European in the US wants to FIRE in 5 years. Questions.

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euinvestor1234
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European in the US wants to FIRE in 5 years. Questions.

Post by euinvestor1234 » Mon Oct 07, 2019 1:40 pm

I am currently working in the US on a green card and will be able to FIRE in 5 years time. I plan to use the usual approach with diversified ETFs which most people use. I plan to leave the US once I am done and move back to Europe. I will be careful to stay less than 8 years on the green card to avoid the US exit tax and will officially give up my green card. I have contacted some brokers in the US who will let me keep my brokerage account but they will not let me buy new ETFs once I move so when I rebalance dividends I will have to use UCITS ETFs.
My questions:

1. Is it worth for me to contribute to the 401k from my employer? I will likely contribute up to the match but is it worth doing more? I will only be working for 5 years. I am unsure how this account will be treated once I stop being a ”US person”? Will Roth ladder work for me?

2. Is it worth for me to contribute to IRA? My understanding is that due to income restrictions I can only contribute to a non deductible IRA and only 6000 USD/year. How is this account treated once you stop being a ”US person”?

3. Most of my investments will be in a taxable account and with US domiciled ETFs. Once I move, is it recommended that I liquidate everything and buy equivalent non-US domiciled ETFs? Is this only for estate tax reasons or are there other concerns? I read that I may have to move to a country without capital gains tax for a while to make sure I don’t pay excessive tax. How does this work in practice and what countries are good for this? I rather not stay longer than 1 year if possible.

4. One alternative is to stay in the US until I get citizenship and then move to Europe. However, I have read about a lot of problems that US citizen ex-pats face. I assume that the best choice is to leave the US before I qualify for the exit tax. Is this the general consensus or am I missing something? Does anyone know if the years on an EAD count towards the total 8 years for exit tax purposes or is it only the years on a green card?

5. How would currency risk work if my investments are in USD but I live in Europe. Would this somehow balance out given large international presence of major US companies or should I have all investments in my own currency?

6. What are recommended stock brokers for my situation? I assume I need a US broker in the accumulation phase but once I am done where should I place the investments? Would it not be good to keep them in the US because it is relatively safe there and the taxes are low (at least compared to many European countries)?

TedSwippet
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Location: UK

Re: European in the US wants to FIRE in 5 years. Questions.

Post by TedSwippet » Mon Oct 07, 2019 2:48 pm

Welcome.
euinvestor1234 wrote:
Mon Oct 07, 2019 1:40 pm
1. Is it worth for me to contribute to the 401k from my employer? I will likely contribute up to the match but is it worth doing more? I will only be working for 5 years. I am unsure how this account will be treated once I stop being a ”US person”? Will Roth ladder work for me?
It depends on where you will move to, and how that country treats US 401ks. If there is a tax treaty with the US, the answer may be found there. A fair few US treaties say that pensions are taxable only to your country of residence (for example, UK), but some work entirely the other way around (France?). The treaty may also say that pensions are taxable only when withdrawn. If not, then you have to investigate the normal tax law of the country you will live in, to see whether or not it would 'look through' a US pension such as a 401k.

Consider US estate taxes carefully. If you move to a country without a US estate tax treaty, all your US based assets, including your 401k and any IRAs, would all be at risk of US estate taxes above a miserly $60,000 total balance.

The answers to the above should help you identify whether or not to contribute to the 401k beyond the employer match. It would help a lot if you said which country you expect to settle in when you leave the US.
euinvestor1234 wrote:
Mon Oct 07, 2019 1:40 pm
2. Is it worth for me to contribute to IRA? My understanding is that due to income restrictions I can only contribute to a non deductible IRA and only 6000 USD/year. How is this account treated once you stop being a ”US person”?
From the US tax perspective, either a tax treaty specifies how the US can (or cannot) tax an IRA, or nothing changes if no treaty.
euinvestor1234 wrote:
Mon Oct 07, 2019 1:40 pm
3. Most of my investments will be in a taxable account and with US domiciled ETFs. Once I move, is it recommended that I liquidate everything and buy equivalent non-US domiciled ETFs? Is this only for estate tax reasons or are there other concerns? I read that I may have to move to a country without capital gains tax for a while to make sure I don’t pay excessive tax. How does this work in practice and what countries are good for this? I rather not stay longer than 1 year if possible.
Again, look for a US estate tax treaty. If there is one, you would be relatively safe leaving investments in the US. However, your new home country might have tax laws that deter 'offshore' mutual funds (a local equivalent to the US's horrible PFIC tax rules), so that could argue for moving everything out of the US and into local equivalent investments anyway.
euinvestor1234 wrote:
Mon Oct 07, 2019 1:40 pm
4. One alternative is to stay in the US until I get citizenship and then move to Europe. However, I have read about a lot of problems that US citizen ex-pats face. I assume that the best choice is to leave the US before I qualify for the exit tax. Is this the general consensus or am I missing something? Does anyone know if the years on an EAD count towards the total 8 years for exit tax purposes or is it only the years on a green card?
Taking US citizenship can be an intensely personal decision. I decided not to, because I had no intention of returning to the US once I had left. In my case, that added citizenship would have been nothing more than a tax ball-and-chain. Others have made different decisions, though. For example, if you have a spouse or children who are US citizens, you may feel more comfortable if you too have the same citizenship.

