Challenges for Americans abroad (Part 1): investments for US expats
Written by Joseph Regan on August 24, 2016.
The world for Americans abroad drastically changed in 2010, making investments for US expats very difficult. FATCA, the Foreign Account Tax Compliance Act, became a law, cracking down on tax filing/reporting for the 9 million or so US nationals living overseas. Before 2010, it was relatively easy for an expat to invest, but FATCA’s strict rules have made it so difficult for investment houses, banks and online trading sites to be compliant that they’ve said, “Forget it, we will not deal with any Americans living abroad anymore.”
Some of the biggest names include: Fidelity, Scottrade, Vanguard… the list goes on. The minute you move outside of the US, these firms and many others will freeze your accounts, or force you to liquidate your holdings. This is scary stuff, especially when you consider liquidating all of your stocks and having to pay capital gains tax, and/or having your IRA frozen with zero or negative growth until the day you retire (more on frozen IRAs in Part 2).
Luckily, in regard to investments for US expats, there is a solution.
Infinity and our partnered asset managers, Tilney Bestinvest, has developed some investment strategies specifically for US expats. By using a US based custodian with non-PFIC (Passive Foreign Income Company; more on PFICs in a bit) investments, it’s now possible and 100% legal to invest your savings, put money away for retirement, and transfer your frozen IRAs so that you can begin contributing/growing your nest egg all while living abroad. Tax reporting is IRS compliant – it follows the same regulations as if you were still residing in the US – and the charges are on par with financial institutions back in the USA.
Recently, a client told me that Scottrade just found out that he was living abroad, and gave him a two-month ultimatum to liquidate all his funds. After losing tens of thousands of dollars in capital gains tax, he was left sitting on a pile of cash.
The client looked for options. Some banks offered investments outside of the US, mainly in Europe and Asia. But if you remain a US citizen, investing in foreign funds could be classified as PFICs. PFICs are toxic to US investors, as they result in extremely high yearly taxes on growth (at about 39.6% or more!).
Other advisors offered “contract” products. These, unlike PFICs, are tax compliant, but the charges are extremely high. There is a whole range of other investments out there for Americans, but one must be careful when choosing as there may be tax implications and/or high hidden charges.
At the end of the day, we were able to re-invest the client’s liquidated stock portfolio into a plan that would allow him to make investments and start re-growing his savings. Problem solved!
With authorities cracking down on FATCA more and more since 2010, the easy days of tax reporting for US nationals abroad is officially over. However, that doesn’t mean you have to resort to stashing money under the mattress. 21st century financial problems call for 21st century financial solutions, and with professional advice and portfolios created by experts who understand the troubles American expats are going through, investments for US expats have never been easier!
Feel free to get in touch if you have any questions. You can email me at firstname.lastname@example.org, or call me: +86 152 2182 4499.