US STATE tax when retired and living in Europe.

[Free_at_49]

I’m thinking of moving to EU permanently.

Most of my savings is in a Vanguard IRA. Selling the whole IRA would result in a huge tax hit, so it seems wiser to leave it there and continue to draw an annual income. Vanguard has an EU division, but somehow I doubt that a US IRA is transferable.

Since I would no longer be in the US, I would not be a resident of any State. So I’d still have Federal tax but no State tax? Is anybody here in a similar situation?

 

[LOL!]

When I moved from Texas to Europe, I still didn't have to pay any state income tax.

 

[Travelwanted]

It varies by state. Check with your CPA or tax attorney.

 

[pb4uski]

See Taxes for Expats - State Taxes and American Expats

What was the last state you lived in before moving to Europe?

 

[meierlde]

Simple solution, move to a state in the US where there is no state income tax such as TX or NV for 6 months. Get drivers licenses and register to vote there. Then when you move out of the country your last us residency will be in a state with no income tax.

 

[Free_at_49]

See Taxes for Expats - State Taxes and American Expats

What was the last state you lived in before moving to Europe?

Thank you, I'm in North Carolina. I only have a house near the beach which I plan to sell.

 

[daylatedollarshort]

Simple solution, move to a state in the US where there is no state income tax such as TX or NV for 6 months. Get drivers licenses and register to vote there. Then when you move out of the country your last us residency will be in a state with no income tax.

That is what we are considering. Six months plus one day to remove any ambiguity.

 

[Fermion]

If you are moving to Europe permanently, why not renounce your US citizenship and thus not have to deal with issues like DL renewal, jury duty, etc.?

 

[Free_at_49]

If you are moving to Europe permanently, why not renounce your US citizenship and thus not have to deal with issues like DL renewal, jury duty, etc.?

I've been spending a few months in EU every year, if I move away permanently why would I care about a US driver's license or jury duty? I can get a DL in Europe.

Renouncing citizenship, I've thought about it, but it's uncharted territory for me.

 

[daylatedollarshort]

If you are moving to Europe permanently, why not renounce your US citizenship and thus not have to deal with issues like DL renewal, jury duty, etc.?

Because it may well be irrevocable, and it is hard to know what the future will bring over decades of retirement. Russian nuclear reactor melt down? War? Economic collapse? Wealth taxes? Another Icelandic volcano eruption? It is always good to have options.

 

[kramer]

The residency rules for all states are different. But, for the most part, if you are living outside the USA permanently you will owe no state income taxes. Even if you continue to use an address for mailing purposes only in that state and even if you continue to vote there (generally non-residents vote as if they still lived in their last state of residence).

My expatriation was not so sure, and so I took the step of establishing residency in Texas first as an insurance policy. Texas has no income tax and also encourages people whose primary residence is nowhere or overseas to domicile there. At the time, I was thinking of making some earned income overseas and some states have a claw back provision whereby if you do come back and reestablish residency within a certain time frame, they will assume you intended to come back all along and back tax you on all that earned income money (not to mention your passive income during that time).

In any case, you should carefully read the residency rules of your state before deciding what to do.

Also, the ObamaCare rules will not apply to you as a full-time expat.

I actually still have a Texas driver's license even though I also have a Philippines driver's license. But I think it is nice to have a USA license for identification in the USA and for driving there. It is also a requirement for certain things like opening some financial accounts. My only USA government ID otherwise is a passport (although I am going to get a passport card on the next renewal for just this purpose).

 

[kramer]

If you are moving to Europe permanently, why not renounce your US citizenship and thus not have to deal with issues like DL renewal, jury duty, etc.?

You don't have to deal with any of these issues as an expatriate USA citizen. Also, there can be major tax consequences for expatriation and coming back to the USA for visits may not be so easy. It is a huge step requiring careful planning and can have tremendous consequences. Plus, it first requires obtaining citizenship, not just residency, somewhere else. This can take many years and is sometimes not even possible in your desired country of residence. For instance, even though I am a permanent resident in the Philippines, I basically have no path to citizenship ever even if I wanted that, even if I married and had kids, even if I were willing to invest big money, it just is not practically realizable goal.

