international financial planning

Moving Out: The Expat’s Guide to International Financial Planning

Moving from one neighborhood to another is a stressful endeavor. Packing, getting a moving truck, enlisting help for moving day, changing utilities, updating the address on all your accounts—it’s enough to overshadow the reasons you decided to move in the first place, and the excitement it can bring. 

But here you are, preparing to move beyond your neighborhood, city and state, across borders and oceans to a new country entirely. 

While some level of move-induced stress is inevitable—especially when moving to an entirely new country—taking a step back to get your head around the details of your move can help minimize complications and help you take control of the situation.

That’s why we created this guide to moving internationally—to help you prepare for what’s coming next and limit the number of unpleasant surprises you have to deal with when it comes to international financial planning. 

So let’s get started!

Four Questions to Consider when Preparing for an International Move

1. What is the motivating factor behind your move?

Clearly identifying your goals and priorities before embarking on a plan for a transition will give you a clear decision-making framework to use as you encounter decision points along the way. 

If you have multiple goals, identify one or two that are most important. For example, you may be moving to be closer to family, to fully experience a different way of life, or for a new job. Knowing that your priority is to be closer to family will lead you to make different decisions than you would if your main goal is to experience a new way of life or for adventure. Keeping this main objective in mind whenever you are faced with a decision will help you get the most of what you want from your move.  

Spend some time thinking deeply about your goals and priorities, discuss them with your partner to make sure you are on the same page, and write them down.

2. How long will you live abroad?

Is this a permanent move or a temporary move? To be clear, temporary doesn’t have to mean a few months or even a few years. If you are intending to return to your home country on a permanent basis at some point, the move is considered temporary. 

Knowing how long you will be staying can help you determine the answers to some important questions, such as:

Should you buy or rent a home?

If it is a permanent move, buying might make the most sense. A temporary move of a year or two is almost definitely a situation where renting would be best. It’s those in-between stays that can be hard to determine what to do.

Look into the local real estate market to find out if it’s a good time to buy (things aren’t looking great at the moment). Enlist a financial advisor to help you weigh the pros and cons of buying vs. renting and how both options fit in with your larger financial plan.

Should you move/sell any assets you have in the US?

Assets can be anything from your house and car to stocks and bonds—anything of value to you. Often, people moving outside of the country find the idea of keeping their home in the US appealing for emotional reasons, but finding people you can trust to take care of your home while you’re away can be difficult. On the flipside, maintaining an address in the US can make it easier to keep ties to the US.

How should you set up your finances?

If you plan to move permanently, you will likely need to move your financial “home” as well—opening up new bank accounts in your new home country, closing your old ones, moving retirement plans, etc. 

A temporary move may mean that you would still keep your financial “home” in your current country of residence and instead set up some “satellite” accounts to tide you over while you are abroad.

3. Do you plan to work abroad?

The answer to this question has important tax implications and will determine what type of visa you will need to get. If the answer is yes, you will need to flesh out a few details. 

Will you be earning your income from a company based in your new country or in your home country?

This is an increasingly common question as the rise of Zoom and other remote work capabilities have freed people from the need to go into a physical office. Both the source of your income and your tax residency will determine what tax forms you need to file and where. If you are a US citizen or Green Card holder, then you are always required to file tax forms with the US as well.

If you’re moving to Australia and planning to work for an Australian company, then you’ll need a different kind of visa than if you’re moving down under but planning to work for a US-based employer. 

The answers to these questions are useful for tax-planning reasons, as well, so knowing the plan ahead of time can help make sure you are compliant with relevant tax laws and minimize your tax burden.

4. Will you be moving with school-aged children? If so, will you be enrolling them in local schools?

There are so many factors at play in this question that we could write a whole blog post on this one alone (stay tuned!). 

If you are still in the early planning stages, the biggest impact this decision will have is on the timing of your move. 

