Planning to be an Expat

[kramer]

nun, ouch on the UK tax requirement!

 

[nun]

nun, ouch on the UK tax requirement!

It's not an issue as the treaty avoids double taxation and the UK has higher tax free income and capital gains allowances than the US so the difference in the tax bills isn't enormous. As I said being a US citizen you always have to pay US tax wherever you live and if there is a treaty in place you avoid double taxation.

 

[theOAP]

Because I have no earned income, the only reason I care about the residency tests is to avoid the ObamaCare penalty. This is a new complication for expats.

An excellent point, and one that may need further explanation. As originally drafted, the PPACA (Affordable Care Act) ignored the situation of US retirees living abroad. Since they cannot 'buy' insurance in the US, they would have been subject to the tax/penalty. Another ACA (American Citizens Abroad) raised the issue, and at the last moment the clause relating to Code Section 911 (FEIE) was introduced into the final regulations.

To avoid the tax/penalty, the retired US expat does not have to file a Form 2555 FEIE (with no earned income, you can't!); they only have to meet the same requirements applicable to those who do. In most cases, after the first full calendar year, they would be covered by the Bona Fide residence test. The physical Presence test requirements no longer apply, and the expat could spend more than the limited number of days in the US found in the Physical Presence test. This is my opinion only, and I am not a tax expert. It will only become evident after the first year of enforcement, and any resulting actions which may be taken by the IRS.

There are other complications arising from PPACA for the retired US expat in the area of capital gains, but I won't go into those on this thread.

This thread has, as has many others relating to living abroad, veered into taxation. It should be abundantly clear to the OP (and anyone else considering retirement abroad) to do adequate research into the tax implications of both the US and the new 'local' country of residence. Failure to understand all the implications could result in a 'horror story'.

 

[SecretlyFI]

DH and I are considering permanently relocating to New Zealand. I've done alot of reading on it and it's a country that you can't just retire to, you need to get a job there to qualify for residency (you gotta respect that). I've done some reading on the tax treaties to avoid double taxation, but I was wondering how Roth's would be treated. They're exempt here, but I'm guess that exemption wouldn't be recognized in the expat country and you'd be taxed there. This would actually create double taxation, since the contributions were after tax to begin with. Does anyone know if that's the case? I stopped doing Roth's recently until I have this figured out. Also anyone have an opinion on good sources of tax knowledge/strageies for expats and what type of professional to consult where needed? I'm assuming most tax professionals might not be experts.

 

[Rob]

Hi all-
I've been an expat for most of my life, since I have been teaching in international schools, with most of the years spent in Singapore (25 years). I recently retired at the age of 65, but immediately got a job teaching at another school in Singapore. I'm bound and determined to retire again at the age of 66.

I am a Permanent Resident in Singapore, but as nice as Singapore is, it really is not the place you should retire. The cost of living is rather high, and unless you are very wealthy, retirement here is not recommended. As a result, I applied for and received a 10 year retirement visa for Malaysia. It's called Malaysia My 2nd Home visa, and it is easily renewable. The nice thing about it is you're not required to remain in Malaysia any number of days a year, and you can come and go as you want. The cost of living is very very low. Eventually, I will completely relocate across the border from Singapore to Johor, the nearest Malaysian state to Singapore.

The only frustration I have is the requirement to be on US Medicare or risk losing it. I'm required at the age of 65, as you know, to get into Medicare or risk a penalty. As one who has pre-existing conditions, I'd be a fool not to get into it at the required date. However, I also am required to get into the "Part B", the Supplementary", and the "Part D Prescription Drug". If I didn't, I'd pay a hefty and possibly heavy penalty and risk not even getting it. As a result, it's very nice to be under Medicare, but it only covers me in the States. So when you do retire overseas, you will have that problem, also. My attitude is that if something ever serious comes up medically, I will need to return to the States where everything is paid for regardless. At any rate I do have an international health insurance with BUPA, but that is pretty expensive.