It's true however that over the past decade or so the US has made it extremely difficult for US citizens to function financially outside the US. Many non-US banks and brokerages now simply refuse accounts to US citizens. And even if you could open an EU based brokerage account, as a US citizen you would not be able to buy or hold any EU domiciled UCITS funds or ETFs anyway, due to the US's horrible PFIC tax rules. In practice, US citizens living outside the US cannot invest in the same way as their fellow countrymen.

I don't see the situation for US citizens living outside the US improving any time soon. Over the past twenty years, every change has been for the worse.

Only years in which you held a green card count for the US's odious exit tax. Anything on an EAD, L or H visa, and so on, don't count. Be sure to count years accurately. Holding a green card for as little as one day in a year counts (so in the worst case you could hit the exit tax after just six years and two days).

If you have sufficient assets (or income) to be 'in scope' for the US exit tax, leaving before your eight years is up and so avoiding it can be entirely rational. By taxing your retirement savings as if you had withdrawn the entire lot in one single year (even though you in fact withdrew none of it), the US exit tax has the capacity to destroy your entire retirement.
euinvestor1234 wrote:
Mon Oct 07, 2019 1:40 pm
5. How would currency risk work if my investments are in USD but I live in Europe. Would this somehow balance out given large international presence of major US companies or should I have all investments in my own currency?
This can be made into a non-issue. If you held a US domiciled and USD denominated global fund, your results when viewed in EUR (or whatever) would be the same as if you held an EU domiciled and EUR denominated global fund that holds the same assets. It is the exchange rate between your currency and the currency of the assets that an ETF holds that is important. The ETF's trading and denomination currencies are irrelevant to the long term results.
euinvestor1234 wrote:
Mon Oct 07, 2019 1:40 pm
6. What are recommended stock brokers for my situation? I assume I need a US broker in the accumulation phase but once I am done where should I place the investments? Would it not be good to keep them in the US because it is relatively safe there and the taxes are low (at least compared to many European countries)?
Once you have left the US, your tax will be set by your new country of residence, and your US tax will be either 30% on dividends, or lower if there is a tax treaty. The notion of 'relatively low US taxes' will not enter into things.

assyadh
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Re: European in the US wants to FIRE in 5 years. Questions.

Post by assyadh » Mon Oct 07, 2019 3:13 pm

We need to know your future country of residence.

As TedSwippet said, most tax treaties tax retirement distributions in the residence state. However, France is one of the few to do it the other way around.

France and the UK explicitly talk about Roth IRAs.

Belgium says that if the distribution is not taxable in the source country (US) then its not taxable in Belgium, effectively recognizing the Roth IRA.

As you can see, your future country of residence matters.

Also, you have a great plan, regarding the exit tax. Just make sure that the 8 years are not full calendar years, but rather years where you held onto the green card.

For example, even if you received your green card in December, and gave it up in January the year after, it would count as two years.

Finally, the best broker in your case is IB. Because they tend to respect W8-BENs

Topic Author
euinvestor1234
Posts: 5
Joined: Mon Oct 07, 2019 1:32 pm

Re: European in the US wants to FIRE in 5 years. Questions.

Post by euinvestor1234 » Tue Oct 08, 2019 7:55 pm

The country is Sweden. Does anyone have experience with this?

TedSwippet
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Re: European in the US wants to FIRE in 5 years. Questions.