The American school calendar is a bit of an odd duck in that we start in the fall and end in the spring. Many schools overseas—including Australia—follow the calendar year, beginning in January and ending in December. 

Consider timing your move with the beginning of the school year to help ease the transition for your school-aged children. 

If your children are nearing college age, then you might have a few different considerations. Where will they be attending school? How will your residency impact their potential acceptance and financial aid? 

These are just a few of the preliminary questions to consider when preparing to move internationally. Despite the potential stress and unknowns of an international move, you are capable of rising to the occasion, no matter the obstacles!

Now that we’ve covered a few high-level, high-priority questions, let’s look at how to handle important relationships—both personal and professional—as you move to a new country.

How to Maintain Relationships Across Borders

Whether you’re staying on the same continent or moving to the other side of the world, you will need to make certain adjustments to myriad relationships in your life.

The Biggest Challenge of Cross-Border Relationships

Time zones. 

Maybe if you were moving from North America to South America you wouldn’t have to worry so much about time zones, but if you’re leaving the Americas completely, the time zone differential will present a unique challenge. 

For instance, the difference between my time zone here in Corvallis, Oregon, and my sister’s time zone in Melbourne, Australia, is 17 hours. So when I’m putting my kids down at 8 p.m., she’s just finishing up her lunch hour and getting back to work at 1 p.m. the following day. 

It could be worse—at least it’s not the middle of the night for her—but it can still be hard to line up our free times of the day to make space for a longer conversation.

You have to be flexible and figure out what works best for you and your loved ones. Settling into a routine of, say, calling once a week on the same day and time can make all the difference. It may require some planning, and you may have to miss the call every now and then, but maintaining regular communication will help you stay up to date on your loved one’s lives, plus you get to share your adventure in more detail. One thing I have noticed, especially for kids, is that when too much time goes between communication it can feel awkward to start back up again because everyone is less familiar with the small but important details that make conversation flow easily.

One of the best solutions we’ve found is web-based communication apps like WhatsApp. With options for texting, calling and video chats, these apps make international communication easy (and free!). 

In addition, maintaining a blog can keep your family connected and informed. If you’re uncomfortable with the public setting of a blog, you can always start a private, password-protected blog and then give the password to a select group. 

And of course, there’s always social media (love it or hate it). Facebook, Instagram, Twitter, Snapchat and other social channels allow the same connection whether you live 10 or 10,000 miles away. 

Again, if you prefer a less public form of communication, you can adjust your privacy settings on most social networks to limit who can see your activity.

You can also sign your circle of loved ones up for Google Photos or Apple Photos to create a private account where you can share photos of your kids and other items you may not necessarily want to share with the indeterminate audience of social networks.

Of course, nothing beats a face-to-face conversation. Whether it’s a FaceTime call or Google Hangout or Zoom, your inner circle likely has a preferred platform and you should be able to find a time that works for everyone. Sure, some people might be eating breakfast while others are eating dinner, but it’s the connection that matters.

How to Approach Professional Relationships

Your relationships with the professionals in your life will have the same challenge with time zones, plus a few others.

At Work

If you’re working remotely with a team on another continent, you’ll have to find a time that works for meetings. 

I have heard of American companies who schedule specific meetings first thing in the morning because they have remote employees in the Philippines who only have an hour left in their workday. Sure, it comes with its challenges, but the pandemic has forced many companies to adjust their expectations and turnaround times to make room for an increasingly remote workforce.

Sit down with your boss and relevant coworkers and figure out a schedule that will work. Figure out when you have to communicate for work and when you can fit in time for purely social interactions.

Resist the urge to skip check-ins. When work needs to get done, those weekly or daily meetings are often the first thing on the chopping block. For the health of your work relationships and to strengthen your connections with your team, prioritize those meetings above all else. 

Other Professional Relationships

If you’re moving out of the country for any extended length of time, you will want to establish relationships with local health professionals, if for no other reason than in case of an emergency. 

