General News & Insights

Retirement planning for Americans is a complex affair in even the simplest of circumstances. For American expats living abroad however, trying to make sense of their options in relation to IRAs, Roth IRAs and other retirement accounts may prove to be a particularly headache-inducing experience.

The Foreign Account Tax Compliance Act (FATCA) has had many consequences, including some that have been both profound and unintended.

One legacy of FATCA – although positive factors such as tightened anti-money laundering regulations should also be taken into account – is the difficulty that many Americans abroad have faced in relation to their IRA accounts, with many being closed as the saver becomes US non-resident.

As a result, an increasing number of non-residents are finding themselves in an unenviable position when it comes to their retirement and IRA planning.

Probably the most significant age for anyone thinking about retirement planning in the USA is the age at which you start. While there's no set age or best age, the sooner you decide to start saving for your retirement the better.

As an expat in the US, deciding how to save for your retirement can be tricky, but the bottom line is, if you want financial security in the future, you need to save for it in the here and now. Talking to a financial adviser can help as the type of plan you opt for will depend on your individual circumstances and your retirement objectives.

One of the fundamental mistakes people make when planning for retirement in the US is to underestimate the possibility of developing a long-term chronic health condition and the impact that such an occurrence is likely to have on their spending power.

Yet the truth is that because we are living longer than ever before we are also more likely to need some form of help with the basics of day-to-day existence. Quite simply, whether by illness, accident, physical debilitation or mental decline, incapacitation and the consequent need for long-term care can happen to anyone.

A 401(k) can be a bedrock part of your retirement and legacy planning in the US, but what do you do if you feel that yours is no longer the right vehicle for your long-term strategy or you find yourself struggling as you try to balance multiple small accounts from several jobs?

Of course, not everyone takes the same approach to their old 401k(s) once they move to a new workplace: many workers opt to leave their money in the plan while a minority will transfer it into a IRA.

However, the majority may be missing an opportunity; IRA consolidation is a way to avoid the drawbacks of remaining invested in an unsuitable 401k plan while also opening up many potential benefits.

If you decide to settled in the United States after a life of living and working in the United Kingdom, you will have to work out what you should do with your UK pensions in the US. Understanding how to manage your existing international pensions is crucial to your financial longevity in the USA.

In this situation, you have three main options for any defined contribution pension fund in the UK of which you are a member:

Non-resident aliens are those people who are citizens of a country other than the United States but with legal permission to live and work within the US. If you are in this position you should be aware that your status means you have some very particular obligations to the Internal Revenue Service (IRS) and that these have an impact on any 401k or IRA accounts you might hold.

So, what are the 401k and IRA management considerations for US non-residents and what are some of the restrictions affecting non-residents in relation to these accounts?

If you are an expat paying tax in the United States, you will need to be sure that you are compliant with the annual income and asset filing requirements. Not only will taking steps to understand your obligations help you ensure that you are in line with the law, it also gives you the clarity to plan and structure your wealth and tax affairs so that you can move towards your longer term financial and retirement goals.

Here we look at some of the forms you may need to complete.