Another summer transfer season is here. I’m happy to report that after moving from one country to another every summer since 2015, this year we are staying put.
This summer instead of updating my moving overseas checklist (from the US perspective), I am presenting a new Resident Country Exit Planning Checklist for those who are leaving your current overseas home for good, either to the next country or repatriate back to the US.
If you have not intentionally keep your financial home base in the US, or have lived in your current country for a long time, it’s likely starting anew financially somewhere else is as complicated as when you left the US for the first time. Hopefully this checklist will help you think through all the steps you should take before you embark on another new chapter in your life.
Two questions to ask first
Before we dive into the details and start organizing, you need to ask yourself two questions: are you keeping any immigration status with your current country, and are you keeping any financial ties? The answers to these questions will help determine what additional tasks to focus on.
Keeping immigration status
It’s possible that you’ve stayed in your current country long enough to obtain permanent residency or even citizenship. Do you intend to keep the status alive after your move? If so, you need to find out whether there is any financial obligation associated with keeping your residency status. Some countries may require you to keep a certain amount of cash in the bank, or maintain a real estate property. Make sure you understand the implications and how that may affect your financial plan going forward.
Keeping financial ties
Even if your immigration status expires with your current country, you may in some cases need to keep some financial ties in the country. For example, if your spouse is a citizen of the country, or if you have accumulated substantial pension benefits that you cannot take with you immediately. This requires you to map out a game plan in advance. How do you access the assets or income in this country should you never return to become a resident again?
Balancing flexibility and complexity
If you answer yes to the two questions above, your financial life is sure to be more complex in the future. You may have good reason to take on the challenge. Just be prepared that you may need to put in substantial time and engage financial professionals in several different fields to manage financial ties across multiple jurisdictions.
Resident Country Exit Planning Checklist
Please be aware that the checklist below is just a starting point to help you get organized. Depending on your unique situation, you may need to dig deeper on what steps to take.
Banking
If nothing else, it’s likely your financial tie with the current country involves a bank account. If you wish to close it, it’s generally the easiest to do it while you are in country. (I’ve tried to close accounts from overseas by phone, and it’s not fun.) It might make your last week in the country less convenient, but try to put it in your schedule.
If you are still waiting for your last paycheck to come in after you leave the country, at least double check with your bank to understand the proper procedure to close it without being present. You may wish to set your account up for international transfer, either through a standing wire transfer order with your bank or through a 3rd party like Transferwise before you leave the country.
What’s so bad about leaving an account with zero balance open? For one, you may incur account charges and technically owe the bank going forward. Even if there is no balance, in the future should you ever need to file for FBAR again, you need to continue to report this account with no balance.
Of course, if you wish or need to keep the account open with a balance, make sure you continue to have access to it through online banking and report the accounts properly for FBAR and FATCA reporting.
Credit
If you are moving to a new country for a while, you may find that you have to accumulate a credit history all over again. Therefore, make sure you have some interim measures, such as a bigger cash cushion to afford purchases without credit.
Real Estate Property
If you keep an income-producing real estate, it’s likely you will continue to keep an active bank account, file taxes, make international money transfers, and have needs for local legal protection of property rights and estate planning. Even without immigration status, you will have financial planning needs in many different aspects in your current country.
Investment Accounts
If you have a taxable investment account in your current country, take this chance to determine whether it makes sense to maintain it. It’s likely you’ve encountered some US tax and compliance headaches because of it.
Furthermore, if you have a professionally-managed account, you may be refused as a customer once you lose your residency in country. This might force you to incur a taxable event prematurely, so make sure you understand the implication first.
Nevertheless, there may be good reasons for you to keep it as is, such as large built-in capital gain, or potential to return to the country. Just make sure you understand the reporting and tax implications for the US, current country, and your future resident country.
Pension or Retirement Fund
If you have accumulated some retirement fund or pension, it’s likely another financial tie that you need to maintain. Generally in tax treaties, the US recognizes the deferred tax benefit of such schemes before you actually begin taking an income from it. However, double check to make sure how that may play out, especially if you plan to retire in a third country.
In addition, while the US may not tax you before distribution starts, there is no way for you to move the accounts to the US without some tax consequences. Since 401(k)s and IRAs are unique tax-advantaged vehicles, any funds that are not already in these accounts cannot be transferred in. This is why it’s likely your foreign pension or retirement fund needs to stay where it is.
Nevertheless, depending on the tax treaties and the type of pension, the retirement income may have different tax rates, or even impact your US social security income. These are the things you need to be aware of before receiving the retirement income.
In some cases, you might be required to take the retirement fund with you as you exit the country. Make sure you understand the tax treatment of such a large withdrawal. If you move the fund back to the US, it may be treated as taxable, if it hasn’t been taxed in the past or specifically excluded in tax treaty.
Tax Filing
Outside of the tax planning items mentioned above, also remember to file your last and exit tax return properly with your current country. Otherwise, you may be considered a tax resident going forward. Given the timing issue, you may want to look for professional help to close out the returns for you after you leave the country.
If your move involves returning to the US for an extended period of time, you may find that the last year you are eligible for Foreign Tax Credit or Foreign Earned Income Exclusion a good time to incur other taxable events, such as selling stocks with capital gains or Roth conversion. Make sure your US and local tax preparer are coordinated so you pay the least amount of taxes globally.
Insurance
Depending on your situation, you may find that your insurance coverage is not affected, or becomes non-existent.
If you are on international health, life, and/or disability insurance that covers you all over the world, make sure you still double check if your new destination is an excluded country in any way.
On the other hand, if you had been relying on your current country’s domestic coverage, then make sure you are temporarily covered before you regain coverage in the new country. For example, if you are visiting family in the US, make sure you obtain adequate short-term health insurance – in case you’ve forgotten how expensive paying medical costs out of pocket can be in the US. (Also, before January 2019, you are still required to be covered at all times per ACA to avoid a tax penalty.)
Estate Planning
If you will continue to have financial ties with your current country, make sure you understand how your income or asset can be passed on to heirs. You may need to leave legal directions with the financial institutions or government agencies depending on the country.
Sounds too complicated to keep everything straight? Find out how to get individual help to deal with your unique situation.
I'm Hui-chin Chen, a globetrotter & certified financial planner helping you manage your finances from afar and on the go.