 

[Travelwanted]

It can be costly to renounce your citizenship. We are considering a move overseas as well and have considered Florida as our exit point due to no state income tax.

Here is a nice review of pros and cons as well as what is involved in renouncing your citizenship.

Expatriation - Renouncing US Citizenship - A Cost/Benefit Analysis

 

[target2019]

I’m thinking of moving to EU permanently.

Most of my savings is in a Vanguard IRA. Selling the whole IRA would result in a huge tax hit, so it seems wiser to leave it there and continue to draw an annual income. Vanguard has an EU division, but somehow I doubt that a US IRA is transferable.

Since I would no longer be in the US, I would not be a resident of any State. So I’d still have Federal tax but no State tax? Is anybody here in a similar situation?

You'd have to look at the tax agreement between the country where you domicile and the US. If you remain a US citizen, then all of your income is taxable to the US. Where you pay taxes to the foreign entity, you get credit on your US taxes, provided a tax agreement is in effect.

I like the idea of moving to TX, and avoiding all the state nonsense.

Earlier this year I read an article or two passed to me that claimed more citizens are giving up citizenship because of the complexity of US tax law.

 

[MichaelB]

Since I would no longer be in the US, I would not be a resident of any State. So I’d still have Federal tax but no State tax? Is anybody here in a similar situation?

No state residency shouldn't be too difficult, although you may find having a US address helps if you intend to continue with US bank and financial accounts.

+1 @ Kramer posts, he is quite knowledgable on this subject.

 

[nun]

Are you an EU citizen or do you have a specific visa that would allow you to move to an EU country? If you can establish permanent residency in the EU you should be able to avoid US state taxes, but it's obviously different for each state.

Vanguard will allow you to keep your account with them if you have an overseas address, but some companies won't. So you must check the day to day practicalities out before you leave the US. Vanguard in Europe is a different company to Vanguard US and you cannot simply transfer funds, certainly not IRAs as they don't exist in the EU

Also be aware that there might be restrictions on the types of investments you can own in the US when you move to an EU country. The UK has a set of rules governing the ownership of foreign mutual funds similar to the IRS PFIC rules. If the funds are inside an IRA you would be ok, but it's a bad idea to own US Vanguard mutual funds outside a US retirement account if you are a UK resident.....many Vanguard ETFs would be ok though.

You will have to deal with cross border taxation and should understand the terms of the tax treaty between the US and the country you move to in the EU. Where you live in the EU will have primary taxation authority over your money, but you must also pay US tax. So there are fairly complex rules as to which country gets paid first and what foreign tax credits you can take.

 

[Free_at_49]

wow, thanks everybody for the replies, and warm greetings to all my fellow expats worldwide. Here’s more of my details:

I grew up in Canada, never applied for a US passport. I also have EU citizenship by birth, so my residence in any EU country is guaranteed.

Living abroad permanently and paying US taxes is clearly unfair, Canada doesn’t tax me as a non-resident, and that is as it should be. But my US IRA is a tax-captive, so unless I can somehow cash it out tax-efficiently, it will stay at Vanguard, I’ll become one of Vanguard’s foreign investors(?), make annual withdrawals and pay Federal tax only.

If I renounce, I assume I could still visit on a 90-day visa like any other Western foreigner. I’ll be entitled to Social Security & medicare at 65. I’d still get my SS as a foreigner, but I forfeit Medicare(?). I doubt I’d be willing to travel to US for medical visits, since healthcare in EU is generally better. In EU I can walk into any free public medical facility, but I don’t do it because I feel like I’m taking advantage. So I’d have to buy private insurance in EU whether I keep my US citizenship or not! Makes sense so far?

When in EU, I do the same as in the US, charge all my living expanses to credit card then pay it monthly from my US bank account. I assume Vanguard can deposit my money to any EU bank account? That way I’d avoid the dollar/euro conversion for every purchase. I will have no income from EU sources, so I’d live there as a permanent vacationer(?). As an EU citizen, if I had EU income, I’d become taxable there as a permanent resident.

