7 Financial Tips for Expats

The State Department estimates that there are about 9 million US citizens living abroad. Mexico, Canada, Germany, Philippines, Israel, and the UK are the top six countries where Americans live abroad. There are a wide range of reasons why Americans spend time away from the US, including: relationships, study, work, retirement, and just seeking an adventure and change.

There are several financial issues to consider to make your experience abroad successful.  Here are the seven most important.

1  Taxes

2  Underestimating the cost of living

3  Banking and money transfers

4  Investment products and small businesses

5  Health and life insurance

6  Investment accounts

7  Estate Planning

1 Tax filing

There are many aspects to taxes as an expat.  I will highlight some of them.

If you are a citizen or permanent resident of the United States, you are obligated to file US taxes with the US Federal Government each year, no matter the country in which you reside. As a US resident, you’re taxed on your worldwide income no matter where it’s
earned.

The Foreign Earned Income Exclusion reduces or eliminates double taxation on wage income earned abroad. In 2019, you’re
eligible to exclude up to $105,900 in foreign earned income in the 2019 tax year.

You need to file FinCEN form 114, also known as an FBAR (Foreign Bank Account Report), if you have more than US$10,000 in aggregate in foreign bank accounts at any time during the tax year. There is no cost for filing but there are steep penalties if you do not. If you have assets abroad worth over US$200,000, you need to file form 8938 declaring them.

Your tax situation will determine if you can contribute to tax advantaged accounts, such as: IRAs, Roth IRAs, 401ks, and 529 education accounts. Your taxes will determine if you get a benefit from charitable contributions.

Taxes are important if you have your own business registered in your host country. You will need to file in the host
country and that income needs to be declared on your US tax return.

Your Social Security benefit is Consider your US social security situation. While working abroad and earning tax exempt,
you will not be receiving qualified quarters towards your future social security benefit. Keep that in mind as a consideration.

Here is a list of countries that the US has a bilateral tax treaties:

Armenia, Australia, Austria, Azerbaijan, Bangladesh, Barbados, Belarus, Belgium, Bulgaria, Canada, China, Cyprus, Czech Republic,
Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Korea, Kyrgyzstan, Latvia, Lithuania, Luxembourg, Malta, Mexico, Moldova, Morocco, Netherlands, New Zealand, Norway, Pakistan, Philippines, Poland, Portugal, Romania, Russia, Slovak Republic, Slovenia, South Africa, Spain, Sri
Lanka, Sweden, Switzerland, Tajikistan, Thailand, Trinidad, Tunisia, Turkey, Turkmenistan, Ukraine, Union of Soviet Socialist Republics (USSR), United Kingdom, Uzbekistan, Venezuela

You can see our podcast for more details: https://aiofinancial.com/expat-tax-issues/

2 Underestimating the cost of living

Many expats arrive in their host country without having a good idea what the living costs are likely to be. There are many good
online resources, including: blogs, facebook groups for local expats and sites like expatistan.com that can give you some idea what to expect. The cost will vary from person to person but you can get a reasonable estimate, if you put in the time.

Another problem with living abroad is treating the experience like a long holiday and regularly overspending your budget. There will be many new things to see and experience to have, be careful to consider these expenses. If you are calculating your expenses based on living like a local, be sure that’s what you are doing.

Consider ‘lifestyle creep.’ This is the situation when your expenses increase over time and previous luxuries become standard expenses. This generally happens as income increases but it can outpace income. This is common when you are living for an extended period of time on a reduced budget.

3 Banking and Money Transfers

There may be a need to move money between the US and your host country. It is worth putting in time to evaluate options
and determining who has the best exchange rates and lowest fees. We have found that some banks will provide free transfers to particular banks at a reasonable exchange rate. Sometimes exchanging large amounts of cash is the best option. There are other than bank transfer options that may give better rates.

You will most likely want to do your banking in your host country.

Evaluate credit and debit cards for exchange rates and fees. We found that some debit cards will reimburse all bank fees
(domestic or foreign) making them helpful. In some cases, using US credit cards make more sense than using host country credit cards. You should close and consolidate cards and inform the credit card companies that you will be abroad.

You will want to retain an address in the US while you are gone. You can change your mailing address to that of a relative
or there are mailing services that you can use. This will make it easier to keep bank accounts open and not impact your credit rating. This will make it easier to incorporate back into the US, if you return.

