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3 Ways To Manage Your Savings Account as a US Based Expat Living Abroad

Categories: Finance

As an expatriate living in another country, you may have worked long and hard in the US before beginning a journey overseas.  If this is the case, you most likely accrued retirement savings in a 401k or Roth IRA. These savings programs are monumental in the US, with a large majority of Americans choosing to opt in to these programs to best prepare for their golden years.  However, moving abroad can put your retirement in a sticky situation– is it worth it to withdraw? What should I do with my account now that I am overseas? When do I access it? In this article we’ll go over some options for expats who have a US based retirement plan to give you an idea of how it may play out.

When it comes down to handling a US based retirement plan while living abroad, most individuals choose to avoid tax penalties which may unnecessarily reduce your savings.   With this in mind, let’s take a look at the three options you can choose while handling your US based savings account abroad.

1. Transferring Your US Based Savings Account to a Foreign One

This would be the most ideal situation.  By transferring your account to a country which you are residing, it may be easier to deal with tax issues and all the sorts of restrictions that come with a retirement account.   However, this process is not easy. US income tax regulations often prohibit the transfer of retirement accounts to foreign based entities. Transferring between plans within the US can be easy– for example, from a 401k to a Roth IRA.   However, going from US to non-US is not easy. Although transferring a 401k type plan from US to non-US is rare, there are some specially structured corporate pension plans which may be able to.  Check with your financial advisor if you believe your plan may fall into this category.

2.  Removing the Money from Your Retirement Plan

If you are transferring residence from the US to another country, it may make sense to remove some or all of the money in the account. However, with this option, there will be a hit on the plan’s bottom line.  Withdrawing funds from your retirement plan may result in loss of your tax-deferral benefits– a huge loss. In addition to that, you may receive a 10% penalty for early withdrawal if you have not met the 59 ½ year age requirement.  401ks and Traditional IRAs could take the biggest hits to their bottom line because early withdrawal of these plans leads to taxes due on amounts that have been contributed pre-tax to the plan. Roth IRAs and Roth 401ks, however, may not see as much of a hit to the bottom line because they are funded with after-tax dollars– therefore there is no loss of tax deferred benefits.

3.  Leave Your Money Alone

A third option is to simply not touch your account until you need or want a disbursement from your savings.  Additionally, if you have not yet reached the minimum non-withdrawal penalty age, then you may wait in your country abroad until you do so and make disbursements then.  However, this may not be as easy as it sounds. Some investment firms may no longer want to deal with you now that you are in another country and they may ask you to close your account completely.  If not this then they may choose to cease managing your investments– effectively freezing your account. A way to bypass this would be to speak with your investment firm before moving abroad. If it no longer would be a great fit then look into transferring your account to another financial institution.  There are a few great firms out there that specialize in this. Another risk to consider when leaving your money untouched is the currency risk. By having your account in USD, you may be susceptible to currency fluctuations that decrease the value of your account. Speak with your financial advisor about how leaving your money alone could positively or negatively affect your bottom line, given the circumstances.

One thing that may help your bottom line, though, when it comes to managing US based accounts are the tax treaties enabled between your two countries– the US and your new one.  The US has tax treaties with many countries around the world and in some cases, these may have an effect on a variety of retirement plans you may be involved in. While the US has many tax treaties with countries around the world, there are some countries where the US does not– and the scope of these treaties changes on a case-by-base basis.  Its best to speak with your financial advisor about how these treaties affect your tax status and if they interplay with retirement rules.

Get in touch with Beacon Financial Education to see what their team and the independent financial advisors from the Beacon Preferred Partner Network can do for you. They are happy to inform you about 401k rollovers during a free consultation.

 Beacon Financial Education does not provide financial, tax or legal advice. None of the information on this site should be considered financial, tax or legal advice. You should consult your financial, tax or legal advisers for information concerning your own specific tax/legal situation.