.
Jane Mepham, CFP® (06:05.28)
I think you have and what's so cool is I keep saying you're the tax person in this relationship. So I'm very happy to let you deal with the tax questions. So, okay, I'm going to answer more of a financial question that I've seen. So the question goes something like this. Okay. I've retired. I'm now living abroad. How do I access my retirement income?
Manasa Nadig, EA (06:17.015)
No.
Jane Mepham, CFP® (06:34.058)
And here's my answer. One, as a U.S. tax resident, nothing has changed. And what I mean by nothing has changed, you still own the same accounts. If there are any RMDs, this is required minimum distributions, they still apply. You still have beneficiaries on this account. We'll probably talk a little bit more about that in another episode.
you stop.
Manasa Nadig, EA (07:07.728)
Jane, a minute. Yeah, stop. I think I dropped off. Was it still recording for you? Yeah.
Jane Mepham, CFP® (07:14.796)
You did!
Jane Mepham, CFP® (07:18.978)
You dropped off and then you came back and I saw another one. So I'm like, sorry, sorry,
Manasa Nadig, EA (07:24.634)
Yeah, but I don't know what happened to the... Is it still uploading the previous...
Jane Mepham, CFP® (07:29.76)
It's still a proud uploading. Yes.
Manasa Nadig, EA (07:32.484)
Okay, then do you want to keep going and see what happens? Okay, all right, cool.
Jane Mepham, CFP® (07:35.8)
Yes, yes. So hold on. So I'm gonna add another marker. Let's see. Okay. Okay, I'll continue.
Manasa Nadig, EA (07:40.678)
Yes.
Manasa Nadig, EA (07:49.382)
Sorry, didn't mean to.
Jane Mepham, CFP® (07:52.046)
It's okay, we'll continue. So you still have access to your funds. You still own them. The thing that's going to change and that we want everybody to be very careful about is some custodians or some brokerages in the U.S. put restrictions on having folks with outside addresses. If you have a foreign address,
putting it on some of these custodians account means they're likely to restrict the account. Some of them will even go ahead and close the account. So what we want to say is before you leave the country, before you retire overseas, let's make sure that your money is at a custodian. And like I know, for example, Schwab up or interactive brokers, custodians that allow you to have
foreign address on the account. And then as far as transferring the money, so let's assume now it's time for your R MDs you're taking the money. The easiest way we find to do that is you take it out of, let's say your retirement account, your IRA, your 401k, put it into your brokerage account, like a taxable account, or your US bank account. And then from there, you can transfer the money to wherever you are.
And in terms of transfer, this is probably one of the easier ones. You can use services like Wise or you can use, let's say, an FX currency broker. If you're a whole lot of money, you can do a bank to bank transfer or you can use other apps. So yes, you will be able to transfer your money from the U.S. to wherever you are again, because remember,
you're still a US tax resident, none of that cycle is broken, right? Now, if you have other income sources, let's say for example, rental income, interest, dividends, that sort of thing, again, you'll be able to get the money. remember the question Manasa answered at the beginning, you still need to file your US taxes. Now, another question along the same line that I've been asked is before
Jane Mepham, CFP® (10:16.65)
I retire before I move overseas, should I roll over my 401k into, let's say a roll over IRA? Now this is one where the answer is it depends. Okay. So the things you want to think about is one, are you going to roll that over to a custodian who's not going to allow you to have an account?
Does that make sense? So you're at XYZ, you decide I'm going to roll the money out of the XYZ custodian into another custodian. Check on that. The other thing would be this same custodian by law. If you have a 401k and it's over a certain amount of money, they're not going to close that account as long as it's a 401k. But if it's a brokerage account or an IRA or a Roth
they may close that account. So check on that before you decide to roll it over. And then if you have, let's say a government pension, we know you can roll some of these into rollover IRAs, but this is where we warn you before you make the rollover, talk to somebody who deals with cross border taxes and finances, because by doing that, you could actually lose some tax.
treaty benefits, some taxation protection. this is probably one Manasa so that I think I want us to come back to and really talk about the whole idea of rollovers. Exactly what do we do when we leave the US with our accounts? I think that actually going to make, yeah, I think it's going to make a great episode. And then finally, if you're of qualifying age, you can apply for social security benefits.
Manasa Nadig, EA (12:01.859)
Of course. Yeah. Yes.
Jane Mepham, CFP® (12:13.088)
the social security website offers a tool that will allow you to check for eligibility while living overseas. And lucky you, we've talked a lot about this episode 23 applying for social security as an American abroad. Anything else you want to add to that, Manasa?
Manasa Nadig, EA (12:36.188)
Yeah, no, no the the episode 23 actually covers quite a bit about applying for Social Security. I think that covers that and So yeah moving on to the next frequently asked question that we saw on our list was again coming back to taxes Will I have to continue to file taxes for the state that I lived before I left?
