Advice about retirement in the EU [Spain ex-pat, US resident]

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rgval
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Joined: Sun Aug 27, 2017 1:22 am

Advice about retirement in the EU [Spain ex-pat, US resident]

Post by rgval » Sun Aug 27, 2017 3:33 am

[Moved into a stand-alone thread from: Advice about retirement in the EU (Spain) --admin LadyGeek]

Hello experts!
I am new to investing, and I am learning a lot everyday thanks to everyone here. I would like to know how to organize better our finances in preparation for a potential return to the EU.

I am 37 from Spain, based in the US since 2009. My wife, 36, also from Spain has been in the US for 5 years. We hold visas and are resident aliens for tax purposes. We live in NY and our son was born here this February. We are Married Filing Jointly and our income tax bracket is 15%. We don't know where we'll retire but Spain is clearly a possibility.

I would like to share our current financial situation, and ask for advice about what type of accounts we should use to invest knowing that we might retire in our home country:
  • No debts
  • Capital One 360 MMA (Emergency)
  • Around $15k in cash
  • 401k contribution up to 5% employer match (mine, managed by VOYA/morningstar)
  • Fidelity Traditional IRA (hers, 80% AGG, 10% EMB, 9% IVV)
  • HSA with roughly $300 (just started)
  • Wealtfront joint investment account (testing with $1k, 90/10)
  • Betterment joint investment account (testing with $1k, 90/10)
  • After reading more a more about robo-advisors... I just opened a joint investment account in Vanguard ($3k not invested yet)
We have just started saving and our current aim is to save as much a possible in the US and obtain finance independence in around 15 years, keeping our current low annual expenses. We are thinking in a total AA of 90% stocks, 10% bonds.

The US/Spain Tax Treaty is very confusing to me. Can anyone recommend what order of investment and types of account would make more sense in terms of taxes? Start using Vanguard Joint investment account for our retirement savings? And shall we invest in mutual funds or ETFs? Can and should I open a Roth IRA and maximize it? stop contributing to her traditional IRA? Keep 401k contributions, maximize or stop it? What happens with retirement accounts when you are abroad? and if you retire before 59.5? Should we start a 529 or Roth IRA for our son? ... sorry, so many doubts.

plotina, did you find a good tax/financial advisor knowledgeable in US/Spain regulations?


Thanks!

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LadyGeek
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Re: Advice about retirement in the EU [Spain ex-pat, US resident]

Post by LadyGeek » Sun Aug 27, 2017 1:02 pm

Welcome! I don't have the experience to answer your questions, but the wiki article can help: EU investing
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Hyperborea
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Re: Advice about retirement in the EU [Spain ex-pat, US resident]

Post by Hyperborea » Sun Aug 27, 2017 3:01 pm

If you really planning to leave the US and move elsewhere (retirement or work or whatever) in a permanent way (not as a temporary move as a US citizen or greencard holder) then you need to look at your life as divided into two separate time periods. Some investments will work well in one and not the other. You will need to think about how to transition investments that aren't suitable in the second, post US, time period from the first. Sometimes, investments that aren't suitable in the second time period are still worthwhile to hold even if they don't make sense post-US because the benefits are high enough and you will be in the US long enough.

Taxable accounts: When you return to Spain you will use the US-Spain tax treaty to deal with interest and dividends from these accounts. You will owe capital gains tax to Spain in whatever way they are taxed there. You may still owe Spanish tax on the interest and dividends but you should get credit for the US tax paid (check Spanish tax laws).

Retirement accounts (401k/IRA/etc.): These should be treated as retirement accounts under the US-Spain tax treaty. They are listed under the "Pensions and Annuities" column of the tables. You will have figure out the Spanish taxes on these as well. Also, you will still be subject the to 10% early withdrawal penalty if you try to withdraw before age 59.5 as usual.

Personally, I used these retirements accounts since the company match plus the immediate tax savings was huge. My plan with these is to hold them until I am 59.5 to avoid the 10% early withdrawal penalty. I will withdraw them when I am in a tax situation outside the US where they will be taxed at 0% by the US and 0% by the country I am residing in. I do take the risk that I will die in the 6 or so years that I am outside the US but holding the accounts.

Roth type accounts: It's important to check these type of accounts for validity in Spain. Some countries don't recognize these as valid retirement accounts and you will owe taxes on them as if they were regular investment accounts. That was the case for my home country, Canada, when these types of accounts were first introduced. That has since changed but it might still apply for other countries. You need to do your research.

