Expats face unique financial challenges living outside their home country. Americans & U.S. connected persons face even tougher challenges with regard to their investments – many financial institutions in their new local country no longer allow U.S. connected persons to hold investment products and increasing numbers of U.S. financial institutions are closing brokerage accounts for U.S. connected persons with overseas addresses. Additionally it is not possible for those living outside the United States to invest in U.S. mutual funds.!
The U.S. Foreign Account Tax Compliance Act (FATCA) has paved the path for subsequent and more global regimes, notably the Common Reporting Standard (CRS). Providing an investment solution to expats including an American or U.S. connected person was difficult in the past, not any longer thanks to new solutions on the market. The recent increase in renunciation of U.S. citizenship by wealthy citizens living abroad is likely a result of dual taxation and excessive U.S. expat taxes assessed on U.S. citizens’ worldwide income. Complex and changing tax reporting regulations limit the investment options for these underserved individuals.
In considering investment options American & US connected persons need not only to consider the investment returns and the quality of the investment manager but also factors such as the liquidity of the investment (from daily stocks to pensions where benefits may be taken until retirement), the standing of the country that regulates the investment, and the ability to correctly report for taxation purposes.
If you want to know more about solutions that are available for expats, including Americans & US connected persons, then please contact us and we will connect you with a cross-border financial adviser.
A successful stay abroad comes with lots of preparation. The longer the stay, the more the preparation. And If you are planning on putting down roots in Europe, make sure you understand the European financial system as it relates to the American version. America has tons of regulation that is different than anywhere else in the world. So, while having a US passport can have lots of benefit, there is a small price to pay when being associated with Uncle Sam (or it could be a large price).
This article isn’t to convince you not to stay in Europe but is rather a way for you to understand the varying regulations that come with having a foreign bank account as an American. That way you can completely own your stay abroad (at least from a financial perspective) and have a successful trip.
In this article, we’ll go over three key items to understand when opening and/or maintaining a bank account as an American expat.
Know FinCEN Form 114
Ah, FinCEN Form 114. It just rolls off the tongue…
Jokes aside, FinCEN Form 114 deals with foreign bank accounts that have more than $10,000 in aggregate at any time in the calendar year. If you own a bank account totalling this amount or more, then you will be required to submit this form. From 1970 to 2013, this form could be filed in paper form but starting after June 2013, this form is now submitted electronically. Known also as FBAR (Foreign Bank Account Report), FinCEN Form 114 can have hefty penalties for failure to comply. If failing to file is found to be willful, penalties can incur between the greater of $100,000 or 50% of the account balance. Non-willful penalties for failure to comply with FBAR are less but can still be a burden.
So, speak with your financial advisor today to ensure you are up to date with FBAR and your FinCEN reporting duty.
Navigate Double Taxation
Earlier, we mentioned Uncle Sam’s affiliation comes (most likely) with a price. Double taxation is that price. Unlike almost every other country, the United States taxes its citizens on foreign income even if that income is earned with foreign partners in a foreign country.
Financial literacy and a financial education go hand in hand. The truth is that understanding finances and how it affects you starts at an early age but must managed throughout time and especially as you get into an older age. While the actual understanding of financial information changes with age & time, the need for such understanding remains steadfast. Acquiring financial literacy at a young age can set a nice foundation for financial decisions going into the future and maintaining your financial literacy throughout age allows you to make your best decisions as you live out your future and into retirement. Throughout age, there are key core concepts that have to do with what it means to be financially literate and as an older adult, those key concepts build on each other into refined ones. This article goes over what those concepts are – for the youth and older adults – so no matter what the situation, you can learn a thing or two!
What to Teach Children
What it means to Earn Earning as a child can have an effect on their future. Inspire your children to earn by rewarding them for odd jobs around the house. If they go the extra mile, reward them proportionately! The goal is to make your kids eager to earn. As a child, CEO of Camping World and star of CNBC’s show, “The Profit”, used to manage lemonade stands. He’s been vocal that his experiences as a child introduced him to concepts that have made him successful in the future. Perhaps they’ll forgo asking for that lollipop at the checkout line!
What it means to Spend If you reward your child for jobs around the house, take money from their pay if they want to buy something. Have them understand that expenses have an effect on income. This way they’ll know what it means to give away their money.
What it means to Save Often, kids want an expensive item to play with. Let them know that in order to get it, they’ll have to save! By rewarding kids for their work, you’ll give them an idea of what it means to save and how long it will take to get things. They won’t take it for granted!
As an expatriate living in another country, you may have worked long and hard in the U.S. 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 U.S., 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 myaccount 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 U.S. 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.
Transferring your U.S. 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.
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.
Are you relocating?
As well as moving your property and family you will also need to transfer dollars into pounds or euros. Moving is complicated enough, without fluctuating exchange rates to worry about. Setting up an account with ease and getting the best exchange rate will have a big impact on your move so it is important to plan ahead.
There are numerous economic and political factors which could affect the value of your dollars (your spending power in your new country) but what is the best way to approach the transfer? Unless you are very lucky, leaving it to the last minute is not wise. Retail banks will facilitate the transfer but often they give little guidance on protecting against risk or maximising the value of your money.
A specialist currency broker should:
● Discuss your timeframe and your personal circumstances
● Provide market updates which affect your transaction
● Offer a personal service to tailor the best solution
● Give you a fair exchange rate when you buy or sell currency
● Offer a choice of telephone broking or access to an online payment platform
● Communicate clearly and transparently at every stage of the process.
US dollar example
This time last year the GBP/USD rate was trading around 1.40 which meant that USD 100,000 was worth £ 71,428. It is now trading around 1.28 which is much better giving you £78,125. That is a difference of almost 10%.
The GBP/USD exchange rate January 2018-2019
During the past 12 months the US dollar has had a trading range of 5% against the euro. On USD 100,000 that is a difference of EUR 4,557, equivalent to the cost of a decent holiday.
EUR/USD exchange rate January 2018-2019
We hope this has shown how straightforward it is to make cost effective foreign exchange transactions. We work with Cornhill International Payments who have a dedicated and friendly team of experts to remove the stress of moving your dollars to Europe. If you have currency exchange needs then you should:
- Register with Cornhill International Payments (free and without obligation).
- Discuss your situation with your own dedicated team member and make a plan.
- You can also subscribe to their daily market report at cornhillfx.com
To contact Ryan Nee at Cornhill International Payments
Call +44(0) 203 409 5371 or email firstname.lastname@example.org
Currency data supplied by Cornhill International Payments,, January 2019