Post by TedSwippet » Wed Oct 09, 2019 2:29 am

euinvestor1234 wrote:
Tue Oct 08, 2019 7:55 pm
The country is Sweden. Does anyone have experience with this?
No direct experience. However, some of the treaty clauses match the one I am familiar with (UK). Parsing article 19 paragraph 1 of the 1994 US/Sweden tax treaty for a US nonresident alien living in Sweden:
1. Subject to the provisions of Article 20 (Government Service) and of paragraph 2 of this Article, pensions and other similar remuneration in consideration of past employment and annuities derived and beneficially owned by a resident of a Contracting State (Sweden) shall be taxable only in that Contracting State (Sweden).
I could not see any modification to this in the 2005 protocol (see also the technical explanation). So the US would not tax your 401k or IRA once you have broken US residency. However, the treaty does not contain the clause (present in the UK treaty) that restricts Sweden from taxing gains inside these pensions as if they were ordinary taxable accounts. So you need to investigated Swedish domestic tax law to see how they generally treaty non-Swedish pensions. Nor does the treaty appear to protect Roths from annual Swedish taxation, so perhaps something else to research there.

Unfortunately for you, Sweden lacks a US estate tax treaty. This means that any US assets you hold once no longer a US resident are at risk of US estate tax of 26%-40% of the balance above $60k. This would include your 401k and IRAs. Depending on your age and domestic circumstances (potential heirs), this may argue for keeping US retirement savings vehicles to a minimum, perhaps only to the point of capturing the company match, and then considering cashing everything in early on leaving the US, so that your heirs do not face confiscatory US tax on any part of your estate.

international001
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Re: European in the US wants to FIRE in 5 years. Questions.

Post by international001 » Wed Oct 09, 2019 4:48 am

TedSwippet wrote:
Wed Oct 09, 2019 2:29 am
Unfortunately for you, Sweden lacks a US estate tax treaty. This means that any US assets you hold once no longer a US resident are at risk of US estate tax of 26%-40% of the balance above $60k. This would include your 401k and IRAs. Depending on your age and domestic circumstances (potential heirs), this may argue for keeping US retirement savings vehicles to a minimum, perhaps only to the point of capturing the company match, and then considering cashing everything in early on leaving the US, so that your heirs do not face confiscatory US tax on any part of your estate.
Isn't that an argument to get your US citizenship? If you get children, you can give them US citizenship (read the rules) and if they inherit the money, they won't have to pay the estate tax

international001
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Re: European in the US wants to FIRE in 5 years. Questions.

Post by international001 » Wed Oct 09, 2019 5:10 am

assyadh wrote:
Mon Oct 07, 2019 3:13 pm

France and the UK explicitly talk about Roth IRAs.

Belgium says that if the distribution is not taxable in the source country (US) then its not taxable in Belgium, effectively recognizing the Roth IRA.
Couldn't fine the word 'Roth' on the French/uk treaty.
For the Belgium treaty, do you refer to:

(1) Except as provided in Articles 17 (Social Security Payments) and 19 (Governmental Functions),
pensions and other similar remuneration paid to an individual who is a resident of one of the Contracting
States in consideration of past employment shall be taxable only in that Contracting State.
assyadh wrote:
Mon Oct 07, 2019 3:13 pm
Finally, the best broker in your case is IB. Because they tend to respect W8-BENs
You mean for the non-US citizen and resident of Sweeden? Is it allow by PRIIP rules?

typical.investor
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Re: European in the US wants to FIRE in 5 years. Questions.

Post by typical.investor » Wed Oct 09, 2019 5:16 am

international001 wrote:
Wed Oct 09, 2019 4:48 am
TedSwippet wrote:
Wed Oct 09, 2019 2:29 am
Unfortunately for you, Sweden lacks a US estate tax treaty. This means that any US assets you hold once no longer a US resident are at risk of US estate tax of 26%-40% of the balance above $60k. This would include your 401k and IRAs. Depending on your age and domestic circumstances (potential heirs), this may argue for keeping US retirement savings vehicles to a minimum, perhaps only to the point of capturing the company match, and then considering cashing everything in early on leaving the US, so that your heirs do not face confiscatory US tax on any part of your estate.
Isn't that an argument to get your US citizenship? If you get children, you can give them US citizenship (read the rules) and if they inherit the money, they won't have to pay the estate tax
They would also be filing US tax returns the rest of their lives and perhaps paying US income tax depending on how much they make. And then there is the whole investment dilemma when overseas and needing to use US funds.

In any case, what about UCITs in the IRA? Interactive Brokers and Schwab (depending on your country of residence) both offer them. If you converted your 401k to an IRA and moved it to one of those, would they let you use UCITs? Usually Americans wouldn’t for tax reasons, but are they banned from IRAs? And is the IRA itself subject to estate tax or does it depend on situs of the asset like a brokerage account would?

international001
Posts: 1142
Joined: Thu Feb 15, 2018 7:31 pm

Re: European in the US wants to FIRE in 5 years. Questions.