So this question, in typical accountant fashion, will have to have a it depends answer to it. So your previous US state of residence might still require you to file tax returns. So there's a whole lot of factors that go into this. And to Jane's point earlier, we may have to do a totally another new episode on that.
happy to do it. But to answer it here today in terms of being retired and living abroad, what about your state taxes, right? So based on the state where you lived and whether you still have domicile in that state, you may still be required to file taxes for that state. For example, we had a client who was domiciled in California.
and they were looking to move to a non-tax state like Texas, but California came back and they did want to tax them on certain income because it was earned while they were residents of California. So that's just one example of why you might end up continuing to file taxes for a state. And then also,
a lot of states in the US will continue to tax you on the income that is sourced to that state. So let's say you retired abroad, but you left behind a rental property, say in the state of Virginia or California or New York or wherever, Michigan, they will continue to look for taxing that income because it is now sourced.
Manasa Nadig, EA (15:02.694)
to that state. So even though you're a non-resident, you may still have taxes that you owe.
Jane Mepham, CFP® (15:10.602)
So, so maybe explain this a little bit more. So I live in Texas right now. I have a property I'm renting out in California. I move abroad. So I won't be filing taxes for a Texas state. But what you're saying is I will need to do California state taxes as well. Is that accurate? Okay. Okay. Okay. Okay.
Manasa Nadig, EA (15:36.42)
Yes, that's right. And thanks for asking that. So if anybody had the same question, now you know that you may have moved out to a non-taxing state before you moved abroad. But because now you have income from that other state, you still have a filing obligation. Now, also, many states do not recognize the
federal level foreign tax credits and the tax treaty benefits that Jane was talking about earlier. So if you are domiciled in a certain state where you may have to file taxes or you continue to file taxes, so these states may not give you that foreign tax credit that you are paying on the same income to the country where you live now. So be aware of that and you may have to
plan for it, especially if the state is a high taxing state. So that's that. Consider establishing residence in a non-taxing state, where we just gave you an example of it before moving abroad. And that could be something that could help you out. let's say, you did not have any more income from any state or sourced in from the US anymore. But
Those examples are few and far in between. So yeah, that was a question about continuing to file state taxes, even if you live abroad,
Jane Mepham, CFP® (17:13.784)
think what I'm hearing you say is, and we've kind of sort of talked about this, don't wake up tomorrow and decide to go. Like we need to plan, you need to bring the right people into your planning. And that's going to help you have an easier, smoother transition. Okay. Let me take the next one. So you've already alluded to this. You mentioned tax treaties.
Manasa Nadig, EA (17:33.498)
Yes, definitely.
Jane Mepham, CFP® (17:42.474)
As soon as we start talking about moving abroad, the question of tax treaties come up, double tax avoidance agreement. And in fact, the question somebody asked last week is, OK, what's the objective of the tax treaties if I'm moving overseas? OK, the US has tax treaties with many countries, I think maybe around 70, 80 or something like that.
And the whole idea of these tax treaties is to help you avoid double taxation. What basically means is you have income in XYZ country and then you're living in ABC country. Both countries want to tax you on that income. The double tax avoidance treaty, and it's kind of unbountiful. So the tax treaty ensures that
you don't get taxed twice on that same income. So one of the things that I find interesting is, for example, Kenya does not have a tax treaty with the US, but it does have a tax treaty with other countries. And so you just need to look at the two countries, the payer to see who has the tax treaty and exactly what does that tax treaty say can happen in one of the other countries. But
The whole idea is really you won't get taxed on the same income twice, but it's a really good idea to probably get somebody to kind of walk you through what all these documentations means. And then the other one that we've seen along with the tax treaty question is, there countries where your social security is exempt from US tax treaties?
I think what I'm going to do on this, let's take a quick short break for a special announcement. And then when we come back, we'll jump into that particular question. Actually Manasa, I'll have you take that in the next question that comes along with the social security. Hold on.
Manasa Nadig, EA (20:03.004)
Welcome back. We are answering frequently asked questions about tax and financial implications for US citizens or green card holders if they have decided to retire outside the US. So now, coming back to our mailbag, where we left off earlier was this question. Will I have enough Social Security credits?
to claim social security benefits if I worked overseas at some point. So this is kind of alluding to what Jane was talking about earlier, which was the international social security agreements and if social security is exempt from US taxes.
you had worked in a country which has a totalization agreement with the US, then we look at this question in one way. But let's stop here and quickly take a look at what a totalization agreement is. So a totalization agreement is the International Social Security Agreement, which a country has with the US. And basically,
This agreement helps fill gaps in benefit protection for those people who may have divided their careers between the US and another country. So the social security taxes paid in the other country will be counted towards your US social security
benefit calculation. Now we are getting into this territory where, of course, this gets really complex. So under this agreement, those workers who may qualify for partial US and or foreign benefits, they are able to combine
Manasa Nadig, EA (22:28.776)
or what is called totalize coverage credits from both the countries. Most or almost all of these totalization agreements require that you at least have six quarters of credits in order to be able to totalize. Now, another question that comes up is,
What if I do not have enough social security coverage to qualify for these benefits? social security administration will count periods of coverage that the worker has earned under the social security program of this country with which, you know, the US has an agreement.
