Whether you are an American becoming an expat, or a long-term US resident heading to another country, you probably have asked the following questions:

• What should I do with my US investment accounts when I move overseas?
• Am I allowed to keep my accounts open?
• Can I still access the accounts from overseas?
• Should I take my investments with me to the new country?

I have answered these questions over the years in different shape or form for individual investors and financial advisors alike. With the help of my study group, I am going to summarize below some of the best practices and pitfalls you should watch out for.

Of course, what you should do depends on your personal circumstances. Everyone has a different background and reason for moving overseas. In my opinion, the most important two factors to consider before you make any decision are the following:

1. Are you a US citizen or Permanent Resident (Green Card holder) who intends to keep your immigration status after you move overseas?
2. Why are you moving (how long are you staying overseas)?

Once you answer these two questions, you may locate the group that you are in and the steps you should go through to consider the future of your US investment accounts. My plan was to cover all the possible groups that may ask this question. If you find that your circumstances don’t fit in any one of the groups, let me know and I will try to address it.

Please also note that in this article I focus attention on the investment account implications only. You will likely have similar questions about your real estate, insurance, social security, tax liability, etc. in the US once you move. I will try to address these in a series of posts.

So here we go.

A. US Citizen or Permanent Resident who wishes to maintain status while living overseas

1) On US Government Assignment

Whatever US Department you work for, you should know whether you are in this group. If you work for the US government at a location overseas, the IRS considers you to be a US resident, and your income is fully taxable as if you still live in the US.

Since you will enjoy pay in US dollars, have full access to US retirement systems, and maintain US residency, it’s likely that keeping your investment accounts as they are before you leave the US is the way to go.

Nevertheless, many financial institutions do not know the difference between your situation and someone in the later groups. They are required to adhere to more stringent reporting and “know your client” regimens for all their clients residing overseas, so many simply reject serving clients with a foreign address, or those they know to be residents of other countries. Therefore, the best thing to do if you are in this group is to substantiate your claim as a US resident as much as possible.

Best Practice:

• Maintain your accounts as if you still live in the US. Try not to volunteer our physical location.
• Obtain online or at least phone access to your accounts before your move.
• Use a secure Internet connection and preferably US IP address to access accounts (through VPN or an official government network.)
• Show that you are a US resident by:
  • Using one single US residential address on all of your accounts.
  • Filing your state taxes every year (if applicable).
  • Keeping current your in-state driver’s license and voter registration that match the residential address.

Be Aware:

You are liable for state taxes, so you may wish to establish residency in a state with low or no personal income tax.

For those who don’t have natural ties, such as family or real estate property, in certain states, you may have thought about purchasing a mailbox from a private provider that masks as a residential address. While some have had success using this method, it appears to be something on the radar of financial institutions. Many reject people with known mailbox addresses, not allowing them to open new accounts. It is possible that this policy may be extended to existing accounts as well. So, be aware.

2) Maintaining two residences

If you are splitting your time between the US and some other country, and stay at least six months out of the year in your US residence, it’s safe to claim that you are maintaining your US residency. You should be able to invest in your accounts as if you live full-time in the US.

Note that if you are a Green Card holder, you generally need to return to the country within six months to show your intention to continue your US residency anyway.

However, if you begin to regularly spend more time in another country than in the US, your custodian may decide they will consider you a foreign resident. If so, see Group A3 for more directions.

Best Practice:

• Maintain your accounts as if you still live in the US. (Follow directions in Group A1)
• If you spend a lot of time overseas, you may want to have some investments hedged in the foreign currency for your spending needs.

Be Aware:

Depending on the law of the other country you live in and the tax treaty between the US and said country, your investment income or capital gain may be taxable in that country if you are considered a resident. Do your research before you may cross the threshold from a visitor to a resident.

You may also wish to open financial accounts in the other country if you spend enough time there. Be aware of the foreign asset reporting rules such as FBAR, Form 8938, and PFIC before you move funds and invest overseas.

3) Short-term: with known end date

Many people go overseas for the first time under this category. You may be taking a gap year to travel the world, doing short-term missionary work, working under a definite contract overseas, or even volunteering. You may have a specific reason to be overseas for longer than a few months, but you do not expect to become a resident of any foreign country.

Unfortunately this group falls into the gray area. On the one hand, you are abandoning your US residence to start living abroad full-time. On the other, you already know it’s short-term and the assignment ends in a year or two. So should you just operate like you are still living in the US?

I’d say it is a judgment call depending on your unique circumstance. If you maintain a home in the US, do not establish residence in any one country, and know you will not be away for more than 2-3 years, then perhaps you can make the case that you intend to continue US residency and maintain your investment accounts that way. In this case, follow the directions in Group A1, but know that you are running a risk of your custodian finding out you are overseas and closing your accounts.

On the flip side, if you move overseas on a contract without an end date, and may potentially stay for the long-term, you may want to plan in advance accordingly. If so, see directions in Group A4.

Best Practice:

Depends on your unique circumstance. Use your judgment.

Be Aware:

The financial institution may not agree with your interpretation of whether you are a foreign resident.

4) Long-term: no estimated return date

You may be a dual citizen, have found a career abroad, are retiring overseas, or just feel the need to find a new home abroad. If you know for sure you are going to become a “foreign resident”, you can take the following steps to figure out what to do with your US investment accounts.

