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The Do’s and Don’ts of Expatriate Pensions

Categories: Finance

Pensions come in many shapes and sizes. Whether it’s an employment based pension or social pensions, you will see many variations. Understanding and qualifying for your specific pension program as a domestic citizen can be difficult enough. Adding in foreign circumstances further complicates your status. There are a few things you want to keep in mind when it comes to your pension as an expatriate. Beacon Financial Education gives you a summary of what to take into account.

Do: Read up on Totalization Agreements

As an expat, the following situation may sound familiar: You’ve split time working in multiple countries. Each country has a minimum requirement of quarters worked in order to qualify for social security (in the U.S., it’s 40 quarters). Perhaps you’ve put 30 quarters, for example, in the U.S. and 10 quarters in another country. In this situation, you might not qualify for social security in either country, even though you’ve contributed 40 quarters in total! Enter totalization agreements.

Do: Track your Quarters

Totalization agreements account for employees split in two government programs. In this situation, the employee would get 75% social security benefits from the U.S. (30 quarters / 40 quarters required) assuming the other country has a U.S. totalization agreement. At this time, the U.S. has totalization agreements with 26 countries. Speak with your financial advisor to see if totalization agreements grant you benefits.

Do: Understand your Country’s tax system

Different countries have different tax systems. Some countries only tax local income, while others (including the U.S.) tax their residents and nonresidents local and foreign income. If you receive a pension from a foreign company, you will want to grasp how your country’s system will affect it. A citizen from the U.S. getting a pension from a foreign company abroad, for example, will be taxed by the U.S. on it and possibly from the foreign country in which they earned the pension from. Each system is tricky and depends on the rules of both your home country and foreign country. Being aware of these rules can give you an idea of what income you will get from your pension plan.

Don’t: Overlook Tax Credits

Foreign pensions can be intricate. An expatriate can have company pensions or government pensions and they can be in multiple countries. Given that there can be so many moving parts in foreign and expatriate pensions, there are also ways in which you can boost your total pension. One thing to look into is tax credits. Like mentioned earlier, you could be double taxed if you receive a foreign pension and live in a country which taxes foreign incomes. Check with your financial advisor to see if any apply. Additionally, it may make sense to move your pension to a new currency so that you aren’t penalized on exchange rates.

Do: Speak with your Financial Advisor

Expatriate pensions are not simple. They are subject to rules, regulations, and other details. It’s important to run your pension plan by your financial advisor so you can fully optimize your payout.

Visit Beacon Global Group and Beacon Financial Education to find out if their expertise can benefit you.

Beacon Global Group and Beacon Financial Education do not provide tax or legal advice. None of the information on this site should be considered tax or legal advice. You should consult your tax or legal advisors for information concerning your own specific tax/legal situation.