If you are a U.S expat you are in one of the worst financial situations, because as I have stated before in many of my articles and videos that due to the tax and the introduction of FATCA you are restricted on your investment options.
Furthermore, you can’t invest in U.S broker accounts (for most of them it does depend on where you are living) if you are not a U.S residence that being outside the U.S for 183 days in the fiscal year.
What are the options for investing offshore?
Nothing, before FATCA was stopping you from investing offshore from a tax perspective and it did not make them at all viable. Offshore bonds were one option but these without U.S tax are expensive products that hardly are made anything even though they are sold on the basis by most salesman on being tax efficient.
Paying the U.S tax really makes no sense. If someone mentions offshore bonds with companies like RL360, Generali, FPI, Quilter, or Utmost stay well clear. It’s all for commission.
The investment options are limited at best, to work out the fees you need a rocket scientist and they come with high lock-in periods, fees of 2%-3% just for the platform. Add to this a 37% tax as PFICs. The only benefit I can think of is that it will help reduce your tax bill using your $3000 tax allowance each year for losses!
As I have mentioned before and will link to a few of my videos you can roll over your 401k to an IRA as an expat. I have written a number of article on the benefits of this. It is possible, and feel free to drop a message if you want a free review on this.
Now, you do have options to invest in U.S platforms with a U.S brokerage such as TD Ameritrade and Interactive brokers. These can be in a Roth IRA type with after-tax dollars of $960 a month and this is more than your Roth or IRA limit of $6000 to $7000 a year depending on your age above or below 50. These accounts can give you flexibility over your investments and help plan accordingly for your retirement. As an expat you most likely won’t be contributing to a 401k outside the U.S.
One option for flexible retirement as a U.S expat
If you have a lump sum of over $50,000 you do have a contract-based U.S investment remitment plan in a tax-efficient manor that can be set up so it works tax efficiently on your annual reporting and you can find how it is structured below.
A Defined Contribution Retirement Benefit Plan is also known as a Money Purchase and this is where the contributions to the plan typically are made by the plan holder and then invested by Bourse Pension Trustees Ltd (BPTL) according to the instructions from either you or your appointed adviser.
The plan value will reflect the performance of your chosen investment strategy and reflect in your UAP RAC. In retirement, the value of your UAP RAC is used to calculate your annual benefit in order to provide you with an income for life.
The UAP RAC is classed as a Defined Contribution Retirement Benefit Plan which is written under contract and which has been approved by the Guernsey Income Tax Authority under section 157A(2) of the Income Tax (Guernsey) Law, 1975. The agreement is between the “plan manager” and the “plan member” by means of a pension contract.
The member’s assets are held separately in a segregated cell of a Protected Cell Company (PCC) specifically for that individual member. The contract is designed to incorporate the particular requirements of US-connected people and US taxpayers who join the UAP RAC.
The UAP Retirement Annuity Contract is available to anyone and has been created to meet and comply with all US regulatory requirements relating to the investment of US-connected individuals pension assets.
This allows the plan member to build their retirement pot in a tax friendly vehicle, without the deduction of US tax whilst in the growth phase, maximising the capacity for eventual retirement. Additionally, the manner in which drawdown is administered differs in such that due to the tax efficiency and flexibility of the UAP RAC, it is an ideal independent retirement solution to complement current or existing plans.
The assets within the UAP RAC are deemed to be generated from post-tax earnings or from personal capital again, post-tax. There are no restrictions applied to the contributions permissible to the UAP RAC, whether you want to save on a regular basis, make ad hoc payments or by means of a single lump sum or transfer in species, there is an option available. Once you have discussed your circumstances with your financial and or tax adviser, you can apply to become a member of the UAP RAC by completing the application form, you will be required to submit either original certified documents or by electronic methods approved by the Guernsey regulator, to confirm both your identity and physical address.
On occasions we may need to request supporting
- Access to professional investment management and holistic retirement planning services
- Assets contributed to the UAP Retirement Annuity Contract remain separate from BPTL assets
- Flexible options available at retirement
- Funds paid from the UAP Retirement Annuity Contract are paid gross
- In the event of the member’s death, there is no requirement for probate
- Investment flexibility may include a full range of asset classes
- Loans are permitted up to a maximum of 30% of the value of the UAP Retirement Annuity Contract, tax advice should be sought before taking this option
- No limit on contributions*
- Pension Commencement Lump Sum (PCLS) of up to 30% on retirement
- Simple tax reporting is not a trust-based Plan
- The UAP Retirement Annuity Contract allows assets to grow in a tax-friendly environment
- Death benefit nomination
- Deferred drawdown of 55-75
This is a contract and not a trust-based Pension Plan UK S58 (1)(d) IHT compliant, as such settled property is not deemed ‘relevant property’ for IHT purposes.
Underlying investments within the UAP Retirement Annuity Contract are not classed as PFICs by the IRS
Upon death, residual funds are distributed as per the letter of wishes/nomination of beneficiaries
US/UK allowances and annual allowance limits do not apply
If you want more information about how to save in a monthly plan, transfer your 401k or put into a remitment plan as a U.S expat in tax efficient manor please feel free to get in touch on the chat box.