Best Practice:

• Find out whether your current US custodians work with residents of the new country. Do not volunteer your current status. Simply inquire hypothetically. Each institution may range from working with residents on a list of countries to no foreign residents as customers at all.
• If your current custodian will not continue to work with you, find a custodian that will. Open accounts using your foreign address, transfer the funds, and close the existing accounts. (Some custodians are friendlier to expats, such as Interactive Brokers, Charles Schwab, and TD Ameritrade.)
• Your 401(k)s should not be affected as long as you are still a participant. You may report to that custodian your new foreign address. However, when you distribute from a 401(k), the custodian is required to withhold additional taxes if you are at a foreign address.
• Some custodians have chosen to close IRAs belonging to foreign residents. So keeping funds in 401(k) instead of rolling it out may be an option until you find a custodian that will open IRAs for foreign residents.
• Investment cost in the US is the lowest in the world, so you may want to keep some, if not all, of your investments in the US. However, it may be advisable to partially hedge against the currency in your new country through holding investments or currency denominated in the new country’s currency. Some US custodians are able to hold non-US denominated securities in the account.

Be Aware:

If you are considering moving assets to the new country, know that you potentially have to deal with FBAR, Form 8938, and PFIC reporting and taxation. If you are going to invest in a non-US account, it’s likely that ETF, stocks and individual bonds will make your life easier than mutual funds, variable annuity products, and other types of pooled investments that are not US-registered.

Also, learn the tax treaty and totalization agreement between the US and the new country. This will help you determine whether it is worth it to participate in the new country’s pension or retirement system, and the potential overall tax impact.

In addition, once you become a foreign resident, you may not be able to continue to work with your US-based advisor. This is because the new country’s law may require anyone offering investment advice to its residents to register in the country. Your advisor may need to investigate the local law. Eventually you may need to work with a team of professionals from both the US and the new country if you cannot find an advisor dually registered in both countries.

Lastly, there is always the risk that your current financial institution will change their rules and stop working with residents in your new country. Have a backup plan. There are some countries where no custodians will work with residents with US citizenship or Green Card so they do not have to comply with the US Treasury reporting rules. Do your research in advance on which custodians may be willing to take your investments if your current one chooses to end the relationship.

B. Non-resident Alien

1) In US on visa and leaving for good

You may have studied and worked in the US for a while, but never intended to obtain permanent residency or citizenship. Now you are going home or moving on to the next country, what should you do with your US investment and retirement accounts?

Best Practice:

• Generally the same as Group A4, except the treatment of tax-advantaged retirement plans.
• Any early distribution from your 401(k) or IRA will be subject to the same penalty, so you may want to keep them in the US to grow further. However, distribution from those plans may be taxed at a lower rate overall even with the penalty if you distribute from the account before you become a non-resident alien. It depends on the amount, the presence of a tax treaty, and how your new country taxes the distribution, so do some cost-benefit analysis first.
• You should also notify your 401(k) administrator of your new status as non-resident alien so they will withhold future distributions at the correct rate, either at 30% or treaty rate. Use form W-8BEN.
• In addition to investing at very low cost, another benefit of keeping taxable investment accounts in the US is that as a non-resident alien, you do not have to pay capital gain taxes when you liquidate the investments. So even if you do want to liquidate your US investment accounts at some point, the best time to sell may be after you have left the US and meet the criteria as non-resident alien, depending on your new country’s capital gains tax rates for overseas investments.

Be Aware:

While as a non-resident alien you do not have to pay capital gains tax, your dividend and certain interest income is taxed at a flat 30% in the US, unless the tax treaty states otherwise. So using the more tax efficient investment vehicle is important.

Fortunately, you do not have to worry about all the mandatory reporting that applies only to US persons once you leave the country. However, you should take into account all the other caution points Group A4.

2) Renounce US Citizenship or Give up Green Card

Due to the increasingly complicated reporting and taxation regime, more long-term American expats are considering giving up US nationality. It does not mean you have to end all financial ties in the US, but the IRS does want to make sure you fulfill all of your obligations before they let you off the hook.

Best Practice:

• Find out whether you are considered “covered expatriate”. If not, you should not incur extra US tax liability from expatriation. The direction for Group B1 applies to you.
• If you are a covered expatriate, then you just may have a large tax bill coming your way due to the fact the IRS considers that you liquidate all of your assets on the date of expatriation, except for eligible qualified employer retirement plans. So if you want to delay some of the tax liability from IRA balances, you may choose to roll IRA accounts into a current 401(k) if you still have access to it. Note that this only delays the tax liability. When you distribute from the 401(k), the amount is taxed at a flat 30%.
• Generally there are a lot more things to be aware of if you are a covered expatriate. Unfortunately I am not able to cover all of it. However, there are many accounting and law firms specializing in this area that you may wish to consult.

Be Aware:

Make sure you file Form 8854 so you do not become a covered expatriate unintentionally if you did not have high income or high net worth before you give up your US nationality.

I hope this guide gives you the first steps to figure out what you should do with your US investment accounts when moving overseas. This is by no mean comprehensive yet. If you have real life experience or caution tales you would like to share, please feel free to comment below. All the best with your move abroad!