I have passive income from TIAA-CREF, and of course I need to pay taxes on that regardless of where I am in the world. I recently went on Turbo-tax to run through the program, and although I have not e-filed yet, I was pleasantly surprised to find out that this is the first year that you can e-file from a foreign address. In the past I have always had to e-file using a friend's address in my state of residency.

Rob

 

[bondi688]

If all you are getting are distributions from IRA and Social Security benefits, i.e. not earned income, are you still subjected to the tax penalty generated by PPACA while you are living abroad, not working, and do not benefit from MediCare?

 

[nun]

I've done some reading on the tax treaties to avoid double taxation, but I was wondering how Roth's would be treated. They're exempt here, but I'm guess that exemption wouldn't be recognized in the expat country and you'd be taxed there. This would actually create double taxation, since the contributions were after tax to begin with. Does anyone know if that's the case? I stopped doing Roth's recently until I have this figured out. Also anyone have an opinion on good sources of tax knowledge/strageies for expats and what type of professional to consult where needed? I'm assuming most tax professionals might not be experts.

You need to look at the US NZ tax treaty. ROTHs are tax free in the UK under the US/UK treaty so you need to read the pensions Article closely to see if the same applies for NZ.

 

[Khufu]

Steps I took before retiring abroad (to Thailand):

1. severed all connections to my home state (NY) to avoid any tax domicile issue later: surrendered NYS driver's license, sold off all property, etc. according to the specific tax domicile rules of NYS. God help you if you are leaving Virginia.

2. Opened an account with a mail forwarding service, Mail Forwarding Services at St Brendan's Isle (highly recommended). Service must be located in a no-income-tax state, eg. Florida, and should provide a street address, not a PO box. Updated address information with all banks, brokers, etc. while still in the US. I have never notified any institution of my current physical address, only the mailing address in Florida.

3. Opened several bank accounts since after having moved abroad it may be difficult or impossible to open a new account and the relative merits of each bank's services are likely to change over time. Bill pay features are relevant because I will always have some bills, e.g. credit cards, to pay in the US. The best banks are those that cater to a military clientele since they are not alarmed if they find out that you live abroad. Recommend USAA Federal Savings and Pentagon Federal Credit Union.

4. Bought an Ooma voip phone device and ported my home phone number to it. Not the cheapest solution, but high-quality product and service. After arriving in Thailand, plugged the Ooma device into my router and now have free incoming and outgoing US service with the same phone number I had for 30 years in New York City. I probably have the only 212 number in Bangkok. If you go the Ooma route don't buy their current Telo product which has monthly charges. Get the original hub on ebay or somewhere. That product has no monthly charges at all.

5. Selected a bank in Thailand that can accept low-cost ACH transfers from US banks. There is only one such bank in Thailand. Bangkok Bank can do this because it has a branch in NYC and therefore, an ABA number. Other countries may or may not have such a bank, but some banks will have lower charges than others for transfers.

6. Opened a variety of US credit card accounts, since I cannot be sure of being able to open one in the future. However, I subsequently did open one with Capital One without any difficulty. The key for the credit card is that it reimburses all ATM charges and does not charge a foreign exchange transaction fee. Penfed and CapOne cards meet the requirement. There are others that do as well. I make sure to have at least some charges on each credit card every month so that they are never closed for inactivity.

7. Switched reporting on all financial accounts to email only. However, there will still be snail mail occasionally, such as tax statements at this time of year. The mail forwarding service scans them for me to read the next day.

As an expat with US investments your big financial problem long-term is currency risk, which dwarfes inflation in importance. This is assuming that you keep your assets in the US, which is what most of us expats would recommend unless you were to move to Canada, for instance. Start reading books by economist Barry Eichengreen.

You need to make sure that you have a health care solution in your new country. I plan to sign up for Medicare at age 65 even though I can't use the services while outside the country for two reasons: I can never be sure that I will stay forever in Thailand and, even if I were sure of that, I will always need US insurance during annual trips to see the family.