4 Investment Products and Small Businesses

In areas with large expat populations there are often financial product salespeople. Some could be good investments, others
are very bad and may not be appropriate. These salespeople earn money based on sales, receiving commissions, so they may not have your best interest in mind.

Especially in developing countries there can be a strong temptation to invest in local small businesses to help locals and have a business of your own. I personally have done this several times, with varying amounts of success. I recommend going in very slowly, do your research and know that there are many more risks than starting up a business in the US. Don’t invest more than you are able to walk away from.

5 Health and Life Insurance

That majority of your US insurance will not cover you abroad. Most travel insurance will not cover you if your permanent residence is abroad.

You need to inform your insurer about your change in residence and make sure you have appropriate coverage for your needs. In many cases you will be better off with policies provided in your host country.

If you are 65 or older, you will most likely want to continue with medicare coverage in the US. If you return to the US without having had coverage, the new premiums may be much higher than you expect. It’s another consideration.

6 Investment Accounts

We recommend keep investment accounts in the US. Almost always US brokerage accounts have lower fees, more investment options, better liquidity, and favorable tax rates. Reporting and safety may also be concerns, depending on your host country.

Depending on your tax situation and needs, you will want to consider brokerage, retirement, or college savings accounts.

You will have exposure to your host country currency. Be sure that your investment accounts are balanced so that you are not over exposed to the risks of your host country.

Be aware of loads, fees, and commissions. If you are working with a commission or fee-based financial advisor or a broker, you typically pay a sales charge or commission when you buy and/or sell mutual funds.  The charge goes to the advisor for selling you the fund.

If you need help with managing your investments, we recommend using a fiduciary (fee-only) financial advisor. They are only compensated by their clients. They do not receive commissions or sell product. They are working for you and your best interests.

AIO Financial is a fee only (fiduciary) financial planning firm. At AIO Financial, we use Exchange Traded Funds and No Load institutional share Mutual Funds (which have the lowest expense).

For more information about investing, you can download our free investment ebook for more information: https://aiofinancial.com/investebook/

You are allowed to open a new account if you are residing in the following countries: Argentina, Belgium, Bermuda, Brazil, British
Virgin Islands, Cayman Islands, Chile, China, Columbia, Costa Rica, Ecuador, Germany, Guam, Guatemala, Hong Kong, Israel, Jersey, Malaysia, Mexico, Panama, Peru, Philippines, Puerto Rico, Qatar, Spain, Switzerland, Thailand, United Arab Emirates, United Kingdom, Uruguay, U.S. Virgin Islands, and Venezuela.

There are other countries (Canada included) that require setting up a trust in the US, in order to open accounts in the US.  There are many countries where you are allowed to keep your existing accounts if you are residing in these countries and others where you are not allowed to keep your US accounts if that is where your address and residence is located.

7 Estate planning

This is something that is easy to overlook for expats.  Estate Planning includes: a will, healthcare and financial powers of attorney, living will, having correct beneficiaries on your accounts and on your property.

Cross-border estate planning can be complicated (depending on your situation). The will that you set up in the US may not be valid in your new country. You may need to have estate planning documents in your host country.

Estate planning can become more complicated if you have families in the US and abroad.

Probate and inheritance may be treated differently in your host country. It is important to speak with a professional to ensure that, if you were to die, your assets are transferred according to your wishes and that family members are not unnecessarily disadvantaged because of not understanding cross-border inheritance laws.

Transcript of video:

