6 Reasons Why U.S. Expats Should Maintain U.S. Investment Accounts
As an American living abroad, you face unique financial complexities and challenges. One such challenge is investing as an expat and deciding where to hold your investment accounts. While it may seem easiest to invest with financial institutions in your current country of residence, there are several reasons why, as a U.S. expat, you should consider maintaining accounts with U.S. financial institutions while living abroad.
#1 – To streamline your annual tax filing
One of the most important reasons for American expats to have investment accounts with U.S. financial institutions is to help ensure compliance with U.S. tax laws. As an American citizen, you’re required to file an annual U.S. tax return, regardless of where you currently live and work. This requirement means you must report any earnings, including investment income (such as dividends, interest and capital gains). Maintaining accounts with U.S. investment institutions can help streamline the tax reporting process and ensure you remain in compliance with U.S. tax reporting requirements.
#2 – To avoid the PFIC problem
As a U.S. expat living abroad, you need to be careful about what you invest in. One of the most common and significant investment mistakes made by Americans living overseas is purchasing a foreign mutual fund. The U.S. tax code categorizes non-U.S. registered mutual funds as passive foreign investment companies (PFICs), and these investments are taxed very punitively by the United States. In addition, each PFIC must be reported annually on U.S. Tax Form 8621, which requires complex accounting and is very time consuming to complete.
One of the best ways to avoid inadvertently investing in a PFIC is by continuing to maintain U.S. investment accounts. There is an abundance of compliant, U.S.-domiciled investment funds available through U.S. brokerages; however, there are few, if any, available through foreign brokerages. Maintaining U.S. investment accounts can help ensure you stay compliant when investing while living abroad.
#3 – Convenience
Believe it or not, maintaining your expat investment accounts in the United States while living overseas can actually be more convenient than opening new accounts in your country of residence. It can be time consuming and complicated to navigate the regulations and requirements of opening an account overseas, especially if you’re not fluent in the local language.
Because most U.S. financial institutions offer online banking and investment capabilities, it’s easy to manage accounts, transfer funds and pay bills from anywhere in the world. Typically, most U.S. brokerage firms will help you send and receive a wide variety of currencies and can also help you better manage your cash needs.
Finally, if you ever decide to move back home, you can avoid the hassle of transferring your accounts back to the United States.
#4 – Lower fees
You’ll likely encounter far fewer investment and account-related fees by continuing to hold investments in U.S. accounts. Because the United States’ financial market is home to the largest and most liquid selection of investment products anywhere in the world, it offers efficiencies not often found in other markets.
Investment expenses, such as brokerage fees, trade commissions and advisory fees, are generally substantially lower in the United States than in other parts of the world. And, because there are no U.S. laws against transferring funds or foreign-earned income from other countries, you can continue investing any surplus cash in your U.S. investment account. Just be careful you’re contributing to the correct types of accounts to meet your specific needs.
#5 – FDIC and SIPC Coverage
The United States offers financial protections not found everywhere in the world. Given recent bank closures, these protections can offer valuable peace of mind that your assets are safe.
Federal Deposit Insurance Corporation (FDIC) insurance typically protects up to $250,000 per depositor, per insured bank, and the Securities Investor Protection Corporation (SPIC) generally protects up to $500,000 of an individual’s brokerage account assets.
#6 – The ability to work with a U.S. advisory firm
Another key benefit to maintaining U.S. investment accounts while living overseas is that you can continue to work with a U.S-based advisory firm. Navigating multi-jurisdiction tax complexities and investment restrictions, as well as ever-changing regulatory requirements, can be difficult when you’re living overseas. Foreign-based advisors seldom have the knowledge and experience necessary to advise on these issues and navigate the complex U.S tax system.
On the flip side, U.S. advisors who have never worked with cross-border investors likely don’t have experience navigating various international complexities and tax treaties. The key is to find a U.S.-based advisor who has experience helping Americans living overseas to make smart, cost-effective, tax-compliant decisions related to their income, investments, tax situation, savings, estate plan, etc.
An important note
Many U.S. banks and brokerage firms have stopped working directly with non-U.S. residents due to concerns around compliance with foreign countries’ tax laws. These concerns have prompted many custodians to close the U.S. brokerage accounts of American expats and/or restrict the services available to non-U.S. residents.
Fortunately, there are still a handful of U.S. brokers that continue to work with Americans living abroad. While some will not open an account directly for an individual, they will work with an advisory firm, such as Creative Planning International, to open accounts on a client’s behalf.
If you need help opening or maintaining a U.S. investment account as an American living abroad, Creative Planning International is here for you. We specialize in helping U.S. expats and cross-border families maximize their wealth and avoid costly mistakes.
We understand the complex interaction of multi-jurisdiction tax and regulatory regimes and can help you develop operationally and financially efficient wealth management strategies to meet your needs. Because we serve in a fiduciary capacity, you can be confident that we’re acting solely in your best interests at all times.
To learn more, request a meeting with a member of our team.