Social Security: You should be able to collect SS while outside of the US and even without a greencard/citizenship. You need 40 quarters of "substantial" work (10 years). They will pay out to most countries of the world. https://www.ssa.gov/international/Agree ... spain.html

Estate Tax: This is the real killer item for holding US accounts when you are not a US tax resident. The estate tax will take a large chunk (up to 40%) of the assets you have that are US situs (retirement accounts, brokerage accounts, etc.). This could leave you or your wife in a bad place financially. This is the biggest reason that you need to have a plan to transition your assets out of the US after you leave. Nice easy summary - https://www2.deloitte.com/content/dam/D ... aliens.pdf

Expatriation: This is the process you will need to go through when you leave the US if you are abandoning a greencard or giving up citizenship. If you don't explicitly do this as a greencard holder then it will happen at some point because of lack of presence in the US but the timing will not be of your choosing.

The current laws will apply a punitive exit tax on people who abandon their greencard with over US$2 million in assets and that dollar value is fixed and not adjusted for inflation. The law will slowly ensnare more people as inflation makes the cutoff amount effectively lower. A couple can get out with twice that (each has the $2M limit) and with some work can get out with $9.5M under current laws. See - viewtopic.php?f=1&t=213098&p=3401794&hi ... n#p3399002

The current law has only been in force since 2008 and there have been a number of other expatriation laws over the years. The current law may not be the one in force when you expatriate but I would count on the law getting only harsher and more punitive.

I really recommend the blog written by a US international tax/expatriation lawyer Phil Hodgen. I have learned a lot from it, he writes well, and explains in non-lawyer terms.

This is all really complex and there are not a lot of people who understand all the parts well. You will likely have to become your own "general contractor" for this and may need to hire one or more sub-contractors for individual parts.
"Plans are worthless, but planning is everything." - Dwight D. Eisenhower

rgval
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Joined: Sun Aug 27, 2017 1:22 am

Re: Advice about retirement in the EU [Spain ex-pat, US resident]

Post by rgval » Mon Sep 04, 2017 10:02 pm

Thank you Hyperborea for your detailed response.

I have been reading more and researching more. You have pointed me to very important aspects that I didn't consider, and I will need to continue exploring the possibilities.

Really appreciated.

wineandplaya
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Joined: Fri Sep 14, 2018 9:42 am

Re: Advice about retirement in the EU [Spain ex-pat, US resident]

Post by wineandplaya » Fri Sep 14, 2018 10:33 am

rgval, did you find out anything more from your research?

I'm in a similar situation to yours. Working in the US now and planning to retire in Spain. I've got a Green Card and my wife is American, so that's the main difference. We file taxes jointly and will probably be in the 24 % tax bracket, plus state taxes.

Do you know what the tax treatment of the HSA will be in the eyes of the Spanish authorities? My company is contributing to my HSA and I am considering doing a maximum individual contribution. It should also be fine to use the HSA tax-free for medical expenses in Spain from my understanding. That is, free from US tax. Not sure if Spain will want taxes if an HSA is used for medical expenses.

I've decided to contribute to traditional IRA rather than Roth IRA. I figured that I'll be able to gradually convert the traditional IRA to a ROTH IRA once we leave the US. My plan was to do this with my current company 401k and an old 403b, after conversion to a traditional IRA. What I'm not sure about if it makes more sense to contribute to mine and my wife's traditional IRA at all, or just take the tax hit now. Do you know?

We are renting a place now and my understanding is that we can use the "first-time homebuyer" rule to withdraw $10k from mine and my wife's IRA for a house purchase in Spain, penalty free and only subject to US taxes. I think this will make sense since the year we move, our income will probably be lower anyway.

Another thing I'm considering is how to best make use of my company's employee stock purchase plan (ESPP). I'm able to buy company stock at a discount and could either sell it right away (paying income taxes now) or wait 1.5 years to pay capital gains taxes which are much lower, but more risky since stock might lose value.

I was also thinking if it could make sense (and is allowed) to first move to my wife's home state, before continuing to Spain. Her state doesn't have state income tax so if we take the capital gains hit there instead, I'm thinking that we might be able to avoid state income taxes on capital gains and/or IRA withdrawals. In addition to the tax savings, it would also allow us to spend more time with her family before moving overseas.

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