I read the links (thank you), the US states use the term “release me”, as if I was some kind of prisoner. I’m not willing to spend 6 months in Florida, my basic culture as a European-Canadian, is that the state is there to serve people, not to oppress them. So I will only renounce if I’m pushed to do so.

Your comments please

 

[nun]

FYI if you are a US citizen you should use a US passport to enter the US....if you don't have a US passport there might be issues if you enter the US on another passport. And, as a US citizen, you must file an annual 1040 wherever you live.

You have to be careful about residence status and taxation. If you live in an EU country for longer than a certain period (might be 6 months) you will be resident for tax purposes.

 

[meierlde]

Note that if a non resident makes a withdrawal from an IRA or 401k there is 30% withholding taken.
Now expatriation also results in all accrued capital gains being taxed as of that date. (For tax purposes it is assumed the assets were sold on that day).

 

[Fermion]

I don't think it is totally unfair for the USA to want taxes on deferred earnings in a USA held IRA. I do not know the rules if it is a Roth IRA...

 

[Free_at_49]

Are you an EU citizen or do you have a specific visa that would allow you to move to an EU country? If you can establish permanent residency in the EU you should be able to avoid US state taxes, but it's obviously different for each state.

Vanguard will allow you to keep your account with them if you have an overseas address, but some companies won't. So you must check the day to day practicalities out before you leave the US. Vanguard in Europe is a different company to Vanguard US and you cannot simply transfer funds, certainly not IRAs as they don't exist in the EU

Also be aware that there might be restrictions on the types of investments you can own in the US when you move to an EU country. The UK has a set of rules governing the ownership of foreign mutual funds similar to the IRS PFIC rules. If the funds are inside an IRA you would be ok, but it's a bad idea to own US Vanguard mutual funds outside a US retirement account if you are a UK resident.....many Vanguard ETFs would be ok though.

You will have to deal with cross border taxation and should understand the terms of the tax treaty between the US and the country you move to in the EU. Where you live in the EU will have primary taxation authority over your money, but you must also pay US tax. So there are fairly complex rules as to which country gets paid first and what foreign tax credits you can take.

Indeed, this is the part I'm worried about. If I buy a house in EU (read property tax) or have interest-bearing accounts, I become taxable there too, and rightly so. This scenario may push me to renounce. One tax return is bad enough.

 

[Free_at_49]

Note that if a non resident makes a withdrawal from an IRA or 401k there is 30% withholding taken.
Now expatriation also results in all accrued capital gains being taxed as of that date. (For tax purposes it is assumed the assets were sold on that day).

I make a single withdrawal annually, and ask Vanguard to withhold 25% Fed + 10% State. The percentages are optional, my choice. So 30% probably means I'll get a refund, correct?

For accrued capital gains, are you referring to IRAs or regular accounts?

 

[nun]

Note that if a non resident makes a withdrawal from an IRA or 401k there is 30% withholding taken.
Now expatriation also results in all accrued capital gains being taxed as of that date. (For tax purposes it is assumed the assets were sold on that day).

The withholding is modified by many tax treaties.....eg an NRA resident in the UK is not subject to withholding......or indeed any US tax on income from an IRA.

 

[nun]

I make a single withdrawal annually, and ask Vanguard to withhold 25% Fed + 10% State. The percentages are optional, my choice. So 30% probably means I'll get a refund, correct?

For accrued capital gains, are you referring to IRAs or regular accounts?

30% withholding is only for NRAs....as a US citizen you are subject to the usual withholding, but you can't choose 0% withholding if you live overseas.

If you move overseas the state withholding should not be necessary.

 

[Free_at_49]

30% withholding is only for NRAs....as a US citizen you are subject to the usual withholding, but you can't choose 0% withholding if you live overseas.

If you move overseas the state withholding should not be necessary.

Are you a non resident alien? Any experiences in dealing with US-based IRA custodians from aboard? Are they comfortable with customers having non-US home address? I've activated Vanguard's new voice-recognition security feature, in anticipation of calling them while I'm on the road someplace.