Retirement planning as a US expat comes with unique challenges, from managing multiple tax systems to ensuring stable income in retirement. Many expats unknowingly make mistakes that can cost them thousands in taxes and lost investment opportunities. In this guide, we’ll explore the biggest retirement planning mistakes US expats should avoid.
Mistake 1: Neglecting Cross-Border Tax Planning
Many expats assume their retirement savings are taxed only in the US, but local tax laws can also impact withdrawals. Not understanding tax treaties can lead to double taxation.
Mistake 2: Ignoring 401(k) and IRA Consolidation
Leaving multiple 401(k) accounts with former employers can create inefficiencies and higher fees. Consolidating into an IRA provides more control and investment options.
Mistake 3: Misusing Foreign Investment Accounts
Investing in foreign mutual funds and ETFs may trigger Passive Foreign Investment Company (PFIC) taxation, which has punitive IRS tax rates. Stick to US-based accounts to avoid this.
Mistake 4: Underestimating Currency Risk
Expats often overlook how currency fluctuations affect their retirement savings. If you plan to retire outside the US, consider currency hedging strategies.
Mistake 5: Withdrawing Retirement Funds Too Early
Withdrawing from a 401(k) or IRA before age 59½ results in a 10% early withdrawal penalty plus income tax. Proper planning can help avoid unnecessary penalties.
Conclusion
Avoiding these mistakes can help ensure a secure and stress-free retirement as a US expat. If you need expert financial planning tailored to your situation, schedule a free discovery call today.
