We interview a CPA specializing in retiring expats
Tax Considerations for Those Retiring Outside the U.S.
by Gary Foreman
Does Home Ownership or Renting Make More Sense In Retirement?
Factors to Consider to Determine the Best Retirement Age for You
Baby Boomer's Financial Timeline
Would you consider retiring outside the United States? And, if you did, how would becoming a retired expat affect your taxes?
Many retirees looking for a lower cost of living, quieter lifestyle, better weather, or other advantage retire abroad. While becoming a retired expat can bring benefits, it also creates financial questions that must be addressed. To help us understand how taxes work for those who retire abroad, we contacted CPA Vincenzo Villamena.
Mr. Villamena works with Online Taxman, a boutique CPA focused on taxes for US expats, including retirees abroad. He's worked very closely with Live and Invest Overseas, which is a newsletter helping people looking to invest and retire abroad.
Q: Can you avoid state and federal income taxes simply by moving out of the country?
Mr. Villamena: Moving out of the country and domiciling yourself elsewhere would help avoid state tax and potentially some types of federal income tax. If you qualify for being outside the US for over 330 days in a 365-day period or you claim residency in another jurisdiction, then you would be eligible for the foreign earned income exclusion for the first $100k of earned income (salary, contractor payments, etc.). This would not apply to passive income like rental, dividends, interest, etc.
Q: If you moved out of the U.S. and all of your income came from outside the U.S., would you still owe U.S. income taxes?
Mr. Villamena: You would definitely need to file this income. However, tax might not be owed if you qualify for the foreign earned income exclusion for the first $100k in earning. Also, if you paid foreign tax on this income, then you would receive a credit for this amount, which might cover all US taxes owed depending on how high the tax rate is of the foreign country.
Q: What's the biggest tax problem that expatriates face? And, what's the best way to solve it?
Mr. Villamena: I think the reporting of foreign bank accounts, companies, trusts, etc. can complicate people's lives every year in trying to report them all. I think the important thing is keep things simple and not open foreign companies or bank accounts unless needed as they might need to be reported annually if certain thresholds are met.
Q: How can you determine if you'll be subject to taxes in the country that you're moving to?
Mr. Villamena: The general rule of thumb is if you live over 183 days in a place, then you are a fiscal resident and subject to local taxes. This always depends on which jurisdiction you are in as some countries only tax you on income from sources received inside the country (i.e. Hong Kong, Singapore, Panama).
Have you started preparing for retirement?
Our pre-retirement checklist will walk you through the steps you need to take.
Q: What happens if you want to live in the states, but move your money out of the country? Can you avoid taxes that way?
Mr. Villamena: No, many times people think that moving money outside of the U.S. is a tax strategy. However, it is more of an investment diversification and asset protection strategy. You would still be subject to the same amount of income tax but would have more reporting requirements by disclosing foreign bank accounts and companies.
Gary Foreman is a former financial planner and purchasing manager who founded The Dollar Stretcher.com website and newsletters in 1996. He's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money and CreditCards.com. Gary shares his philosophy of money here. You can follow Gary on Twitter or visit Gary Foreman on Google+. Gary is also available for audio, video or print interviews. For more info see his media page.
Take the Next Step:
- Determine if debt could derail your retirement and what you can do about it now. Our checklist can help you. Afterall, one of the most important ingredients for a comfortable retirement is to be debt free when you retire.
- Find information geared specifically for Baby Boomers in The Dollar Stretcher section dedicated to your financial issues. If you're over 50 your financial needs are different. And so are your questions.
- Subscribe to After 50 Finances. You've learned how to work smarter, not harder. This weekly newsletter is dedicated to people just like you. Subscribers get a FREE copy of our After 50 Finances Pre-Retirement Checklist, a list of everything you need to do to be ready for retirement.
Share your thoughts about this article with the editor.
Debt is preventing me from saving as much for retirement as I should be! Tell us: Yes, debt is hindering my ability to save for retirement and I could use help dealing with it! or No, debt is not a problem but I'd love to discover more ways to save as I head into retirement!
Baby Boomer Tools & Resources
- A tool to determine the best time to take Social Security benefits
- Get out of debt before you retire
- Get free answers to financial questions
- Get free answers to legal questions
- Retirement shortfall calculator
- Life expectancy calculator
- IRA required minimum distribution calculator
- More retirement planning calculators
Trending in Baby Boomers
- Investing retirement money that you may never need
- Financial tips when nearing retirement
- Why pay off your mortgage with a reverse mortgage loan?
- 3 ways retirees can tap into their home equity
- Financial advice for women in their 50s
- Including real estate in your retirement plan
- Frugal ways to beat the winter blahs
- This week's Readers' Tips