As for destination countries, I wouldn't consider Ireland myself because the cost of living is high. However, I can see the attraction since Ireland was recently rated by somebody as having the best quality of life in the world. Asia has the advantage of lower cost of living, at least in most locations, and relatively lower levels of crime. Latin America would be attractive to me, but for the crime problem, although I am sure there are effective ways of coping in many areas. I have friends who love retired life in Mexico, but the potential for crime there to expand into currently safe areas would certainly give me pause.

I never plan to own anything in Thailand. Renting an apartment is the overwhelmingly best choice here for many reasons. I hire a car and driver when I need to get out of Bangkok.

My other advice is to study the local language full-time until you are fluent. As an older person the mental benefit of language study in itself is substantial. And then, in terms of the new culture you can be a competent person.

 

[nun]

As an expat with US investments your big financial problem long-term is currency risk, which dwarfes inflation in importance. This is assuming that you keep your assets in the US, which is what most of us expats would recommend unless you were to move to Canada, for instance. Start reading books by economist Barry Eichengreen.

Canada is as foreign as anywhere. Be careful to avoid PFIC issues with any foreign investments and of course file FBAR and 8938 form if necessary. Also, depending on the country where you retire, there might be local tax laws similar to PFIC that limit your investment choices in the US.

 

[meierlde]

Excellent info Kramer. Having a Texas driving license, have you ever been called for jury duty (in the 9 years I have lived here I have been called 3 times, and served on a jury last year).

Given that they use driver licensees in Tx you find that less than 50% of those called show up (particularly in the large counties). So they don't have time to pursue those who don't show up, and in any case you would be out of the country or at least likely out of town anyway. Harris County I recall the several times I was called seemed to have a 30 to 40% turnout rate, as a result they were calling 5000 folks twice a day to get about 2000 a day. They do not have time to pursue those who do not show. Now even in the hill country the turn out rate is 50-60% and once they did have a retired judge who called those who did not show, but gave up on it since so many aliens have driver licenses and get called but don't show because they have an automatic excuse.
So if you can get your physical address in a large county there will likely be no problem but a county of 10k or less may care.

 

[Alan]

Given that they use driver licensees in Tx you find that less than 50% of those called show up (particularly in the large counties). So they don't have time to pursue those who don't show up, and in any case you would be out of the country or at least likely out of town anyway. Harris County I recall the several times I was called seemed to have a 30 to 40% turnout rate, as a result they were calling 5000 folks twice a day to get about 2000 a day. They do not have time to pursue those who do not show. Now even in the hill country the turn out rate is 50-60% and once they did have a retired judge who called those who did not show, but gave up on it since so many aliens have driver licenses and get called but don't show because they have an automatic excuse.
So if you can get your physical address in a large county there will likely be no problem but a county of 10k or less may care.

That's good to know, but I guess that I'm just averse to wasting people's time and was hoping that there was a more effective way of opting out. I guess it will only be a problem up to age 70, after which you may be called but are not required to serve.

 

[meierlde]

That's good to know, but I guess that I'm just averse to wasting people's time and was hoping that there was a more effective way of opting out. I guess it will only be a problem up to age 70, after which you may be called but are not required to serve.

Just a story to tell how the system works. My father died in 2002 and received a jury summons in 2009, since it appears that one branch of the state never tells another about deaths (the county issued the death certificate, but the drivers license folks don't check that or the social security death index). I called the clerk and said we could try a seance if need be but I thought the judge might object. They said they were sorry and removed the names. BTW he also got an invitation to renew his drivers license in 2008 as well.

 

[Rich]

Although I have no intention of becoming an expat I've found this thread to be incredibly informative and interesting. I respectfully suggest it should be made a "sticky" somewhere for folks who really need the practical information it contains.

Rich

 

[FreqFlyer]

I had a good laugh at myself. In planning a post in defense of the rule "RENT DO NOT BUY" I thought about my FIRE plan to open or purchase a business in Latin America.

Do as I say not as I do is all I can say. Whether I actually end up starting a coffee plantation (one idea) remains in doubt.

Seriously. Until one is experienced enough to break the expat golden rule do not buy.

