This is an article from the Law Offices of Cheryl David (http://www.cheryldavid.com/) in Greensboro, North Carolina, that we thought others may find helpful.
Retiring overseas can dramatically reduce your cost of living, depending on what country you pick. You can enjoy a better retirement lifestyle with significantly more disposable income abroad than you could with a modest nest egg in the United States. But, it’s essential to prepare for financial challenges before you step off American soil.
To manage your money, you will need to understand how the U.S. tax laws interact with taxes in your new overseas home. You also must figure out how you will handle your banking and investments, including your IRA, while you’re abroad.
Very good advice: establish online access to your investments, bank accounts and other financial resources in the U.S. A good rule of thumb is to simplify your financial life as much as possible before leaving. Check out expat-related bulletin boards and Facebook pages. These internet resources can help you find professional tax help using word of mouth and reputation.
You will have to file a tax return wherever you go, as well as in the U.S. There is a chance you could be subject to double taxation, depending on your financial situation and the tax rules of your new home. But weigh this against the two key U.S. tax breaks for expats: the foreign earned income exclusion and the foreign tax credit.
The foreign earned income exclusion allowed expats to exclude $100,800 of foreign earnings from their income in 2015. The foreign tax credit lets expats offset the amount of qualified foreign taxes they paid in their new country from their U.S. tax liability.
When preparing your U.S. tax return, you must convert everything to dollars — even if you have income streams originally denominated in foreign currency.
Sometimes lower taxes can converge with a pleasant retirement locale. It is possible to relocate to the overseas Shangri-La of your daydreams while reducing your tax burden.
Many countries are relatively tax-friendly to retirees. Foreign residents’ pensions or Social Security incomes often are not taxed — at least not in Panama, Belize, Costa Rica, Uruguay, Ecuador and Malaysia. Retire to one of these countries with only pension or Social Security income and you will have no local income tax liability.
Tax rules vary greatly from jurisdiction to jurisdiction. Here’s a look at some specific places:
- Belize — A retirement, tax and offshore haven: income tax only on income earned in Belize; no capital gains tax and no tax on foreign investment income.
- France — Capital gains tax of 31.3 percent; taxes foreign retirement income.
- Ireland — Capital gains tax of 25 percent; taxes foreign retirement income.
- Malaysia — No capital gains tax; no tax on foreign retirement income.
- Mexico — Capital gains taxed as ordinary income; taxes foreign retirement income.
Of course, rules can change in the United States and in foreign countries, so double-check before making a major decision. But one thing is clear: an overseas retirement might be just the ticket.
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