in this episode I’m going to talk about
XPat Financial Planning issues this is
the all-in-one AIO
financial podcast with Bill holiday we
discuss financial planning issues
investing taxes state planning insurance
and retirement planning it’s brought to
you by AIO financial fee-only fiduciary
financial planning firm working with
clients all over the US at AI old
financial calm thank you for joining me
on this episode as you can tell we’re
making some changes and how we’re
structuring this the impact financial
planners podcast will be hosted at
impact financial planners calm and
that’ll be a separate channel this
channel we’re going to focus on a lot of
different financial planning issues not
just sustainable responsible impact
investing I’m moving that out to a
different podcast different blog so let
me get started with this talk about
expat issues for people that are living
outside of the US the State Department
estimates that there are 9 million u.s.
citizens living abroad the top six
countries were u.s. where Americans live
abroad are Mexico Canada Germany
Philippines Israel in the UK there’s a
lot of reasons why people live abroad
could be job relationships work
retirement study adventure divorce and
there’s a lot of there’s several
financial issues that can make your
experience abroad more successful and so
I’m gonna go over some of those issues I
have seven that I’d like to touch on
number one I’m going to talk about taxes
estimating under estimating your cost of
living well abroad banking and money
transfers investment products investing
in small businesses number four health
insurance and insurance in general but
health
primarily investment accounts with your
assets that are being invested and then
estate planning and these are some
pitfalls and opportunities but taxes
there’s a lot of different issues for
expats with taxes I’m going to just
touch on a few you have to file taxes if
you’re a citizen you got to file them in
your file on your your global income
there’s this foreign earned income
exclusion that in 2019 allows you to
exclude one hundred and five thousand
nine hundred so that you don’t get
double taxed on it so if you make under
105 thousand dollars overseas you’ll pay
your overseas taxes and then you’re done
you just get a credit on the US side you
won’t you won’t have to pay on that
money but you do have to declare all
that if you have an account with more
than ten thousand dollars in a foreign
bank you have to file this form 114 this
sbar foreign bank account report it’s
there’s no penalty there’s no tax on
doing it it’s just you have to do it and
if you don’t do it you get penalized and
ends pretty severe penalties if you have
more than two hundred thousand US
dollars in foreign accounts
you just have to declare it to no big
deal just declare it form what eight
nine thirty eight and just stay out of
trouble there your tax issue situation
will Drive tax advantage two counts like
your IRAs Roth IRAs 401ks education
accounts 529s depending on what you’re
taxed in the US or what Earned Income
you have in the US will determine if you
can do tax advantage savings on your in
in the US for your US accounts taxes are
important if you own a business
registered in another country you’ll
have to file in that host country and
again global income needs to be declared
in the US consider your social security
situation
if you’re not getting taxed and money in
the US that’s fine that’s fine it may
work out great but just be aware that if
you spend ten years abroad unlearning
under that exclusion and nothing’s
taxing us you’re not contributing
towards your Social Security so be aware
you you know Medicare you want to make
sure you get your 40 quarters and then
Social Security just know it’s gonna be
not as significant not a big deal but
just be aware there’s a bunch of
countries that list in our blog that
have a bilateral tax treaty
Maxo coach Canada or amongst them that’s
all I might touch about with taxes they
did a whole blog about this podcast
about this and I’ll put a link to that
but on the website under estimated cost
of living so you show up in a new
country you assume it’s cheaper maybe
it’s oom it’s more expensive you can get
a lot of information online blogs
Facebook groups for local expats there
are websites that give you an estimate
just a percentage for different spending
categories you can get a pretty good
estimate before you go but still there’s
gonna be unexpected expenses even with
all the research car insurance maybe
more maybe less but it could be
different health insurance visas and
registration paperwork for either having
a business or working they could if they
fall upon you those could be expenses
you’re not used to taxes shipping costs
if you’re gonna ship things you’re
hoping to take your car with you or some
of those costs may be more than expected
expected utilities maybe more maybe less
but they could be different some
countries you’re buying water drinking
water by the by the five gallon jug pads
could be an issue if you’re bringing
pads just a cost to consider but you
know research will help but just be
prepared for extra expenses unknown
things that are gonna happen getting
sick there could be
things you want to be aware of if you
treat your expat experience like a
vacation just be aware that’s pending of
course there’s gonna be cool new things
to see new experience to have just be
aware that that’s our budget for that be
careful with that don’t just go crazy if
you don’t have the budget for that you
know if you’re thinking I’m gonna live
like a local here’s the calculator oh
I’m gonna save 50% of my spending great
well then live like a little bit I mean
you can’t keep that in mind
there’s also lifestyle creep to be aware
of we all have it it’s usually that
means you know you’re you’re spending
more as your incomes going up previous
luxuries become just your standard
