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Banking and Financial Accounts: Practical Matters

June 5, 2023
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Opening and Maintaining Accounts

The first important step for Americans retiring abroad is to establish financial accounts with U.S. banks and custodians who will not close their accounts, if they take up permanent residence outside of the United States. The closure of bank accounts for Americans abroad has become increasingly common in recent years as a result of the confluence of the Patriot Act, FATCA, Know Your Client (“KYC”) Rules and more regulation of the financial services industry, in general.

The practical effect of FATCA and these other laws and rules has meant that opening a local account for Americans abroad has become more difficult. An American will likely need to open an account with one of the larger banks in country because these larger banks are the few that have the resources to remain FATCA compliant. It will not be unusual for these banks to require proof of residency and address, as a condition of opening an account. For this reason, it may also make sense to open an account with an international bank that has branches in the new country. These formalities can often be initiated prior to departure by setting up a bank account from the U.S. within that international bank. Americans abroad, however, should be aware that opening non-U.S. accounts may trigger additional IRS reporting requirements , such as FinCen form 114.

Americans retiring outside of the United States should understand that it is not illegal for them to open U.S. bank accounts or maintain those accounts after they move abroad. It should not be assumed, however, that U.S. banks will maintain accounts for Americans living abroad. For various reasons, U.S. banks may choose not to open (or to close or freeze) accounts for American expats. Thus, retirees should confirm that their bank will maintain their accounts after they move outside of the United States on a permanent basis. Fortunately, many U.S. financial institutions are still willing to maintain bank accounts for Americans abroad.

In addition to filing U.S. taxes, American taxpayers with foreign bank accounts (this includes accounts owned by the U.S. taxpayer and accounts for which the U.S. taxpayer has signatory authority) may be required to report them to the U.S. government via Report of Foreign Bank and Financial Accounts (FBAR) form (FinCen 114). This form must be filed to report foreign bank and financial accounts if the total balance across all foreign accounts is $10,000 or greater at any time during the year. The FBAR must be filed electronically with the Department of Treasury (not the IRS) by April 15th of each year (a taxpayer can request a six-month filing extension). Fortunately, unlike much reporting regarding foreign financial assets, the FinCen is relatively painless.

Unfortunately, it is often not as easy to find U.S. brokerage firms that will maintain investment accounts (including retirement accounts) for Americans abroad. American brokerage firms have been aggressively closing or freezing investment accounts (including IRAs and other retirement accounts) of American expats in recent years.

The list of well-known firms excluding accounts of Americans abroad is extensive and includes:

  • Merrill Lynch
  • Wells Fargo
  • JP Morgan
  • USAA
  • Vanguard
  • Plus many lesser known institutions.

Nevertheless, other institutions such as Charles Schwab, Interactive Brokers, TIAA and in some cases Fidelity remain receptive to working with U.S. expats in many countries. However, restrictions may be applied even by these institutions on a country-by-country basis. In many cases, independent registered investment advisory firms (such as Creative Planning) that are regularly working with these institutional product custody providers are able to open accounts when an individual investor cannot.

Practical Currency Management

Financial planning guidelines indicate that households should hold a reserve of cash (the generally accepted guideline is three to six months of expenses). These funds should usually be held in the currency of the country of residence: for example, retirees in Australia should have a cash reserve held in Australian dollars at an Australian bank.

In order to establish these reserves, the best practice for Americans living outside of the United States is to establish a system that will allow them to transfer money to their local bank and receive the best currency exchange rate possible. This means not only considering any fees charged, but also the difference (“spread”) between the local currency purchase price and its sale price. Consequently, in exploring their options, Americans abroad should make sure they pay attention to this “total” cost, as many financial institutions offer “free” exchanges, but extract large, hidden commissions by exchanging currency at below market exchange rates.

Finally, in order to limit the costs associated with transferring money, Americans living outside of the United States should try to structure these transfers quarterly or semi-annually. Transferring funds on a fixed basis will also help average out variations in the exchange rate and will limit the effects of currency fluctuation over time. In order to build up reserves, these transfers may be quite frequent at first and then slow down over time.

This commentary is provided for general information purposes only, should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.

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