Leaving US...

[dunc0029]

Ok - I want to meet with a so-called expert to be certain, but was hoping I could get at least some info from the wise folks on the message board.

Here's my situation. I am 28 (29 in Feb) and a US citizen. I have saved around 140k, all told, mostly between a Roth and 401k. Long story short, my girlfriend is Brazilian and I am starting to plan to move to Brazil for the foreseeable future, while she finishes up a Master's degree. After that, we might move to Europe, back to the US, or ... we don't know yet.

I realize these questions might be "stupid", but this is something I never considered doing, so I never researched the issues.

Anyway, my questions are related to my accounts. Can I keep my 401k and Roth IRA as is? Can I contribute to a Roth while I am living in Brazil? Do I retain my social security "time served"? What are the tax consequences?

If anyone can give general answers, or direct me to a good reference, it would be much appreciated. I plan to do some research on my own, and eventually meet with a banker to make sure I am not missing anything.

Thanks in advance,

Jason

[pedorrero]

Short answers -- taxes. Legally, a US citizen has to report (and probably pay) taxes on income earned where-ever. On the other hand, I wouldn't shed tears if you managed to earn money overseas that somehow didn't get reported to the IRS. I have no idea of whether overseas earnings are credited for Social Security purposes. But you'd have to pay tax on it...

Chances are, if you're working for a large (or US based) company overseas, everything gets reported. If you're working for cash for Paolo's Pizza, perhaps not? Another old benefit was you could earn like $90,000 overseas before any US tax was due. A problem we all should have. So perhaps my tax-evading advice may not apply to you

[Trek]

A lot of what you ask is going to be country specific.

Here is some tax information from the Embassy of Brazil in Washington:

http://www.brasilemb.org/consulado/consular7.shtml

This page from IRS.gov will cover many of your questions as well:

http://www.irs.gov/businesses/small/...=97324,00.html


Good luck! Sounds like you're in for a great time!

[sailor]

Originally Posted by dunc0029

Anyway, my questions are related to my accounts. Can I keep my 401k and Roth IRA as is?

401k - depends on your employer.
Roth - yes.

Do I retain my social security "time served"?

Yes - whatever credits you already get, you keep for life. If you have at least 40 credits, than you are eligible for retirement benefits.

[Texas Proud]

Not so fast on the Roth....

If you do not have a US address, you will have to see if you can keep your Roth at the institute you have it invested. I lived in London for awhile and some of the people would have loved to invest in the US, but places such as Vanguard and Fidelity would not allow them to use a UK address...

I think there are now options for them, but I don't know about Brazil.

Can you have your mail sent to your parents house If so, then you are fine..

[bpp]

Originally Posted by dunc0029

I realize these questions might be "stupid", but this is something I never considered doing, so I never researched the issues.

Remember, there are no stupid questions, only stupid people.

Anyway, my questions are related to my accounts. Can I keep my 401k and Roth IRA as is? Can I contribute to a Roth while I am living in Brazil? Do I retain my social security "time served"? What are the tax consequences?

Legally, you should be able to keep your 401k and Roth as is (but check with your custodian, as Texas Proud says). You can only contribute to your Roth if you have taxable earned income; income excluded by the Foreign Earned Income Exclusion cannot be used to contribute.

If anyone can give general answers, or direct me to a good reference, it would be much appreciated. I plan to do some research on my own, and eventually meet with a banker to make sure I am not missing anything.

Curl up with Pubs. 54 and 514 from http://www.irs.gov, for starters. There does not seem to be a tax treaty between the US and Brazil, per http://www.irs.gov/businesses/intern...=96739,00.html, by the way.

[nun]

I'm with BPP on this one, find out about the US/Brazil tax treaty and if there is a reciprocal
SS agreement. Basically you keep your US SS credits and you might be able to add Brazillian credits to them if there's a treaty.

You'll probably be able to leave the ROTH and 401k as is, but you'll only be able to contribute to the ROTH if you have earned income and as you'll probably be taking the foreign earned income exemption, around $80k, you might not qualify for ROTH contributions.

As a US expat you are liable for tax on your worldwide income and you must file a 1040 each year. Don't forget about your state taxes, this is a thorny issue, I assume you'll remain domiciled in the US so you'll have to pay taxes to your domicile state too. Each state has different residency/domicile rules and tax filing requirements.