1) speak the local language
2) live for a considerable amount of time in your chosen location
3) develop relationships with both expats and local residents
4) understand local laws and ways of doing business

 

[george76]

The only frustration I have is the requirement to be on US Medicare or risk losing it. I'm required at the age of 65, as you know, to get into Medicare or risk a penalty. As one who has pre-existing conditions, I'd be a fool not to get into it at the required date. However, I also am required to get into the "Part B", the Supplementary", and the "Part D Prescription Drug". If I didn't, I'd pay a hefty and possibly heavy penalty and risk not even getting it.

Rob

I thought if you lived abroad and wanted to make sure to be a part of Medicare one only had to sign up for Medicare B at age 65, which is currently around $1200 per year.` And the reason was to do it then, otherwise rates would be much higher for each subsequent year. But, as Rob points out, if this doesn't cover drugs, then the cost would actually be much higher.

So, could someone confirm what Rob stated, ie that one would be wise to sign up for part D as well or that that cost would also go up each year? And if so, what would be cost when including Drug coverage? I have years to go before 65, but I am assuming that I would need prescription drugs of some kind at that age.

Thanks in advance!

 

[george76]

Khufu,

First of all, great list with lots of great information! Several items I hadn't seen before. I have a couple of questions:

Steps I took before retiring abroad (to Thailand):
2. Opened an account with a mail forwarding service, Mail Forwarding Services at St Brendan's Isle (highly recommended). Service must be located in a no-income-tax state, eg. Florida, and should provide a street address, not a PO box. Updated address information with all banks, brokers, etc. while still in the US. I have never notified any institution of my current physical address, only the mailing address in Florida.

Just to confirm, the mail forwarding service is able to provide you with a street address. And this street address is acceptable to the bank? I had previously checked with my bank and they had said that they would need to close my account if I had a foreign address. Perhaps a mail forwarding service address would suffice?

7. Switched reporting on all financial accounts to email only. However, there will still be snail mail occasionally, such as tax statements at this time of year. The mail forwarding service scans them for me to read the next day.

I assume you get an e-mail with the scanned documents? Is there reason at all to be concerned about security/privacy since it is sent via e-mail?

 

[haha]

I thought if you lived abroad and wanted to make sure to be a part of Medicare one only had to sign up for Medicare B at age 65, which is currently around $1200 per year.` And the reason was to do it then, otherwise rates would be much higher for each subsequent year. But, as Rob points out, if this doesn't cover drugs, then the cost would actually be much higher.

So, could someone confirm what Rob stated, ie that one would be wise to sign up for part D as well or that that cost would also go up each year? And if so, what would be cost when including Drug coverage? I have years to go before 65, but I am assuming that I would need prescription drugs of some kind at that age.

Thanks in advance!

The availability and costs of these plans varies with state.

In my state, the currently cheapest plan is $15/mo. Prices do go up yearly, and I doubt this $15 plan would buy you much. I use it like you plan to use your plan- to keep the door open. I have had to change plans not quite annually, to stay with the cheapest available to me.

To actually compare plans in detail is more than I have been wiling to do so far. They are very complex.

Ha

 

[george76]

The availability and costs of these plans varies with state.

In my state, the currently cheapest plan is $15/mo. Prices do go up yearly, and I doubt this $15 plan would buy you much. I use it like you plan to use your plan- to keep the door open. I have had to change plans not quite annually, to stay with the cheapest available to me.

Ha

Thanks ha!

So, it is about $1,200 a year to Medicare B open and another $200 to keep Medicare D open. So a conservative $1,500 a year to keep the critical parts of Medicare open should you happen to need it.

 

[NYEXPAT]

Steps I took before retiring abroad (to Thailand):

1. severed all connections to my home state (NY) to avoid any tax domicile issue later: surrendered NYS driver's license, sold off all property, etc. according to the specific tax domicile rules of NYS. God help you if you are leaving Virginia.

2. Opened an account with a mail forwarding service, Mail Forwarding Services at St Brendan's Isle (highly recommended). Service must be located in a no-income-tax state, eg. Florida, and should provide a street address, not a PO box. Updated address information with all banks, brokers, etc. while still in the US. I have never notified any institution of my current physical address, only the mailing address in Florida.