Post by international001 » Wed Oct 09, 2019 5:56 am

typical.investor wrote:
Wed Oct 09, 2019 5:16 am
international001 wrote:
Wed Oct 09, 2019 4:48 am
TedSwippet wrote:
Wed Oct 09, 2019 2:29 am
Unfortunately for you, Sweden lacks a US estate tax treaty. This means that any US assets you hold once no longer a US resident are at risk of US estate tax of 26%-40% of the balance above $60k. This would include your 401k and IRAs. Depending on your age and domestic circumstances (potential heirs), this may argue for keeping US retirement savings vehicles to a minimum, perhaps only to the point of capturing the company match, and then considering cashing everything in early on leaving the US, so that your heirs do not face confiscatory US tax on any part of your estate.
Isn't that an argument to get your US citizenship? If you get children, you can give them US citizenship (read the rules) and if they inherit the money, they won't have to pay the estate tax
They would also be filing US tax returns the rest of their lives and perhaps paying US income tax depending on how much they make. And then there is the whole investment dilemma when overseas and needing to use US funds.

In any case, what about UCITs in the IRA? Interactive Brokers and Schwab (depending on your country of residence) both offer them. If you converted your 401k to an IRA and moved it to one of those, would they let you use UCITs? Usually Americans wouldn’t for tax reasons, but are they banned from IRAs? And is the IRA itself subject to estate tax or does it depend on situs of the asset like a brokerage account would?
If children are in a european state with higher income, it's not an issue. Otherwise, they can always renounce to the US citizenship. Exit tax better later than sooner

UCITs ETF in an IRA in IB? This does not sound right. I thought only US brokers could offer you an IRA account

typical.investor
Posts: 1220
Joined: Mon Jun 11, 2018 3:17 am

Re: European in the US wants to FIRE in 5 years. Questions.

Post by typical.investor » Wed Oct 09, 2019 6:07 am

international001 wrote:
Wed Oct 09, 2019 5:56 am
typical.investor wrote:
Wed Oct 09, 2019 5:16 am
international001 wrote:
Wed Oct 09, 2019 4:48 am
TedSwippet wrote:
Wed Oct 09, 2019 2:29 am
Unfortunately for you, Sweden lacks a US estate tax treaty. This means that any US assets you hold once no longer a US resident are at risk of US estate tax of 26%-40% of the balance above $60k. This would include your 401k and IRAs. Depending on your age and domestic circumstances (potential heirs), this may argue for keeping US retirement savings vehicles to a minimum, perhaps only to the point of capturing the company match, and then considering cashing everything in early on leaving the US, so that your heirs do not face confiscatory US tax on any part of your estate.
Isn't that an argument to get your US citizenship? If you get children, you can give them US citizenship (read the rules) and if they inherit the money, they won't have to pay the estate tax
They would also be filing US tax returns the rest of their lives and perhaps paying US income tax depending on how much they make. And then there is the whole investment dilemma when overseas and needing to use US funds.

In any case, what about UCITs in the IRA? Interactive Brokers and Schwab (depending on your country of residence) both offer them. If you converted your 401k to an IRA and moved it to one of those, would they let you use UCITs? Usually Americans wouldn’t for tax reasons, but are they banned from IRAs? And is the IRA itself subject to estate tax or does it depend on situs of the asset like a brokerage account would?
If children are in a european state with higher income, it's not an issue. Otherwise, they can always renounce to the US citizenship. Exit tax better later than sooner
Why is it not an issue? If they exceed the US exclusion, they have to pay US income tax too.

And what, the children as working adults pay into Swedish retirement accounts but need to use US funds which aren't available? And the US may tax Swedish retirement accounts? I mean I assume there will be some working years by the children before the OP passes away.

And as US citizens, they children will likely be impacted about which financial institutions they can use.
international001 wrote:
Wed Oct 09, 2019 5:56 am
UCITs ETF in an IRA in IB? This does not sound right. I thought only US brokers could offer you an IRA account
Of course, only US brokers offer you an IRA. IB is a US broker. So is Schwab. I am sure they won't open an IRA for an NRA, but if you already have an IRA, you could likely transfer it there. The only question is if they will allow you to hold UCITS. You can definitely buy them as an NRA.

Just saying I would check out that route before hassling my children. Maybe they want to be US citizens and maybe they would find it a burden.

international001
Posts: 1142
Joined: Thu Feb 15, 2018 7:31 pm

Re: European in the US wants to FIRE in 5 years. Questions.

