Podcast Center
Video Center
Webcasts
Resource Center
Events
By 
October 17, 2023 at 11:20 AM
The idea of spending retirement years in a new country may sound romantic, but Americans considering it need to prepare for the potential pitfalls that can damage their finances and estate plans.
By planning ahead, guided by professionals who specialize in expat issues, retirees should be able to avoid unpleasant and costly surprises, according to two experts from Creative Planning International.
David Kuenzi, Creative Planning partner and international wealth management director, and Hanna Kennedy, international wealth manager, hosted a webcast Monday in which they outlined several risks and offered advice for protecting finances, health care and estate plans.
Here are their four major tips on preparing to retire abroad:
1. Explore the tax implications.
If ignored, the intricacies of U.S. and foreign tax laws can severely hit the bottom line for Americans residing abroad, Kuenzi indicated.
The U.S. is the only country in the world that taxes people based on citizenship, so taking up residence elsewhere doesn’t give Americans a pass from the Internal Revenue Service. U.S. citizens abroad often face dual taxation from their home country and the nation where they live, he noted.
“You will face a uniquely complex tax environment” but with careful planning can avoid that dual burden, Kuenzi said.
“Understand your potential tax obligations before you make a move overseas,” he advised. “Understand that mistakes made here may be extremely costly.”
He offered some specifics to keep in mind:
Americans living abroad can usually claim foreign tax credits to partly or totally offset their U.S. tax bills. In addition, more than 60 countries have tax treaties with the U.S., which can help as well, Kuenzi said, noting these agreements help coordinate taxation between the countries and cover pension and retirement income taxation.
Some countries have special tax programs that minimize local taxation for U.S. retirees, Kuenzi noted.
“Each country’s tax rules are unique and each one will interact with your U.S. taxes in slightly different ways,” he said.
Tax treaties in most countries don’t view Roth retirement plan income as tax-exempt, so retirees whose Roth accounts may be taxed should consider withdrawing those funds before moving, delaying distributions until returning to the U.S. or leaving them in their estates to pass along to heirs in the U.S., he added.
No tax treaty covers health savings accounts or college 529 savings plans, which will be fully taxable in countries that tax worldwide income, he also noted. And some countries tax mutual funds and ETFs, so investors should work with an advisor who understands U.S. and foreign tax rules, Kuenzi suggested.
Investors also might consider terminating their state domicile so they can avoid state tax obligations there, he said. This is easier in some states than in others, he added.
