Expatriation Tax Planning for U.S. Retirees: Filing Obligations, Exit Tax, U.S. Pension and Retirement Income

Description

Increasingly U.S. citizens are choosing to retire offshore, often for healthcare reasons or to stretch retirement savings in lower-cost jurisdictions. The Social Security Administration recently reported it sends checks to almost 700,000 individuals living outside the U.S. This number does not include those people who retire before Social Security eligibility. Taxpayers contemplating an overseas retirement must weigh several tax and economic factors before deciding.

Because U.S. taxpayers are taxed on worldwide income, leaving the United States does not exempt U.S. citizens from tax filing and payment obligations so long as they maintain citizenship. Taxpayers, including retirees, who choose formal expatriation through renunciation of their citizenship will potentially be subject to the special exit tax regime’s reporting and taxation provisions. Additionally, U.S. taxpayers who move abroad are subject to additional information filing requirements, including FBAR and FATCA filings.

U.S. retirees moving abroad must beware of tax requirements in their destination country. Of specific concern is the resident country's treatment of retirement income from qualified tax-deferred plans. Several countries have treaty provisions designed to minimize or eliminate taxation of retirement distributions, depending on the tax status and situs of the retirement plan. U.S. retirees abroad must also plan carefully to avoid costly tax consequences arising from their resident country's treatment of wealth transfers. In selecting the country to which to move, retirees will want to consider the advantageous tax regime from which they can potentially benefit in certain countries.

Listen as our expert panel provides a practical guide to the tax planning considerations for U.S. citizens planning to retire offshore.