Post by international001 » Wed Oct 09, 2019 6:54 am

typical.investor wrote:
Wed Oct 09, 2019 6:07 am


Why is it not an issue? If they exceed the US exclusion, they have to pay US income tax too.

And what, the children as working adults pay into Swedish retirement accounts but need to use US funds which aren't available? And the US may tax Swedish retirement accounts? I mean I assume there will be some working years by the children before the OP passes away.

And as US citizens, they children will likely be impacted about which financial institutions they can use.
I was thinking on using the US tax credit. Thus, if they pay more in Europe, they won't have to pay anything to US
The US tax Swedish retirement accounts? During accumulation phase? I thought it was protected by tax treaty. If it's during the distribution phase, you'd still pay in only one country.
Yes, they may have to use US brokers, but if it's ok for the parent, I don't see why it's bad for the children

Again, they can decide later whether to pay the exit tax or not

typical.investor wrote:
Wed Oct 09, 2019 6:07 am
Of course, only US brokers offer you an IRA. IB is a US broker. So is Schwab. I am sure they won't open an IRA for an NRA, but if you already have an IRA, you could likely transfer it there. The only question is if they will allow you to hold UCITS. You can definitely buy them as an NRA.

Just saying I would check out that route before hassling my children. Maybe they want to be US citizens and maybe they would find it a burden.
So UCITS on a taxable account on IB is taxed in the US as PFIC (bad!)
But you are saying that perhaps in the IRA you can hold an UCITS tax-sheltered, and perhaps w/o estate tax on it? Honestly I have no idea, but it sounds too good of a loophole

TedSwippet
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Location: UK

Re: European in the US wants to FIRE in 5 years. Questions.

Post by TedSwippet » Wed Oct 09, 2019 6:58 am

international001 wrote:
Wed Oct 09, 2019 5:10 am
Couldn't fine the word 'Roth' on the French/uk treaty.
For the Belgium treaty, do you refer to:
(1) Except as provided in Articles 17 (Social Security Payments) and 19 (Governmental Functions), pensions and other similar remuneration paid to an individual who is a resident of one of the Contracting States in consideration of past employment shall be taxable only in that Contracting State.
The relevant part of the US/Belgium treaty would be article 17 paragraph 1(b). It doesn't name Roths specifically, but does protect from Belgian tax any pension withdrawals that would not be taxable to a US resident:
b) notwithstanding subparagraph a), the amount of any such pension or remuneration arising in a Contracting State that, when received, would be exempt from taxation in that State if the beneficial owner were a resident thereof shall be exempt from taxation in the Contracting State of which the beneficial owner is a resident.
I didn't find anything similar in the US/France treaty, though that one is a mess of revising protocols and other edits, making it very difficult to navigate. It really needs a rewrite.
international001 wrote:
Wed Oct 09, 2019 5:56 am
If children are in a european state with higher income, it's not an issue. Otherwise, they can always renounce to the US citizenship.
This is a commonly held misconception, and it is more false than true. Income exclusions and foreign tax credits provide at best only a partial protection from US taxes. The US may tax a lot of things that the European (or any other) state or country does not. For example, child benefit and other non-US government support payments, capital gains on home sales, and more generally just capital gains (even the UK allows a £12k or so before any UK capital gains tax is due; the US has no capital gains tax allowance). If home country allowances are generally higher than US ones, there will be US tax to pay even on modest incomes.

The US will tax depreciation of the USD relative to the local currency as a currency gain, at income tax rates. It will also tax any currency gains on repaying a non-US mortgage. Non-US pensions may be annually taxable to the US (depending on treaty), including any employer pension contributions. Many countries use sales taxes in place of or alongside income taxes, but the US allows no foreign tax credit for sales taxes. US net investment income tax is pure double-taxation, since there is no tax credit allowed there in any direction. Locally tax-free savings and investment vehicles and wrappers will be largely unusable. US tax returns filed from abroad are complex and come with horrific penalties for noncompliance, up to 50% of the account balance per year not filed. US citizens are now broadly excluded from many European brokerages (FATCA), and often cannot use US based ones either, leaving no effective route at all to investing. And on, and on, and on.