This will hold true even for those who are self-employed and who have paid social security taxes to that country. And quickly here, if you remember, even if you live abroad and you have self-employment income, most of the times you do owe social, I'm sorry, self-employment tax, which is social security and Medicare tax to the US.
So that's what happens if you're self-employed. Now, documentation is very, very important in these cases, and this should have already happened now that you're looking at retiring and drawing social security benefits. So if you're planning on doing that down the road, then definitely keep in mind that documentation is important, and this is a certificate of coverage.
that you can apply for yourself if you're self-employed or your employer can provide to you. And this is usually obtained from the Social Security Administration. Now, the next question you may ask based on this is, what if I did not work in a country which, or rather, let's put it this way.
Manasa Nadig, EA (24:43.056)
What if I worked in a country which does not have a totalization agreement with the US? In that case, unfortunately, you should have earned enough work credits in the US to be able to qualify for social security benefits, which is usually 40 calendar quarters. Right? So those are some of the questions about social security benefits and totalization agreements,
Jane Mepham, CFP® (25:14.99)
I love the complexity of that. So I know. So let's do this for the next couple of questions. Let's make it, well, I don't know if it's going to get easier, but anyway, let's address a few other questions that we've seen. So this one is around and for this jumping at any point, what are the challenges that might likely to face as I move overseas to retire? And so I'm just going to
Manasa Nadig, EA (25:17.444)
I know, nerds that we are, yes.
Manasa Nadig, EA (25:28.367)
Yeah.
Jane Mepham, CFP® (25:44.066)
continue with the money theme and I'll do, I'll think of two challenges and you can think of other challenges as I talk. So one of them is what we call overseas reporting of assets. So FATCA, which is Foreign Account Tax Compliance Act. A lot of people are already aware of this.
The issue is it can complicate dealings with financial institutions in your new country. when it comes to FATCA, what it means is, for example, I think people are familiar with like the FBARs because we've talked a lot about them. If you have money overseas, your balance is 10k or more. You need to report that. If you have other financial assets, you need to report them to IRS.
But what happens, and this is where the complication comes in, the US or the Treasury via FATCA requires foreign banks to report assets by US citizens to the IRS. I've had a conversation with somebody and they said, how will I know? What I've realized is when you go to open an account, a new smell, that's the only way I can.
think of it even a little bit, like you're a US citizen or you associated with US, the local banks just assume you are plain US tax resident. We don't want to deal with this. We just want to make sure we're going to report you. And the reason why some of them don't want to deal with it if they don't report to IRS, for example, on the F BAR
there could be a penalty of up to 30 % on the foreign institution, right? So if they don't want to have to deal with it, they may be like, you smell, you you sound like an American. We don't want to deal with you. The other thing we've realized is there are some countries that simply don't want to open accounts for US citizens in their country, again, because they don't want to have to deal with
Jane Mepham, CFP® (28:00.044)
the complexities that comes with having US tax residents within their ecosystem, right? And then the other thing you may find, and that's a whole different thing, it may require a lot of investigation to figure out what banks will agree to open the accounts for you. The other issue we've seen is there are some US financial
Manasa Nadig, EA (28:08.09)
Mm-hmm.
Jane Mepham, CFP® (28:27.658)
institutions that will restrict access from abroad. I think we already alluded to that when we talked about custodians. it's a big challenge. And so what you want to do is really investigate some of this. This is where it does help sometimes to be a member of all these expat groups that you see online, because some of them have already dealt with that. Let's see, what are the challenge do you want to address? We still have some time.
Manasa Nadig, EA (28:57.316)
Of course, absolutely, Jane. But before we go on to the next question, know, especially with the access to the US funds and the bank and all of that, some of these visas that or the country to even get residency in that country, you may have to open a bank account. So that kind of is a double edged sword there, right? Yeah. Yeah. Yeah. So the next question.
Jane Mepham, CFP® (29:20.802)
Yes.
Mm-hmm.