People often wonder if they will need a new financial advisor when they move. Ideally, you can find a financial advisor who specializes in cross-border planning (like me!) who can help you before and after your move. If so, you should not need to find an advisor in your new country.

Beyond questions of relationships, it can be hard to know just what to do when it comes to your assets and account as well.

The International Financial Planning Basics You Need to Know

My mom moved to Australia almost 10 years ago—long before I became interested in global financial planning—and she is still dealing with a minor tax oversight from a decade ago.

From a young age, I came to learn that moving abroad is an exciting, albeit complicated, endeavor. I watched my mom navigate it when we moved to the US from South Africa when I was in high school, and now I’ve watched her do it again as she has relocated to Australia. 

How can you make sure you avoid a long, drawn-out tax reporting mistake (or something else)? 

Let’s take a look at a few of the most common financial questions people have when moving abroad, and how you can set yourself up for success.

Should I Use a Bank in the States or in My New Home Country?

The first question to sort out is where you’ll do your banking. The advent of online banking has made it possible in many cases to access your bank no matter where you go, but taxes and exchange rates may leave you wanting a local bank after you move.

Setting up a bank account may be difficult in your new home country until you have established residency. In some cases, you may just need to show your passport.

If you are moving overseas permanently, you will need to eventually set up an account with a local bank. But if you are only there temporarily (which can still mean several years) and you are maintaining a US address, you may be able to get by using your stateside bank, depending on your banking needs.

One thing to keep in mind is the exchange rate. Some online services exist that allow you to transfer money from your US bank account to pay bills, and many will even provide you with a debit card for international use. The exchange rates using these services, such as Wise or OFX, tend to be better than what you would see if you just used your regular US bank card.

Lastly, pay careful attention to reporting requirements when moving abroad from America. Anyone with foreign bank accounts with aggregate balances over $10,000 must report them to the US when you file your taxes.

What Should I Do with My Investments?

According to a Morningstar report on investor experiences around the world, the US ranks #1 in nearly every criteria, including regulation, disclosures, fees and expenses, sales and customer experience. 

In short, if you can keep your investment accounts in the US, then you probably should. Of course, the final decision depends on the specifics of your situation.

After you move abroad, be wary of Passive Foreign Investments Corporations (PFICs) as investing in them can trigger additional taxes and reporting requirements. You’re probably better off leaving these alone entirely.

What About My 401(k), IRA, etc.?

The most important point here is that except in rare circumstances, you should avoid cashing out these accounts, especially if you haven’t reached retirement age (59.5) and your 401(k) is over $500,000. If you cash out in those circumstances, your tax hit could skyrocket to 50% or more.

One option (and likely the better one if you plan to return to the US permanently at some point) is to leave it in the US. As we said above, the American investment environment can’t be beat, so if you can leave your accounts here, then that’s likely your best bet. 

That being said, if your expat status will be permanent, then you will probably want to roll your accounts into a retirement plan in your new home country. This option will depend on whether there is a tax treaty between the two countries or not.

For example, if you are moving to Australia, you can roll your retirement plan into your superannuation fund, and there may be some significant tax advantages for doing so. But if you are moving somewhere like Croatia or Belize or anywhere in South America, then you will likely need to figure out another option.

If you are moving permanently and you have a Roth IRA, consider making a full distribution from this account while you are still a US tax resident in order to take full tax advantage of this account. 

The best approach for you depends on several factors, including your age, the size of your accounts, where you’re moving and whether your move is temporary or permanent. As in all cases, we recommend consulting with your financial advisor, preferably someone with expertise on the country to which you’re moving. 

How Should I File My Taxes?

For the purposes of taxation, the IRS has two classifications of people:

  1. United States Persons – This is defined as a US citizen, US green card holder or anyone currently in the US who has been here for more than 183 days. 
  2. Foreign Persons – This is a nonresident person who is not a citizen, does not hold a green card and has been here fewer than 183 days.

If you are classified as a US Person, you need to file US taxes, even after you move abroad.