US citizenship for anyone not living in the US is a tax ball-and-chain, and is now best avoided where possible. I certainly would not want to curse my children with it unnecessarily.
international001 wrote:
Wed Oct 09, 2019 5:56 am
Exit tax better later than sooner.
Not at all, since the scope of things it will apply to grows with time (for example, all retirement savings and pensions). Moreover, exit tax never is far better than both exit tax sooner and exit tax later.
international001 wrote:
Wed Oct 09, 2019 6:54 am
I was thinking on using the US tax credit. Thus, if they pay more in Europe, they won't have to pay anything to US.
Naive, and too simplistic; if they pay more. They may not.

Take the UK as an example. It isn't really anybody's idea of a low-tax country. UK capital gains tax top rate is 20%, but with a £12k exemption and no silly short-term and long-term holding rules. US capital gains top tax rate is 20%, but with no exemption, and short term capital gains are taxed as income, so perhaps at 32%-37% . A US citizen living in the UK and selling an asset for £12k more than they paid for it would face no UK tax, but could be liable for US tax of between £2.4k and perhaps as much as £4.2k on the same transaction because US rates here are higher and allowances lower (no allowance at all for the US, in this case). And this is by no means an isolated example.

typical.investor
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Re: European in the US wants to FIRE in 5 years. Questions.

Post by typical.investor » Wed Oct 09, 2019 8:22 am

international001 wrote:
Wed Oct 09, 2019 6:54 am
typical.investor wrote:
Wed Oct 09, 2019 6:07 am
Of course, only US brokers offer you an IRA. IB is a US broker. So is Schwab. I am sure they won't open an IRA for an NRA, but if you already have an IRA, you could likely transfer it there. The only question is if they will allow you to hold UCITS. You can definitely buy them as an NRA.

Just saying I would check out that route before hassling my children. Maybe they want to be US citizens and maybe they would find it a burden.
So UCITS on a taxable account on IB is taxed in the US as PFIC (bad!)
If the OP leaves the US and gives up their green card, PFIC isn't an issue.
international001 wrote:
Wed Oct 09, 2019 6:54 am
But you are saying that perhaps in the IRA you can hold an UCITS tax-sheltered, and perhaps w/o estate tax on it? Honestly I have no idea, but it sounds too good of a loophole
It doesn't seem like a loophole.

If the OP isn't a US person (citizen or resident), then PFIC simply has no bearing. And if the OP uses non-US domiciled UCITS, then they are not US situs. Thus, there would be no estate tax liability. Both of these are true, and have nothing to do with if you are using an IRA or not.

The questions are 1) will IB or Schwab let you hold foreign assets in an IRA. Maybe their system for IRA accounts simply can't access the foreign exchanges such that even if permissible by law, isn't workable for their system. And 2) does an an account being an IRA automatically make holdings US situs. I think no because you would think one could hold individual foreign stocks in their IRA and the holdings wouldn't be US situs per situs rules. At least I have never seen anything saying foreign stocks become US if in a tax sheltered account. But again, maybe there is no way for the broker to get foreign equities into an IRA.

I do think inquiring along that path is less problematic than US citizenship for someone who doesn't intend to use it.

TedSwippet
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Location: UK

Re: European in the US wants to FIRE in 5 years. Questions.

Post by TedSwippet » Wed Oct 09, 2019 8:39 am

typical.investor wrote:
Wed Oct 09, 2019 8:22 am
And 2) does an an account being an IRA automatically make holdings US situs. I think no because you would think one could hold individual foreign stocks in their IRA and the holdings wouldn't be US situs per situs rules. At least I have never seen anything saying foreign stocks become US if in a tax sheltered account.
Not so, I'm afraid. IRAs and 401k plans are 'deemed' to be US situs and so 'in scope' for US estate tax, no matter what assets they hold inside them. From Thun Financial Advisors:

https://thunfinancial.com/home/american ... ed-states/
U.S. Estate Tax Situs Rules
U.S. transfer taxes apply to all “U.S. situs” assets held by non-U.S. persons, whether held inside or outside the United States. The following assets are generally considered to be “U.S. situs” assets:
- Ownership of U.S. real estate (can be outright ownership of a home, condo or office building, or participation in a trust such as a REIT);
- Ownership of U.S. retirement accounts (pension plans, IRAs, 401(k) and 403(b) plans, annuities, etc.);
- Shares of U.S. companies, regardless of whether the stock certificates are held within the United States; and
- Tangible personal property located in the United States (e.g., art or other collectibles, jewels, automobiles, etc.).

international001
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Re: European in the US wants to FIRE in 5 years. Questions.