Manasa Nadig, EA (29:26.608)
that we were looking at was somebody said, how many difficulties do I have to face if I decided to move abroad? Now, of course, that is something very unique to the country where you're planning to go and your mindset and all that, which we are not going to get into because this, we are focusing on tax and financial implications. So from that point of view, a couple of things that I want to
reference is a home. You have to have a place of stay. So the dilemma there is do you, should you buy or should you rent a home? Now, honestly, that's a huge commitment, right? If you are going to buy a house in a foreign country. So I know if I went to Jane and I asked her, I
totally trust her with my financial planning. And I said, Jane, what should I do? Then I know that she would probably say, hey, think about all of these expenses that will go into maintaining that house. How much money will you need to buy that house? How will you be able to sell it? And how will you be able to sell it? And in some countries, we have found out that
You may need to hold this real estate through a corporation that has been formed in that country. You may not be able to, or rather the title of the property cannot be made to you as a person. So it will be given to that foreign corporation. So think about all of the ramifications of that. So that's the one. And the other one, and again, we have alluded to this before in our part one of this series, but
the healthcare options. When it comes to healthcare options, all of these financial implications come into place. So are you going to just pay those expenses out of pocket? Are you going to buy health insurance in that country? How expensive is that? What are the healthcare costs? And there might be some countries where you can qualify for healthcare just by establishing residency or the visa might require
Manasa Nadig, EA (31:52.486)
require you to have healthcare insurance. And maybe another way of looking at this is, okay, if you're planning for a big procedure, and as you're growing older, you may have to come back to the US and retain, or rather, keep your Medicare and then come back to the US for any major procedures. So those are the two things that I thought were
Really interesting when we were looking at that question, Jane.
Jane Mepham, CFP® (32:25.708)
Yeah, and then on top of that, it's moving to another country is a big deal. And we talk about this as people that have actually moved from other countries to the US. And what I find is, as we kind of move on in time, I think we sometimes forget what a challenge it was. But we are reminded constantly when we talk to people that have just moved to the US and they're talking about all the challenges. So
It's a big deal to move to another country to retire overseas. And it's not something to be taken lightly, but it's something that's exciting. So there's a lot that you need to take into consideration. I think we alluded to some of these in episode in part one, know, culture, language, bureaucracy. There's a lot. The plan is really
plan as early as you can, especially when it comes to the visas residency, pretty much everything. Do your research ahead of time. And I think we said this, visit the place a couple of times, as many times as possible, and make sure you're addressing everything. One of the challenge I did want to actually point out is the idea that you retire overseas.
and you're leaving your country, I mean, your family back in the US, know, the grandkids or something like that, take into consideration what it will take to kind of go back and forth between the two countries. We do this with Manasa all the time to go home to a home country. It takes us, I think it's like over 25 hours, right? So it's doable. We just want you to be aware of it.
take it into consideration as you make these moves. It is a very rewarding experience to live in another country. And I think it's one that if you get the opportunity, you absolutely should go for it. Okay. One other the one, and I don't know if we want to address it right now. Maybe we'll do a different episode on this. There was the question about relinquishing your U.S.
Jane Mepham, CFP® (34:50.358)
citizenship. Let's save this one, I think, for a completely different episode because there's a lot that goes into it. Because I did want to come to the last one where somebody said to us, and maybe Manasa, you'll take this one. Are there other countries we should be considering besides the usual European countries that we're hearing about? Do you want to take that one?
Manasa Nadig, EA (35:16.91)
Of course, because I love that question. I was kind of digitally traveling to all these countries when we were looking this up. you know, yeah, so the question was what other countries outside of Europe that I can retire to? So, yes, there are many countries that would welcome you if you wanted to go there. There was Kenya, was South Africa.
Colombia, Croatia, Costa Rica, Panama, Dominican Republic, Ireland, and Peru. So some of these have really great visas for US citizens. They are retirement visas or long-stay visas where your initial investment is not a lot.
maybe a little bit of adjustment with language and culture would be needed. But then, you know, we looked at Kenya and we got all excited, right? So, yeah, yeah. So, looking at that one. Yeah. you know, dear listener, we had so much, we know that there's a lot more here that
Jane Mepham, CFP® (36:24.44)
Yes, yes.
Jane Mepham, CFP® (36:30.86)
Yeah, yeah.
Manasa Nadig, EA (36:43.984)
we have to explore because like Jane said earlier, retiring abroad or moving abroad, which we have done, we came from a different country to the US. The mindset that the grass is greener on the other side might lead you to explore retiring abroad, but that might not be true in every case.
So, you know, having said that, we conclude today's episode. We will be coming back with a lot more information and a lot more episodes based off of all these questions that we've got. And we do ask you to visit our website. We still have our freebie over there, so please download it, subscribe and share. We've had a steady stream of new subscribers.
So thank you, thank you. If you have subscribed already, you are on our newsletter list now. having said this, please do find us on social media and come and say hi. We'd love to say hi back. And thanks for tuning in. Until next time, bye.