3. Opened several bank accounts since after having moved abroad it may be difficult or impossible to open a new account and the relative merits of each bank's services are likely to change over time. Bill pay features are relevant because I will always have some bills, e.g. credit cards, to pay in the US. The best banks are those that cater to a military clientele since they are not alarmed if they find out that you live abroad. Recommend USAA Federal Savings and Pentagon Federal Credit Union.

4. Bought an Ooma voip phone device and ported my home phone number to it. Not the cheapest solution, but high-quality product and service. After arriving in Thailand, plugged the Ooma device into my router and now have free incoming and outgoing US service with the same phone number I had for 30 years in New York City. I probably have the only 212 number in Bangkok. If you go the Ooma route don't buy their current Telo product which has monthly charges. Get the original hub on ebay or somewhere. That product has no monthly charges at all.

5. Selected a bank in Thailand that can accept low-cost ACH transfers from US banks. There is only one such bank in Thailand. Bangkok Bank can do this because it has a branch in NYC and therefore, an ABA number. Other countries may or may not have such a bank, but some banks will have lower charges than others for transfers.

6. Opened a variety of US credit card accounts, since I cannot be sure of being able to open one in the future. However, I subsequently did open one with Capital One without any difficulty. The key for the credit card is that it reimburses all ATM charges and does not charge a foreign exchange transaction fee. Penfed and CapOne cards meet the requirement. There are others that do as well. I make sure to have at least some charges on each credit card every month so that they are never closed for inactivity.

7. Switched reporting on all financial accounts to email only. However, there will still be snail mail occasionally, such as tax statements at this time of year. The mail forwarding service scans them for me to read the next day.

As an expat with US investments your big financial problem long-term is currency risk, which dwarfes inflation in importance. This is assuming that you keep your assets in the US, which is what most of us expats would recommend unless you were to move to Canada, for instance. Start reading books by economist Barry Eichengreen.

You need to make sure that you have a health care solution in your new country. I plan to sign up for Medicare at age 65 even though I can't use the services while outside the country for two reasons: I can never be sure that I will stay forever in Thailand and, even if I were sure of that, I will always need US insurance during annual trips to see the family.

As for destination countries, I wouldn't consider Ireland myself because the cost of living is high. However, I can see the attraction since Ireland was recently rated by somebody as having the best quality of life in the world. Asia has the advantage of lower cost of living, at least in most locations, and relatively lower levels of crime. Latin America would be attractive to me, but for the crime problem, although I am sure there are effective ways of coping in many areas. I have friends who love retired life in Mexico, but the potential for crime there to expand into currently safe areas would certainly give me pause.

I never plan to own anything in Thailand. Renting an apartment is the overwhelmingly best choice here for many reasons. I hire a car and driver when I need to get out of Bangkok.

My other advice is to study the local language full-time until you are fluent. As an older person the mental benefit of language study in itself is substantial. And then, in terms of the new culture you can be a competent person.

Khufu,
Great list and thank you for taking the time to compile it. I plan to keep it in a file as I get asked these questions frequently.

For myself, I have found it to be much simpler just to cut all ties (except passport).

With Medicare (six years out) most people I talk to only have Part A and buy any needed medications, procedures overseas which is far cheaper. I imagine I would have to look into this as I get closer in age.

I was talking to a Canadian (on the street) yesterday about HC and he told me he had to wait several months to get a MRI. So he came to Peru and got one for S./650 ($250) in one day. He forwarded the results and had surgery scheduled and the Canadian system reimbursed him $650.00 or almost three times the cost.

 

[Alan]

Although I have no intention of becoming an expat I've found this thread to be incredibly informative and interesting. I respectfully suggest it should be made a "sticky" somewhere for folks who really need the practical information it contains.

Rich

Good idea Rich.

We discussed this and decided to move the thread to the FAQ's forum.
Early Retirement FAQs - Early Retirement & Financial Independence Community

I have left a permanent re-direct in the original forum.