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European in the US wants to FIRE in 5 years. Questions.
Old 10-07-2019, 12:39 PM   #1
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European in the US wants to FIRE in 5 years. Questions.

I am currently working in the US on a green card and will be able to FIRE in 5 years time. I plan to use the usual approach with diversified ETFs which most people use. I plan to leave the US once I am done and move back to Europe. I will be careful to stay less than 8 years on the green card to avoid the US exit tax and will officially give up my green card. I have contacted some brokers in the US who will let me keep my brokerage account but they will not let me buy new ETFs once I move so when I rebalance dividends I will have to use UCITS ETFs.
My questions:



1. Is it worth for me to contribute to the 401k from my employer? I will likely contribute up to the match but is it worth doing more? I will only be working for 5 years. I am unsure how this account will be treated once I stop being a ”US person”? Will Roth ladder work for me?



2. Is it worth for me to contribute to IRA? My understanding is that due to income restrictions I can only contribute to a non deductible IRA and only 6000 USD/year. How is this account treated once you stop being a ”US person”?



3. Most of my investments will be in a taxable account and with US domiciled ETFs. Once I move, is it recommended that I liquidate everything and buy equivalent non-US domiciled ETFs? Is this only for estate tax reasons or are there other concerns? I read that I may have to move to a country without capital gains tax for a while to make sure I don’t pay excessive tax. How does this work in practice and what countries are good for this? I rather not stay longer than 1 year if possible.



4. One alternative is to stay in the US until I get citizenship and then move to Europe. However, I have read about a lot of problems that US citizen ex-pats face. I assume that the best choice is to leave the US before I qualify for the exit tax. Is this the general consensus or am I missing something? Does anyone know if the years on an EAD count towards the total 8 years for exit tax purposes or is it only the years on a green card?



5. How would currency risk work if my investments are in USD but I live in Europe. Would this somehow balance out given large international presence of major US companies or should I have all investments in my own currency?



6. What are recommended stock brokers for my situation? I assume I need a US broker in the accumulation phase but once I am done where should I place the investments? Would it not be good to keep them in the US because it is relatively safe there and the taxes are low (at least compared to many European countries)?
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Old 10-07-2019, 03:03 PM   #2
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Welcome euinvestor.

I hope some of our multinational members can be helpful. However, many of your questions are quite specific to your relatively uncommon situation and, as they could have significant implications for your financial future, I suggest that you seek out a financial professional (CPA perhaps) with relevant experience.

Good luck with your journey to ER wherever it takes you!
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Old 10-13-2019, 06:35 AM   #3
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Originally Posted by MBAustin View Post
Welcome euinvestor.

I hope some of our multinational members can be helpful. However, many of your questions are quite specific to your relatively uncommon situation and, as they could have significant implications for your financial future, I suggest that you seek out a financial professional (CPA perhaps) with relevant experience.

Good luck with your journey to ER wherever it takes you!
I have been in exactly the opposite situation, so I cannot answer your questions as such but I can give you something to think about.

As I understand it, many (most?) countries do not recognize US tax protected programs such as Roths and before-tax IRAs and 401ks. Income and gains in them will probably be taxed in your country, so why leave them here?

If you leave any income-producing assets in the US, you will have to file for taxes in the US AND your country. This requires expensive expert help.

Consider simplifying your future situation by cashing out here. You ought to be able to invest in the US economy at home.

If you are worried about exit taxes, you have a lot of money. Consider remaining here as a permanent resident for a calendar year after you quit, living off your assets. A low income tax year may be helpful.

Be wary of becoming a US citizen. It follows you everywhere. A permanent resident (green card) can stay here. I know English, Danes and Dutch who have worked here and retired here without becoming US citizens. Incidentally, I don't think the US bothers about dual citizenship anymore unless you go and serve in a foreign army.

You should know that you have to work 40 quarters (10 years) putting into Social Security before you qualify to receive SS benefits. If you don't work here that long, it was just another tax. You can receive SS benefits even if you live in most countries.

Your current employer probably retains an international tax consultant (they may need to, because you are on their payroll). Start there. Pay them yourself if you have to. You need expert advice.
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Old 10-13-2019, 07:16 AM   #4
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Quote:
Originally Posted by euinvestor123 View Post
I am currently working in the US on a green card and will be able to FIRE in 5 years time. I plan to use the usual approach with diversified ETFs which most people use. I plan to leave the US once I am done and move back to Europe. I will be careful to stay less than 8 years on the green card to avoid the US exit tax and will officially give up my green card. I have contacted some brokers in the US who will let me keep my brokerage account but they will not let me buy new ETFs once I move so when I rebalance dividends I will have to use UCITS ETFs.
My questions:



1. Is it worth for me to contribute to the 401k from my employer? I will likely contribute up to the match but is it worth doing more? I will only be working for 5 years. I am unsure how this account will be treated once I stop being a ”US person”? Will Roth ladder work for me?

As soon as I retired I rolled my work 401k to an IRA with Vanguard. When I moved to the UK I updated my address to be my address in the UK. I also opened an account with HSBC US and linked that to my Vanguard account. My existing US bank did not support overseas customers which is why I opened an HSBC account. Two US private pensions pay into that US HSBC account



2. Is it worth for me to contribute to IRA? My understanding is that due to income restrictions I can only contribute to a non deductible IRA and only 6000 USD/year. How is this account treated once you stop being a ”US person”?

