4 Tips for Managing U.S. Expat Investments

Many Americans living abroad find managing their investments especially challenging as they juggle U.S. expat investments and cross-border investing rules. American expats know all too well that overcoming the operational challenges of opening and maintaining investment accounts created by the Foreign Account Tax Compliance Act (FATCA) and other U.S. tax laws can be daunting. Once you clear the hurdle of opening a brokerage account, you then face the mind-numbing task of navigating the complex interaction between United States and foreign country residence tax rules, including potential double taxation and strict tax reporting requirements.

All told, Americans living overseas face significant challenges when investing. These challenges can be so overwhelming that some U.S. expats decide not to invest at all. However, avoiding investing all together may result in a failure to achieve your long-term financial and retirement goals. The good news is that American citizens around the world can still efficiently and effectively plan, save and invest to reach their goals. Following are four key tips to help you navigate the challenges of U.S. expat investments and cross-border investing.

For a broader overview of expat financial planning, see our Expat Guide to Investing and Financial Planning for Americans Living Abroad.

1. Establish a Brokerage Account With a U.S. Custodian

The first step for many expat investors is to find a U.S. custodian that will allow them to establish a brokerage account while living abroad. FATCA and related regulations have made it challenging for U.S. persons to open non-U.S. investment accounts, which come with additional U.S. tax reporting requirements.

There are many advantages to housing your core assets in a U.S. account at a reputable brokerage firm. For starters, the U.S. financial markets are among the largest and most liquid in the world, offering a wide range of investment options from low-cost index mutual funds and ETFs to individual stocks, bonds and real estate investment trusts. By investing in U.S. markets rather than foreign platforms, you can often avoid multiple reporting headaches and the potential misstep of investing in a passive foreign investment company (PFIC), which can lead to significant capital gains tax and income tax penalties.

For this reason, many U.S. expat investors should avoid owning non-U.S. mutual funds. However, establishing a U.S. investment account is often the first major challenge faced by American expats. Many U.S. banks and brokerage firms have stopped accepting non-U.S. residents due to concerns around compliance with foreign country rules and FATCA. These concerns have prompted some custodians to close the U.S. brokerage accounts of American expats — or restrict services.

Fortunately, there are still a handful of U.S. brokers that continue to work with Americans living abroad. While some won’t open an account directly for an individual, they’ll partner with an advisory firm, such as Creative Planning International, to open accounts on a client’s behalf and help implement a global investment strategy.

If you are planning a move or are already overseas, you may also find Moving Overseas? Don’t Close Your U.S. Brokerage Account! helpful.

2. Optimize Income and Transfer Taxes

The biggest challenge for U.S. investors living overseas is navigating the tax rules and income tax requirements of two separate countries. You’ll need to manage your U.S. expat investments in a way that’s tax efficient on both sides, taking into account many complex factors, including:

• Different accounting regimes
• Different filing deadlines and accounting periods
• Different currencies and associated currency risk (this article on managing currency risk offers helpful context)
• Rapidly evolving rules related to immigration status, residency and length of stay
• Complex transfer tax rules on gifted and bequeathed assets and estates
• Investments with varying tax and capital gain outcomes across jurisdictions

Because the United States taxes worldwide income, understanding your host country’s system — and any foreign tax credit coordination — is critical for avoiding double taxation on income and gains. It’s important to work with financial and tax professionals who understand how U.S. rules overlap with your resident country’s tax laws — as well as how to optimize those overlaps to help reduce your tax liability and transfer costs.

For more guidance on expat tax planning, including how IRAs and other retirement accounts fit into the picture, see IRAs for U.S. Expats: Common Challenges and Solutions.

3. Understand Any Relevant Income, Estate and Social Security Treaties

A key to successfully managing your U.S. expat investments and cross-border investing is taking advantage of any tax treaty between the United States and your country of residence. These treaties can affect how income, capital gains, Social Security benefits and estate planning issues are taxed and which country has primary taxing rights.

Once your U.S. investment accounts are established, take some time to educate yourself on strategies to reduce or eliminate your withholding and improve your overall tax efficiency under the relevant treaty. This might include understanding how interest, dividends, pension distributions, and Roth or traditional IRA withdrawals are treated.

Your Creative Planning International wealth manager is a great source for updated information and can help you navigate the intricacies of these treaties and local tax rules as part of a broader wealth management and financial planning strategy. For additional background on country-specific considerations, you might also explore resources like 7 Tax‑Friendly Retirement Destinations for American Expats.

4. Hire a Qualified Team of Advisors

Wealth and tax advisors outside the United States seldom have the experience and knowledge necessary to navigate the U.S. tax system and complex expat investing landscape. Likewise, U.S. advisors who have never worked with expat investors often lack experience with cross-border investment accounts, foreign financial institutions, PFIC rules, tax treaty application and international tax reporting.

That’s why it’s vital to put together a team of experienced advisors who understand the unique challenges you face as a U.S. expat. Your team should include the following:

• A fiduciary financial advisor –You’ll want to enlist the help of a fee-based registered investment advisor (RIA). Fee-based advisors are typically compensated based on the assets they manage on your behalf, not commissions on specific products, which helps align their interests with yours. As fiduciaries, RIAs are legally bound to put your best interests first at all times. By contrast, some brokers are paid through product commissions and may not have full fiduciary obligation.
• An experienced tax accountant –It’s important to work with a tax professional who has experience navigating the tax treaty between the United States and your country of residence, as well as rules around foreign investment reporting, PFICs and double taxation. Tax laws are rapidly changing, so your accountant should be able to demonstrate a deep understanding of current regulations to help you avoid missteps.

If you’d like help evaluating an advisor’s fit, 5 Questions U.S. Expat Investors Should Ask an Advisor can be a useful checklist.

Feeling overwhelmed? We can help. At Creative Planning International, we work with American expats and cross-border families to help them maximize their wealth and avoid costly mistakes, especially when it comes to U.S. expat investments and cross-border investing. We understand the complex interaction of multi-jurisdiction tax and regulatory regimes and take into account currency, diversification, tax and other portfolio considerations as we help you plan and invest for the future.

If you’re an American living abroad who could use help establishing or refining a U.S. expat investment strategy, schedule a call with a member of our team.