Find out if there is a treaty between the US and Brazil that allows you to take credits for taxes paid in Brazil. Also find out how Brazil taxes residents and find out exactly what your residency status will be as this is probably critical to how you'll be taxed. I assume you'll be going to Brazil on some spousal/fiancee visa so there will probably be an immigration form to fill out where you'll have to explain how long you intend to stay and from that they'll decide your residence status. This might be different from how the US considers your residency.

Also DO NOT invest in any foreign based mutual funds as the US taxes these at enormous rates. As a US citizen its best to keep investing in the US (you'll have to see how Brazil
looks at this). You're ok with foreign interest bank accounts and individual shares or bonds, although the reporting might get tough. Vanguard and Fidelity are ok dealing with US citizens with foreign addresses as long as they've initially set the account up under a US address. Some of the web functions won't work abroad as you need a US zip, but both Fidelity and Vanguard have told me that in those cases it can all be done over the phone.

Finally, if the total of any foreign accounts you own is over $10k during the year, you have to report all the accounts to the Treasury, failure to do this results in nasty fines.

It all sounds nasty and complicated because it is, the US expat has by far the most complicated situation to deal with of any nationality. The only thing that makes it worthwhile is getting away from the US.........

[Trek]

The US mailing address is no problem. Just use a mail forwarding service. They will provide you with a legal US street address and send your mail anywhere in the world. Get one in a state with no income tax. Get a local US phone number (same state as your new mailing address) via Skypes "SkypeIn" service and you're all set. No one will be the wiser that you live out of the country.

[nun]

Originally Posted by Trek

The US mailing address is no problem. Just use a mail forwarding service. They will provide you with a legal US street address and send your mail anywhere in the world. Get one in a state with no income tax. Get a local US phone number (same state as your new mailing address) via Skypes "SkypeIn" service and you're all set. No one will be the wiser that you live out of the country.

Having a mailing address in a state doesn't necessarily mean that you have estabilshed tax residence there, its generally best not to try to "work the system". By all means sign up with a mail forwarding service, but make sure you know where you are domiciled/resident in the US so you can address the expat state taxation issues.

Many times you won't have to pay much if any tax because of the foreign income exemption, but you have to know your residency status for US Federal, US state and Brazilian taxation purposes before you can do any planning.

Phrases like "no one will be any the wiser that you're out of the country" are very dangerous as to correctly deal with your taxes and finances you have to be truthful about your residency.

[bpp]

Nun has it right.

Looks like there is no social security totalization agreement (http://www.ssa.gov/international/agr...criptions.html), so time spent paying into Brazilian SS would not count towards qualification for US SS. If you work for a US-based employer in Brazil, or are self-employed there, you will need to pay into US SS anyway, though. You should also look into what the requirements are for Brazilian SS.

[Trek]

Originally Posted by nun

Having a mailing address in a state doesn't necessarily mean that you have estabilshed tax residence there, its generally best not to try to "work the system".

I was not implying he should try to "work the system" at all. but I can see how one could read it that way. Just pointing out that having a US mailing address and US phone number while living out of the country is not a complicated matter.

[BA]

Can I contribute to a Roth while I am living in Brazil?

The answer is Yes, provided that you have an income which may not exceed certain amount, depending on your filing status.

[nun]

Originally Posted by Trek

I was not implying he should try to "work the system" at all. but I can see how one could read it that way. Just pointing out that having a US mailing address and US phone number while living out of the country is not a complicated matter.

Sorry to jump on your post, I think I fixated on the "state with no income tax" phrase. I'll be moving back to the UK one day and as a US/UK dual citizen I've been reasearching stuff for a while. What I've learned is that its easy to make some costly mistakes and that US expats are not looked on kindly by the IRS/Treasury. It can become complicated very quickly and its an area where professional advice is good to get.

[ladelfina]

nun.. this is a case (state taxation of ex-pats) where the "rules" are opaque to the extent of "unknowable". Since I am clearly not a resident of any state (nor, in my mind, domiciled, since I own no property in the US other than what's in my bank and brokerage accounts), I do not file any state tax forms. (I pay my federal income tax from abroad, and have no issues with doing so, either logistically or otherwise, n.b.).

It is clear to me that I owe no state tax, according to this:

For nonresidents only that portion of income attributable to State X sources is subject to the tax.

A resident is a person domiciled in State X or although not domiciled here does maintain a permanent home in State X and is here for a total of more than 183 days of the taxable year.

A nonresident individual is an individual who is not a resident. [ ]

State X source income for nonresidents is from the following sources:

1. Services performed in State X including amounts received from unemployment compensation, a stock ownership plan or a profit sharing plan that is required to be included in Federal adjusted gross income and is directly connected to current or prior State X employment.

