Considerations for US Expats

This week’s blog is not aimed at people looking to travel and work abroad for a few months. Rather this is for those who are packing up, selling everything, and moving abroad. I recently sold my homes in America, got rid of the car, packed, sold, donated, gifted, or trashed everything that was left over and purchased a place on the beach in Portugal. The freedom is indescribable. I no longer walk into shopping malls in Jacksonville, Florida and wonder if some nutjob is going to open fire in another American mass shooting. I go to the pharmacy and pick up prescriptions for a few euros instead of a few hundred dollars. My insurance premiums are 20% of what they were in America, and I don’t have to open my wallet to go to the doctor. My property taxes are less than 10% of what they were back home. All this, and I don’t pay taxes for the first ten years that I’m living here. Like all good things, it’s not all sunshine and puppy dogs. There are some real consequences to no longer having ties to the States. This week, I’m going to outline some of the challenges that I’ve run into living full-time in Europe, as well as debunking some myths that some may have about moving abroad. 

Mutual Funds and ETFs

This is huge. I currently keep my accounts with Schwab. I have a regular brokerage, as well as two tax advantaged accounts. I hold a mix of individual stocks, mutual funds, and ETFs. I enjoy picking stocks and have been really high on dividend stocks as a way to build a steady stream of income. Thereby making working less a reality. However, stock picking is a lot of work. On the other hand, mutual funds are professionally managed and allow you to purchase a mix of stocks that mirror a particular index or segment of the market. If there was a major correction- which many believe is coming, it might be wise to put money into a fund that mimics the market. Examples include VTSAX or SWTSX. However, if you move abroad, mutual funds may be off limits to you. When I changed my address to an international address, I was no longer allowed to invest in mutual funds. Further, because I had an EU address, ETFs were also off limits to me. I was told that I could keep the mutual funds that I have and reinvest any dividends. I could also keep my ETFs. However, I could NOT reinvest the dividends paid by the ETFs. I had to take the cash. My last ETF dividend payment was successfully reinvested, so that leaves some questions. However, before moving abroad, be aware that these financial instruments may be off limits to you. 

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Alternatives

Check into financial instruments available in your new country of residence. I-shares has products that mimic the DOW. 

FEIE & IRAs

One of the great benefits to being outside the US is the potential to take advantage of the Foreign Earned Income Exclusion. While this doesn’t apply to investment income, it may allow you to exclude roughly the first $100k of your earnings abroad. The unfortunate downside to this is that the income you exclude is not eligible to contribute to a traditional or Roth IRA. The funds in these accounts are tax advantaged and grow tax free. Unfortunately, without taxable earned income, you can’t contribute.

Alternative

If you are self-employed, consider a SEP or SIMPLE IRA. A SEP lets you contribute 25% of your income, up to $56,000. A SIMPLE IRA lets you contribute the first $13,500 in earnings to your IRA. Just remember- no index funds or ETFs. 

State Business License / Incorporation

I’ve written before about the advantages of incorporation. However, you do not incorporate at the federal level, but rather at the state level. This requires you to have an address for your business. If you’ve sold your home in America, you no longer have an address to complete your registration paperwork. 

Alternative

There are literally tons of registered agents out there. I’ve used both Harbor Compliance ($99/yr) and Georgia Registered Agent LLC ($49). If you use a CPA or EA to prepare your taxes, they may allow you to use their address as a professional courtesy for using their services. 

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Credit Cards

Keeping your current credit cards shouldn’t be an issue. I was able to change the address for all of my credit cards without any problems. However, applying for a new card may present challenges. I hold an American Express gold card which carries a $250 annual fee. In my opinion, Amex is one of the best companies. I’ve always found their service to be outstanding. However, being outside the US, I use my card less frequently. I would love to cancel my card, save the fee, and switch to a no annual fee card. Unfortunately, without a US-based address, they won’t accept your application.

Alternatives

Check and see if you are able to apply with the address of a friend or relative and then switch the address to either your international address or one of the mailbox services listed below. 

Phone Certification

This should not be an issue, but it has been for me, so it merits a mention. I do my banking in America with two separate banks. One of my banks has made my transition seamless. The other… less so. It’s hard to believe in today’s global society, but many huge banks have software that won’t accept phone numbers that don’t conform to the standard US format. That is, a three-digit area code, three-digit exchange, followed by four additional numbers. I’ve been locked out of one of my banks online banking platform for seven months as a result. 

Alternative

Google-Fi has been a successful and cost-effective alternative for many expats. Also, see if a Skype phone number may work for you. I have never tried this, but some expats claim that it is viable option.

Why not just...

Use someone else’s address? Yeah, you can do that. If you have family who are living in the states and you still consider their home your permanent address, this may be an option for you. If you have a friend who is willing to allow them to use your address, you may choose to use this address. Be aware- this may incur legal consequences. In reality, it probably won’t, but you never know. For me, it wasn’t worth the risk- for me or my friends.

 

There are mailbox services that allow you to keep a permanent address in the states. Check out Traveling Mailbox or Virtual Post Mail. Bear in mind that these may present complications where taxes and legal issues are concerned. It’s always best to forthcoming about your situation. 

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Myths

I’m going to lose my Social Security Benefits!

Check and ensure that the country you are relocating to can receive benefit payments. I have friends who receive them here in Portugal, as well as in parts of South America and Asia.

There’s no more Medicare for me!

Again, check on this, but as long as you keep making the payments (deductions), you should be fine. My mother elected to keep her Medicare, despite the premiums. I knew an expat retiree living in Thailand who elected to go to the states for a surgery because his Medicare coverage made it more affordable.

I never have to pay US taxes again!

 

Sorry! Until America embraces some commonsense tax legislation, we are still subject to income tax on our worldwide income. The United States is alone with one other nation- Eritrea in Eastern Africa, as the only two countries in the world that enforce citizenship-based taxation. See if the FEIE can apply to you. 

Final Thoughts

Living abroad is awesome. The potential for a second (or even third) passport is really enticing and carries some tremendous benefits. These are some of the things that I wish I was aware of before I left the US permanently. Take the appropriate action to ensure all your interests are satisfied before you head abroad. Happy travels!

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