expenses you can do that a lot or I’ve
seen that a lot with expat communities
where you’re kind of missing certain
things and you might start off living
like a local or living in a certain
budget and that can move up on you not
unexpectedly but it can move up just
keep tabs on how that spending is going
all right as number two taxes then we
have under estimating cost of living
third one I want to hit on banking in
money transfers you’re gonna probably
want to set up a bank account in your
host country there’s probably not too
many situations where you wouldn’t want
to do that in any time you’re moving
money from the u.s. to another country
there’s gonna be a cost just be real
aware of that look at options you know
we just found some banks that have just
a low fixed fee for transfers exchange
rates are reasonable you generally want
to do large chunks all at once hit their
maximum each time you do a transfer
maybe monthly transfers don’t do little
transfers that the fees will add up to
be a significant percentage but also be
aware of that exchange rate so it might
be a real low or even free B or
transaction cost but the exchange rate
is terrible and that’s how they’re
making their money they’re not doing it
for free there’s there’s gonna be some
reason but even then there are banks if
you find a bank in the UI
they may only transfer at a discount to
certain banks in your host country so
you know research that so when you’re
setting up an account it accepts or you
have a good connection with the US bank
credit cards debit cards if you’re using
US credit cards debit cards look at
those fees transactions we have found
some places who will have free or
they’ll reimburse Bank expenses on debit
cards I mean if you’re living there you
print out using a u.s. debt but you may
need to and there are banks or
institutions brokerage accounts where
you can get your bank expenses that five
dollars ten dollars reimbursed directly
if you’re using it that’s nice again
exchange rates you want to be aware of
any other fees with credit cards
especially consolidate your cards you
don’t need 30 US cards if you’re living
abroad for extended period of time
you’ll want to retain a u.s. address
while you’re gone and you can change
your mailing address to a relative close
friends someone who can keep that a bill
that’ll allow you to keep bank accounts
open won’t impact your credit rating and
it makes it easier to incorporate when
if you return and you may not but if you
do it makes that a little easier that
transaction transition okay
it’s banking investment products small
businesses so in many areas with large
expat populations they’ll be financial
products salespeople in they’re not I
mean they’re probably nice people but
they’re getting a commission they want
to sell products may not be appropriate
for you they’re not appropriate for
everyone they some of them might be good
some of them are not good and some of
them just might not be appropriate just
be aware how people are getting
compensated be careful with that there’s
also a temptation and I’ve done this to
invest in local businesses start up
local businesses just be careful I mean
you want to help the people they
tell you there’s great ideas do your
research be involved don’t turn
everything over to other people you’ve
got to be involved and keep track of
what’s going on and do small amounts you
can always add more if things go well
but be able don’t invest more than you
can walk away from there’s lots of risks
there’s regulation risk there’s currency
risk there’s government and there’s a
lot of issues with small businesses just
be careful I guess that would be my word
of advice it depends on the country I
mean there’s a lot of starting in a
little rental in a developed country may
not be a big deal but there are in
emerging countries especially is what
I’m particularly particularly concerned
with health insurance a majority of your
US insurances will not cover you abroad
you know travel insurance won’t cover
you if you’re gonna be a permanent
resident somewhere be informed and form
your insurance companies that you’re
gonna be abroad for a while or forever
make sure you have a policy that’s gonna
work and you may be getting a policy in
your host country so you know that that
may make a lot more sense than
continuing a u.s. policy depending on
your situation
depending on your country you’re going
to you may want some evacuation policy
maybe that’s not an issue but look into
that think about it get the cost even if
you think it might be really cheap in
the in the country are going to look
into it maybe get a policy or
investigate what’s available before you
have an incident and figure it out the
hard way you definitely want to
investigate that whatever country you’re
going to even if the locals don’t use
any policies they just use the system
that’s available you want to make sure
you’re covered for your comfort level
and that ties in with the spending plan
you want to have that in considered if
you’re 65 or older on Medicare you’re
probably going to continue your Medicare
in the u.s. even if
think you won’t return to the US it may
make financial sense to continue that if
you stop paying into Medicare not having
your prescription your your Part D if
you’re not paying into that then
incrementally grows and so when you get
back and start paying into the system
you’re paying a lot more it’s a pretty
steep penalty for for not continuing the
policies so you’re probably continuing
that of course there’s different ways to
do it to make it cheaper but you
probably want to continue in some way
number six investment accounts so keep
up generally you want to keep your
investment accounts in the United States
they have the brokerage accounts have
low fees generally lower than you’re
gonna find in other countries there’s
more investment options better liquidity
favorable tax rates depending on where
