Moving to the U.S. for retirement

If you’re thinking of moving to the U.S. for retirement, having worked diligently throughout your life, you’ll want to make sure your wealth legacy is protected for future generations.

Here, we look at some of the ways to do that.

Your pension may be your most valuable asset – and key to funding you through a fulfilling retirement – so it could be the most important part of your planning.

Non-U.S. pension and retirement plans generally lose their status as tax-advantaged accounts when you move to the U.S., unless they qualify for a tax treaty. 

So, it’s important to work with your legal and personal tax advisor to see if there’s a tax treaty in place between your home country and the U.S. Then check whether it gives preferential treatment for the type of pension or retirement plans you own.

If they aren’t covered by a tax treaty, you may wish to speak to your personal tax advisor about closing your accounts before you become a resident in the U.S.

If not, you could face double taxation on your retirement account income depending on the tax rules in the U.S. and your home country.

You may also need to check that your pension and retirement plans (and any other investment accounts) don’t include financial investments that would be treated as ’passive foreign investment companies’ in the United States.

Passive Foreign Investment Companies’ are investments that are typically offshore (meaning, non-US) pooled investment vehicles, such as offshore mutual funds, offshore ETFs, and similarly structured offshore products. The location or domicile of the pooled investment vehicle is what governs, not the types of investments it contains**.  In addition, you may no longer be eligible for certain non-US mutual funds and ETFs once you move to the US and may need to divest or transfer these interests.

It’s important to speak to a U.S. tax professional before you move, so you know how the tax system works and how it’ll affect all your finances, not just your pension.

When you become a U.S. tax resident, you’ll be taxed on your worldwide income from your ‘residency starting date’, which is often the first day you’re physically present in the country. After this point, it becomes much harder to do any pre-immigration tax planning.

For example, if you own assets that have significantly grown in value, you may wish to speak to your personal tax advisor about a ‘step-up’ to their cost-basis to fair market value before you become a U.S. tax resident.

This is because the cost-basis of your assets and investments doesn't automatically increase to fair market value when you move to the U.S. You could be taxed on gains that had accumulated long before you became a U.S. tax resident.

Also, if you can defer recognizing losses until after you become a U.S. tax resident, they could be recognized on your U.S. tax return and used to offset other income.

Please consult your personal tax advisor to understand these important considerations.

It’s also good to review any investments you hold before moving to the U.S. This is because some non-U.S. investments are no longer considered tax-efficient when you’re a U.S. tax resident.

For example, offshore mutual funds and exchange-traded funds (ETFs) can be subject to interest charges and penalties when you receive dividends or sell them.

Your personal tax advisor should also review any interests you own in foreign companies, as well as offshore trusts that you’re a beneficiary of, for U.S. income tax purposes.

Making changes to these investments before you get set up in the U.S. can affect how they’re taxed when you pass away.

Certain products and services are subject to cross-border country laws, rules and regulations. The availability and access to products, services, and/or advice is governed by such standards. Please see our cross-border disclosures for more information.

If you’re worried about the U.S. estate tax, you may want to speak to an estate planning specialist about building a plan to minimize its impact ahead of your move.

For example, transferring your assets to a trust before you’re domiciled in the U.S. could protect them from the U.S. estate tax or U.S. generation-skipping transfer tax.

Remember, the specific U.S. state you move to may also have a separate state estate tax – so double check this.

A move to the U.S. can be exciting, but it’s important to work with your personal tax advisor to plan ahead and make sure you’re doing things legally and cost effectively.

Some simple planning steps ahead of your move could make a big difference to how you’re taxed throughout your entire retirement journey in the U.S.