Post by international001 » Wed Oct 09, 2019 12:13 pm

TedSwippet wrote:
Wed Oct 09, 2019 6:58 am
The relevant part of the US/Belgium treaty would be article 17 paragraph 1(b). It doesn't name Roths specifically, but does protect from Belgian tax any pension withdrawals that would not be taxable to a US resident:
b) notwithstanding subparagraph a), the amount of any such pension or remuneration arising in a Contracting State that, when received, would be exempt from taxation in that State if the beneficial owner were a resident thereof shall be exempt from taxation in the Contracting State of which the beneficial owner is a resident.
Thanks! Silly me I was looking int the old version. I wonder where it is even held in the IRS website
https://www.irs.gov/pub/irs-trty/belgium.pdf

TedSwippet wrote:
Wed Oct 09, 2019 6:58 am
The US will tax depreciation of the USD relative to the local currency as a currency gain, at income tax rates. It will also tax any currency gains on repaying a non-US mortgage. Non-US pensions may be annually taxable to the US (depending on treaty), including any employer pension contributions. Many countries use sales taxes in place of or alongside income taxes, but the US allows no foreign tax credit for sales taxes. US net investment income tax is pure double-taxation, since there is no tax credit allowed there in any direction. Locally tax-free savings and investment vehicles and wrappers will be largely unusable. US tax returns filed from abroad are complex and come with horrific penalties for noncompliance, up to 50% of the account balance per year not filed. US citizens are now broadly excluded from many European brokerages (FATCA), and often cannot use US based ones either, leaving no effective route at all to investing. And on, and on, and on.

Not at all, since the scope of things it will apply to grows with time (for example, all retirement savings and pensions). Moreover, exit tax never is far better than both exit tax sooner and exit tax later.
Wow.. thanks again for your extense knowledge. Gives me stuff to think about, lots of moving pieces to consider
So can we conclude that in the simplest case (just salary) being in a high-tax EU country does not penalize being a US citizen. But when you start having other financial events they may

My point that as long as the parent does not increase his annual taxes while accumulating wealth, exit tax is better later than sooner. Just because exit tax is fixed percentage regardless, so you want to save money on taxes, let it compound, and pay the same percentage later (same reasoning than doing TLH). When annual taxes become higher, it may be the moment to decide to renounce to US citizenship and pay exit tax.

international001
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Re: European in the US wants to FIRE in 5 years. Questions.

Post by international001 » Wed Oct 09, 2019 12:21 pm

typical.investor wrote:
Wed Oct 09, 2019 8:22 am

If the OP leaves the US and gives up their green card, PFIC isn't an issue.
You are right, of course.
Can you hold an UCITS ETF on IB taxable account? Even an accumulation one? Then, they won't be subject to estate tax, right?
What happens if one day you get US citizenship. You can hold them but you have to start doing PFIC, right? And you cannot take US tax credit on it because you are not selling the fund and not paying taxes on the EU country (assume you are a resident of the EU country when you sell them)

international001
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Re: European in the US wants to FIRE in 5 years. Questions.

Post by international001 » Wed Oct 09, 2019 12:24 pm

TedSwippet wrote:
Wed Oct 09, 2019 6:58 am
b) notwithstanding subparagraph a), the amount of any such pension or remuneration arising in a Contracting State that, when received, would be exempt from taxation in that State if the beneficial owner were a resident thereof shall be exempt from taxation in the Contracting State of which the beneficial owner is a resident.
So a distribution from a 401k or a Roth 401k is 'pension' on tax treaties

Also, it would seem that it's a better deal than getting an Annuity, since that would be taxable on Belgium
3. Annuities derived and beneficially owned by an individual resident of a Contracting
State shall be taxable only in that State. The term "annuities" as used in this paragraph means a
stated sum paid periodically at stated times during a specified number of years, or for life, under
an obligation to make the payments in return for adequate and full consideration (other than
services rendered).

TedSwippet
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Re: European in the US wants to FIRE in 5 years. Questions.

Post by TedSwippet » Wed Oct 09, 2019 12:57 pm

international001 wrote:
Wed Oct 09, 2019 12:13 pm
So can we conclude that in the simplest case (just salary) being in a high-tax EU country does not penalize being a US citizen. But when you start having other financial events they may.
Right. This simple case is what everyone focuses on, and it is what lets congress claim (and perhaps also believe) that US citizenship-based tax is neutral for US citizens living abroad. It is just that the reality is of course entirely different. Virtually nobody can go through life without any financial event other than earning a salary.
international001 wrote:
Wed Oct 09, 2019 12:13 pm
My point that as long as the parent does not increase his annual taxes while accumulating wealth, exit tax is better later than sooner. Just because exit tax is fixed percentage regardless, so you want to save money on taxes, let it compound, and pay the same percentage later (same reasoning than doing TLH). When annual taxes become higher, it may be the moment to decide to renounce to US citizenship and pay exit tax.
The thing with the exit tax, though, is that it can operate as a cliff edge. Assets of $1,999,999? -- no problem. Earn and save just $1 more though, and you could lose 35% or more of your retirement savings when you do expatriate. Or you might receive an unexpected inheritance that pushes you over the asset limit all in one go. And then, once over it and a 'covered expat' you cannot give or bequeath money to a US person after you have expatriated without them having to pay 40% on the receipt, under section 2801.