2. A trade, business or profession conducted in the state which shall include the distributive share of income from a State X partnership and the portion of income from a State X estate or trust that is directly derived from a trade or business conducted in this state.

3. Income from real property located in State X which shall include the gain on the sale of such real property.

4. Gambling winnings from the State X Lottery and from pari-mutual events licensed within this state.

Armed Forces service personnel stationed in State X who are domiciliaries of other states are not subject except for income (other than service pay) derived from State X sources. State X domiciliary service personnel are subject on all income even though stationed outside State X and notwithstanding the fact that they may spend no time at all in State X during a taxable year.

A resident estate or trust is the estate of a decedent who, at death, was a resident of this state and, generally, where the beneficiaries are State X residents.

This SEEMS pretty clear. I don't fit the definition of "resident", but the definition of "domicile" is left unanswered here. Elsewhere, investment income (such as from a bank account in State X) is explicitly exempt for non-residents.

Going to the instructions for State X tax forms:

For purposes of the above definition, domicile is found to be a place an individual regards as his or her permanent home – the place to which he or she intends to return after a period of absence. A domicile, once established, continues until a new fixed and permanent home is acquired. No change of domicile results from moving to a new location if the intention is to remain only for a limited time even if it is for a relatively long duration. For a married couple, normally both individuals have the same domicile. Any person asserting a change in domicile must show:
1. an intent to abandon the former domicile,
2. an intent to acquire a new domicile and
3. actual physical presence in a new domicile.

So the "domicile" to them seems to be a combination of a physical place and imputed current and future physical presence therein. However, despite the fact that I never lived in State X after leaving State Y to go to Italy (for convenience, I have a bank account with a State X address, my brokerage statements go to State X, and I have a State X DL based on the bank account), I receive yearly threatening letters from State X about my non-filed tax returns. Each year I respond telling them that I am resident in Italy (with a photocopy of my Italian residency card). Up 'til now I have not used the word "domiciled" but seeing its inherent power, will do so in future.

If one attempts to investigate the grounds for a state 'tax domicile' for people who do not, or never have, physically lived in a state, you'll run into a bunch of items 'taken into consideration' by certain state authorities. The lists look similar to the one here:
http://www.washington.edu/students/r....html#domicile

Does having nothing more than a voter registration, a bank account and maybe a driver's license = "domicile"? It's unclear. 2 out of 3? Only one of the above? If the address is that of a relative or friend, will it be possible to prove that you never "intend" to inhabit that physical place?

I came across one site that seems to be interested in "harmonizing" rules about tax domicile:

The NESTOA states have recognized the need for uniformity in determining domicile issues by its member states. Therefore, the NESTOA states have agreed on the following factors to be considered in determining domicile.
Home or Way of Life
Time
Items “Near & Dear”
Active Business Involvement
Family Connection
(To be reviewed when the first four factors are not conclusive.)
These factors will be used by the states as a guide in determining domicile. In most cases a review of these factors will be sufficient to make a determination. The states have created a model questionaire for their use during audits. Individual state's laws and regulations take precedent on any issue and audit staff will be making decisions in accordance with those laws and regulations.

In some cases the domicile issue may be pursued by more than one state for a particular taxpayer. If two or more states claim a domicile status and if requested by the taxpayer, the North Eastern States involved will discuss the issue and attempt a resolution. However, the states are not bound to accept the resolution. The taxpayer may continue with the appeal process in each of the states.

http://www.nestoa.org/

As described above, someone with just a bank account and a voter registration may well not be "domiciled." Note, however, the last sentence, which shows the intent has gone further than the practice, apparently. There are no rules, only "guides" and you will never get a straight answer, obviously, from state tax authorities. They'll force you to go to court, where domicile will be determined on a case-by-case basis.

For an idea of what State Z looks at to "declare" domicile, take a look here:
http://tinyurl.com/y6hw6m
I include State Z as it may be, of necessity and convenience, a future mailing address for me.

I found this informative document (domicile advice for lawyers):
http://tinyurl.com/w6ta7

.. with this depressing warning; the "burden of proof" seems not on the state(s), but on you.

If your clients have changed domicile, or if they have multiple residences and unclear domicile, their estate will have the heavy burden of proving which state is the actual and proper state of domicile.

The link above cites the case of the founder of Campbell Soup, in which two different states claimed domicile and EACH (NJ and PA) collected $17million from the estate. The Supreme Court has refused to rule on such matters, leaving each state to do their own thing.