You may be subject to additional filing requirements when moving internationally depending on the types of assets you have and your tax filing status. For example, foreign bank accounts with an aggregate balance over US$10,000, require that you file the FBAR (FinCEN 114).

Make sure to review your accounts with a professional before filing taxes as any oversights could be very costly. Failure to file penalties can easily exceed $10,000.

Should I Get a Financial Advisor in My New Country?

If you don’t have one, consider getting a financial advisor to at least help you navigate the transition between countries.

People moving across countries often wonder if they will need two financial advisors—one in their old country and one in the new. The rise of cross-border planning specialists can often solve this issue.

Ideally, you can find an advisor that specializes in cross-border planning between the US and the country to which you are moving. In some situations you may need an advisor in both countries.

What Else Do I Need to Be Aware of When it Comes to International Financial Planning?

Real Estate

Depending on how long you’re moving away, it may be best to sell your US real estate holdings once you move away. Again, several factors go into this decision but unless the real estate investment is very cash positive, it usually does not make sense to hold.

Life Insurance

The cost of term life insurance tends to be lower in the US than elsewhere, especially Australia. The death benefit is usually tax free, which can be especially beneficial for US persons.

529

If you will have tuition expenses at a school that is covered by 529 accounts, consider paying tuition before you move. That will make it clear that you were a US tax resident when you made the payment, thus allowing you to optimize the tax advantage of the account.

Mind the Details

It may seem like a lot of details to remember, but it’s important that you understand the potential pitfalls of financial planning when moving between countries. Otherwise, you could end up with big financial penalties—or annoying little issues you’re still dealing with 10 years later.

There are several questions of estate planning, citizenship and tax codes to watch out for when moving abroad.

Other International Financial Planning Issues to Consider

Having a life that spans two countries comes with many perks, but it has its legal and financial complications, a major one of which is estate planning. 

Estate Planning

Having assets in multiple countries—whether it’s retirement accounts or bank accounts or property—can complicate things considerably and leave you vulnerable to major financial penalties if you don’t approach them correctly.

Not only that, your will (and health care directives and power of attorney) may not even be valid in other countries.

For these reasons, when you’re preparing for life as an expat, one of the most essential members of your financial team will be a good estate planning attorney that’s familiar with international financial planning issues and what wills are recognized in which countries. You may want to consider getting an estate planning attorney in both countries to ensure they both have a deep understanding of their respective estate planning laws.

Dual Citizenship & Tax Issues

The unspoken theme we’ve alluded to throughout this guide is that when it comes to moving abroad, you want to move deliberately, not hastily. Case in point: dual citizenship.

Dual citizenship is an attractive prospect. You get to move freely between your home country and your new country. You and your children can enjoy full rights in both countries, which could mean anything from the right to vote to free college and health care, depending on where you’re moving. 

But it’s not without its issues. 

For instance, being a full citizen in two countries means you are under the tax laws of two countries. The US is one of only two countries in the world (Eritrea being the other) that taxes its citizens globally, no matter where you live. Most countries tax based on where you currently reside. US citizens and permanent residents are required to pay taxes on their income, no matter where they live and work. 

Tax treaties have helped limit double taxation in many countries, Australis being one of them. But even with a tax treaty, the IRS still requires you to file a US tax return every year (and no, you can’t give up your US citizenship for tax purposes!).

Concluding Thoughts

Whether you’re moving halfway around the world or just over the border to Canada, and whether you’re staying for five years or the rest of your life, taking the time to get the details down and make a plan is essential. The last thing you want after arriving in a whole new country is to find yourself hit with tax penalties or unexpected changes. 

At Clarity Wealth Development, we specialize in global financial planning because we’ve been in your shoes and we know how overwhelming it can be to keep tax codes, estate laws and new financial accounts straight. 

Want to talk about your move? Click here to schedule a consultation with Dr. Kim Hall, our certified Global Financial Planner.