I continued to contribute to my IRA, and converted it to a Roth. The UK/US tax treaty means Roth withdrawals are tax free in the UK. I will also be entitled to SS and that will be taxable only in the UK. SSA are very good at setting up payments direct into overseas bank accounts



3. Most of my investments will be in a taxable account and with US domiciled ETFs. Once I move, is it recommended that I liquidate everything and buy equivalent non-US domiciled ETFs? Is this only for estate tax reasons or are there other concerns? I read that I may have to move to a country without capital gains tax for a while to make sure I don’t pay excessive tax. How does this work in practice and what countries are good for this? I rather not stay longer than 1 year if possible.

The UK publishes a list of US ETFs that "report into" their tax authority and that includes all of Vanguards ETF's. That means they receive favorable tax treatment similar to the USA. Qualified dividends are tax exempt for the first £2k then taxed at 7.5%. The first £12k of capital gains are tax free then taxed at 10%.



4. One alternative is to stay in the US until I get citizenship and then move to Europe. However, I have read about a lot of problems that US citizen ex-pats face. I assume that the best choice is to leave the US before I qualify for the exit tax. Is this the general consensus or am I missing something? Does anyone know if the years on an EAD count towards the total 8 years for exit tax purposes or is it only the years on a green card?

I don't know the answer on this. USC's are taxed no matter where they live so every year I have to file a US return as well a UK return and report through FBAR all foreign accounts that my wife and I have. Foreign tax credits are used to ensure that you pay the higher of the taxes. For example last year I paid more UK tax on my pensions than in the USA so I claimed foreign tax credits to reduce the US taxes. My wife is the one with the Vanguard ETFs and since we paid more US tax on her dividends and capital gains then she claimed foreign tax credits to reduce her UK taxes.
My advice would be that if you have no good reason to become a USC then don't. Being a USC means that you can come back and work whenever you want. Being a USC means you can never invest in ETFs or the like overseas since the IRS always considers them as PFIC's. There are many more financial restrictions on USC's living and working overseas.




5. How would currency risk work if my investments are in USD but I live in Europe. Would this somehow balance out given large international presence of major US companies or should I have all investments in my own currency?

Whenever we buy and sell shares in the USA we have to record the exchange rate at the time of purchase and sale and convert them to £s. XE.com holds historic exchange rates. Sometimes we win, sometimes we lose on the exchange rate fluctuations. Within in an IRA or Roth IRA there is no issue as only distributions from IRAs are taxed and distributions from Roths are tax free



6. What are recommended stock brokers for my situation? I assume I need a US broker in the accumulation phase but once I am done where should I place the investments? Would it not be good to keep them in the US because it is relatively safe there and the taxes are low (at least compared to many European countries)?

We checked with Fidelity and Vanguard since we both had accounts there and Vanguard were much more amenable to having overseas customers so we rolled my wife's IRAs to Vanguard before we moved. It will be good to also maintain a US bank to move money to and from whichever brokerage you choose. I don't recall if we are not allowed to buy new ETF funds. I set up our accounts before we left the USA and since then buy, sell and exchange shares between the funds we have. Come to think of it I did buy a new mutual fund within my Roth after I was back in the UK
Welcome to the site.

I have answered some of your questions as a UK citizen who lived and worked in the USA then moved back after retiring. The USA has tax treaties with most countries so you will have to refer to the particular country tax treaty for particulars. My answers are all to do with the UK but should give you a good idea of what to look for..
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Old 10-13-2019, 12:47 PM   #5
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Originally Posted by euinvestor123 View Post
I will be careful to stay less than 8 years on the green card to avoid the US exit tax and will officially give up my green card.

4. One alternative is to stay in the US until I get citizenship and then move to Europe. However, I have read about a lot of problems that US citizen ex-pats face. I assume that the best choice is to leave the US before I qualify for the exit tax. Is this the general consensus or am I missing something? Does anyone know if the years on an EAD count towards the total 8 years for exit tax purposes or is it only the years on a green card?
EAD can be confusing when concerning the Exit Tax since it concerns both immigration and resulting taxation.

Section 877(e)
"For purposes of this subsection, the term “long-term resident” means any individual (other than a citizen of the United States) who is a lawful permanent resident of the United States in at least 8 taxable years during the period of 15 taxable years ending with the taxable year during which the event described in paragraph (1) occurs. For purposes of the preceding sentence, an individual shall not be treated as a lawful permanent resident for any taxable year if such individual is treated as a resident of a foreign country for the taxable year under the provisions of a tax treaty between the United States and the foreign country and does not waive the benefits of such treaty applicable to residents of the foreign country."[bold mine]
https://www.law.cornell.edu/uscode/text/26/877
Section 877(e)


Technically, only years of permanent residence count towards the exit tax, but the question is for a highly qualified tax expert to answer.

Be very careful when calculating 8 years LPR. Phil Hodgen is a reliable source concerning taxation and expatriation, both for expats and green card holders. In the case of expatriation for green card holders, 8 years doesn't really mean 8 full years.

"Eight years has an unusual meaning. Eight years can be as little time as six calendar years and two days."
https://hodgen.com/green-card-receiv...face-exit-tax/

Any one day in any year causes that year to be counted as a full year.

I concur with others above; if you have any intention of leaving the US to reside permanently abroad and have no plans, or need (such as family), to return permanently to the US afterwards, do not acquire US citizenship.
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Old 10-13-2019, 02:49 PM   #6
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Originally Posted by euinvestor123 View Post
... How would currency risk work if my investments are in USD but I live in Europe. Would this somehow balance out given large international presence of major US companies or should I have all investments in my own currency? ...
Well, do you really want to be a currency speculator by being major-league long in the USD? I wouldn't, especially if it was not the currency that I would be using to pay my bills. This is a variation on sequence of returns risk.

The more general version of this problem is the question of country bias in an investment portfolio. I am sure many are getting tired of the fact that I post a link to this video quite often but here it is again: https://famafrench.dimensional.com/v...home-bias.aspx
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