If you are a U.S. citizen living overseas, your Social Security, foreign bank account, and investment accounts may cause you the following challenges:
Social Security challenges
If you retire overseas and receive a foreign pension and then apply for Social Security, this can adversely affect your eligibility to receive your full benefit. Because of the “Windfall Elimination Provision” your Social Security will likely be cut, perhaps even reducing it by half.
Foreign bank account challenges
If you have over $10,000 in aggregate at any point during the year in your overseas bank account, you have to inform the U.S. tax authorities by filling out an FBAR form, or Foreign Bank Account Report. If you don’t, you could face severe penalties. There is a civil penalty of $10,000 for each non-willful violation and $100,000, or 50% of the amount in the bank account, for each willful violation. (Make sure to speak to your accountant, since this article is not meant to be tax advice.)
Investment account challenges
If you live overseas, you don’t have to give up on your U.S. brokerage account. Although some U.S. brokerage companies will not want to work with you if you have an overseas account, there are many others who will happily take you on as a client. By continuing to have a U.S. brokerage account, you can still benefit from diversification in different asset classes and enjoy a wide range of financial reporting services. And, since your assets are held in the United States, you do not have to report them on an FBAR form.
Similarly, you may have problems with your U.S. mutual funds, which may not want to deal with you if you have an overseas address. If you like mutual funds and get offshore mutual funds, you will still run into problems because of a variety of regulations, and your accountant will probably discourage you from buying into these “PFICs” (Passive Foreign Investment Companies). The solution is to find an advisor who can match you with mutual funds that accept U.S. citizens living overseas. Cross-border advisors can also help you with ETFs (exchange funded trades), and other options.
If you would like to learn much more about this topic, please see my free webinar at www.profile-financial.com/multicurrency
Douglas Goldstein, CFP®, is an investment advisor and author of Rich As A King: How the Wisdom of Chess Can Make You a Grandmaster of Investing.
Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.
Published September 17, 2014.