BTW, I have briefly talked to "professionals." The answer is, "there is no real answer" until you actually get between that exact rock and that other particular hard place and the court figures it out for you. It's all a matter of interpretation, although taking the advice outlined above in the lawyers' article will certain help many retirees who prefer to be on the move within the US.

In terms of the OP who wants to fund a Roth from Brazil, I can't see any earthly reason why not, as long as he is filing his US federal taxes and is allowed to do so based on his earned income.. As long as he doesn't renounce his citizenship, the IRA regs should work the same regardless of where you physically reside.

Texas Proud is right in suggesting you somehow maintain a US address, which will make things o-so-much-easier. For my Italian DH, when we were originally in Italy I set up (with Schwab) a regular brokerage account for him. The big differences were in that a.) as a non-US-citizen he got hit up for high quarterly fees and b.) they did an automatic 15% witholding. When, after we married, I (easily) combined our assets in a joint Schwab account these annoyances went away. Again, from Italy we file a joint US Federal tax return on these assets and have no problem doing so. If there are "costly mistakes" in the offing, I look to some random state as the culprit, since avoiding US federal tax is not, and has never been, my intent or desire.

Nun, I'm sure your situation as a dual citizen is more complex.. In returning to your "home" country, the US is quite interested in maintaining its revenue stream as far as you're concerned. Renouncing US citizenship is your only way to be definitively "free" of the IRS, and, even in the case that you do so, the IRS will "claim" a 10-year forward window on your income, if they surmise (under what circumstances would they not?) that renouncing citizenship is for tax-avoidance purposes, from what I understand... [Not exactly the "freedom" you thought you were signing up for, eh?]. Apparently, the burden of proof will be on you to prove the contrary, (unfortunately). I guess even if you were to have the extra burden of continuing to file US tax forms, one hopes that the exemptions for (probably higher) UK taxes paid will continue to obviate your US tax burden and you'd be no worse off, outside of the time and expense of filing.

At least that's how I see things so far.... Of course I welcome any corrections, especially those from corners with more than a layman's grasp on legal and tax issues.

[nun]

The rules are different for every state, the weird thing is that in legal terms your domicile might actually
bet that of your father or mother so you could be legally domiciled somewhere without ever having lived there.
Take my situation I grew up in the UK so I was resident and domiciled in the UK. Then I moved to the US and became permanently resident there, but still regarded my domicile as the UK. After living in MA for 20 years, getting married, becoming a citizen etc and owning a home here I'm domiciled in the US and MA. MA is a domicile state and taxes all those domiciled in the state. If I were to move to another state its fairly easy to break the MA domicile by simply living in the other state with the intention to stay there. However if I return to the UK I will be asked if I intend to stay there on the basis of my UK citizenship. If I say no my domicile will remain MA and US and I will be liable for MA state tax. If I say yes become UK domiciled and will only have to pay US federal taxes.

The rules are different for each state, MA is particularly keen to hang on to its taxpayers.

[nun]

Originally Posted by ladelfina

Nun, I'm sure your situation as a dual citizen is more complex.. In returning to your "home" country, the US is quite interested in maintaining its revenue stream as far as you're concerned. Renouncing US citizenship is your only way to be definitively "free" of the IRS, and, even in the case that you do so, the IRS will "claim" a 10-year forward window on your income, if they surmise (under what circumstances would they not?) that renouncing citizenship is for tax-avoidance purposes, from what I understand...

Actually the US changed the tax rules wrt renouncing citizenship. If you have less that $2M net worth you can renounce US citizenship without incurring tax penalties or being forced to file for 10 years.

The thing is I have almost all my money in the US and I will get US SS and I don't want to mess with that by renouncing US citizenship. I'll just deal with filing the 1040s and claiming credit for tax paid in the UK. I'll also have to do UK self assessment because of my US accounts and claim credit for US taxes paid.....urrrrghhhhhh.

WRT your state domicile I think you can easily argue that you are not domiciled in the state where you have
your bank accounts as domicile includes the concept of that being your permanent home and a desire to return
there and live there. If you are planning to make Italy your permanent home with your DH, if you have a home there, and maybe children you might become domiciled in Italy, but this status might affect your Italian taxes. If not you will still be domicile in the US state where you were last domiciled and that might be the state you grew up in or where most of your family lives. Most states do not tax on domicile so unless its one of the domicile states you are probably ok.

[nun]

........and one last thought, ladelfina, if you have an bank account in State X even though you are not resident or domiciled there you'll probably have to pay tax as a non-resident on any interest.