your host country is reporting and
safety may also be concerns depending on
your tax situation you’re gonna wanna
have I mean the same as if you’re not
Mexican if you’re just in the US you’re
gonna want to consider if you want a
taxable brokerage account if you want a
retirement account college savings
account you know they all different
benefits drawbacks and advantages
exposure to host country currency if
your job is there if your bank accounts
there you just wanna make sure your your
investment accounts are weighted to
consider that so you’re not getting
overexposed you’re you’re getting global
exposure and not over weighting some
country to avoid risk be very aware of
fees as with non expats if you’re just
opening accounts just be aware in the
u.s. be aware of loath fees commissions
if you’re working with a commission or
feed based advisor or broker you know
typically you’re paying a sales charge
or Commission every time you buy or sell
mutual funds or they’re selling them
with big 12 B 1 you know fees that
they’re getting for selling you funds
just check we recommend using fee only
fiduciary financial planners you can
work with them on an hourly basis or an
assets under management basis they’re
unbiased they’re work
for you they’re not compensated by
commissions loathe selling it products
getting you into annuities or things
that might not be appropriate naphtha is
a good directory of fee-only advisors
I do have an e-book about investing look
you can look into that I also put on the
on the blog post a list of places
countries where you can open accounts in
the US and live and have residency in
another place so if you’re in Mexico
it’s no problem
you can open us accounts no big deal in
Canada it’s actually a little a little
trickier you can do it but you have to
do it through a trust so it may not make
sense Canada you may want to be
investing in a Canadian brokerage
account there’s a bunch of issues there
I guess there’s a bunch of countries
where you can a lot of Latin America the
list is there okay seventh issue estate
planning so this is something that is
easy to overlook it’s easy to overlook
if you’re not next fat but it expats to
give your estate plan documents which
means a will what happens if you die
health care power of attorney financial
power of attorney which are while you’re
alive you just want someone to handle
your finances or health care decisions
living well what are your end-of-life
desires
how long do you want stay plugged in
this stuff
thank you sure you have correct
beneficiaries on accounts and I’m your
property so there’s cross-border estate
planning it can be complicated depending
on your situation you know if you have
families on both in two different
countries and different beneficiaries
and get a little tricky
dividing assets but if you stay on top
of it it’s not it’s it’s not that bad so
you’re you’re probably gonna need estate
planning documents in your host country
again depending on your situation how
long are you gonna be there are you
moving around but you’re probably gonna
need documents in your host country how
much where your assets you could have if
all your assets are in the US with
beneficiaries then your will and your
beneficiary you know the desert
nation for your assets maybe cupboard
but you may be in the situation where
you need guardians for miners if you
have end-of-life or powers of attorney
you’d get that taken care of in your
host country probate inheritance could
be treated differently in your host
country you really do want to speak with
a professional to ensure that if
something were to happen if you were to
die for spouse were to die that your
wishes are met and your family members
or charities or whoever the
beneficiaries are are not unnecessarily
burdened with taxes or hassles you know
delays all right those are my seven top
issues to address I had a couple of the
comments I wanted to add when you’re
reporting the capital gains from buys
and sells you have to do that in the
currency I mean it depends on the trade
relation but if you’re you have an
account in the u.s. you’re keeping track
of your purchases and then you sell
there’s a capital gains but you have to
go back and forth at foreign taxes for
the taxes in your host country you have
to go back and look at what was the
purchase value in that currency and then
what was the sales value in that
currency to calculate what’s the capital
gains in that foreign currency to report
one example I came across was Germany
has high taxes so you’re probably you
can’t make it’s not going to be
beneficial to make an IRA contribution
they have high taxes so you’re gonna pay
those German taxes and you’re gonna get
deductions for or exempt from the u.s.
Texas in depending on the earnings this
is not in every case but as an example
in Hong Kong the taxes are lower so
you’re gonna pay
those those foreign taxes in Hong Kong
but then you’re gonna not have us beget
not US tax paper because payer because
you get the deduction off the US taxes
but it’s a higher tax rate in the u.s.
you’re still paying a US tax so making
an IRA contribution does make sense if
you’re living in a low tax country and
you’re paying US taxes I mean depending
on your situation yeah the currency and
then there can be a mix the local and US
tax estate planning you know you just
have to look especially with
international families if you’re gearing
it towards the u.s. or the non US taxes
they’re not always going to be the same
what the tax situation is for a
narrative 529s again if you get a tax
advantage of it because your host
country has a lower tax it does also
depend on what your long-term goals are
are you gonna be where you’re gonna be
for your kids education or whoever the
beneficiary is who their education is
all right those were just a couple of
the comments I wanted to add thank you
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