All in all, the US exit tax is horrible policy, and nobody should pay it.

international001
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Re: European in the US wants to FIRE in 5 years. Questions.

Post by international001 » Wed Oct 09, 2019 6:31 pm

I wasn't aware of 2801 either

One follow up Q, let's say you pay exit tax on your capital gains (as if you were selling) but you don't sell. Back in EU, you'll may sell your assets. Was the cost basis adjusted?

e.g. ETF sold in US at $100, when you leave US it's worth $120, so you pay capital gains on $20. Back in EU is $150 and you sell it You'll have to pay capital gains taxes on $30 only?

assyadh
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Re: European in the US wants to FIRE in 5 years. Questions.

Post by assyadh » Wed Oct 09, 2019 7:09 pm

international001 wrote:
Wed Oct 09, 2019 5:10 am
assyadh wrote:
Mon Oct 07, 2019 3:13 pm

France and the UK explicitly talk about Roth IRAs.

Belgium says that if the distribution is not taxable in the source country (US) then its not taxable in Belgium, effectively recognizing the Roth IRA.
Couldn't fine the word 'Roth' on the French/uk treaty.
For the Belgium treaty, do you refer to:

(1) Except as provided in Articles 17 (Social Security Payments) and 19 (Governmental Functions),
pensions and other similar remuneration paid to an individual who is a resident of one of the Contracting
States in consideration of past employment shall be taxable only in that Contracting State.
assyadh wrote:
Mon Oct 07, 2019 3:13 pm
Finally, the best broker in your case is IB. Because they tend to respect W8-BENs
You mean for the non-US citizen and resident of Sweeden? Is it allow by PRIIP rules?

It's in the updated protocol, not on the original one.

The only consolidated version of the treaty is the French one, and it clearly lists 401k and IRAs as recognized retirement account taxed in the US.

The original treaty is a classic "taxed in your country of residence" treaty.

The updated protocol is a new "taxed where it's sourced" treaty.

oogZoo
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Re: European in the US wants to FIRE in 5 years. Questions.

Post by oogZoo » Thu Oct 10, 2019 12:58 am

international001 wrote:
Wed Oct 09, 2019 6:31 pm
One follow up Q, let's say you pay exit tax on your capital gains (as if you were selling) but you don't sell. Back in EU, you'll may sell your assets. Was the cost basis adjusted?

e.g. ETF sold in US at $100, when you leave US it's worth $120, so you pay capital gains on $20. Back in EU is $150 and you sell it You'll have to pay capital gains taxes on $30 only?
It is not possible to give generic EU answer because each EU member state has different taxation rules. (Unless one knows the tax rules of every member state.) In Finland there is nothing about US exit tax in taxation law or US tax treaty. Thus I believe that in Finland you would pay tax on $50 when you sell the assets.

Wannaretireearly
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Re: European in the US wants to FIRE in 5 years. Questions.

Post by Wannaretireearly » Thu Oct 10, 2019 2:04 am

What if u maintained US address/residency, while living most of the time in Europe?
Why wouldn't this work? E.g. 'retire', $0 income, file returns as usual (assume US citizen). But live where u want in Europe some/most of the time?

Love to see the comments/criticisms for above. Cos that above is my plan! And I'm sure folks here actually live like this today.
Buy Low, Sell High

international001
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Re: European in the US wants to FIRE in 5 years. Questions.

Post by international001 » Thu Oct 10, 2019 3:36 am

oogZoo wrote:
Thu Oct 10, 2019 12:58 am
international001 wrote:
Wed Oct 09, 2019 6:31 pm
One follow up Q, let's say you pay exit tax on your capital gains (as if you were selling) but you don't sell. Back in EU, you'll may sell your assets. Was the cost basis adjusted?

e.g. ETF sold in US at $100, when you leave US it's worth $120, so you pay capital gains on $20. Back in EU is $150 and you sell it You'll have to pay capital gains taxes on $30 only?
It is not possible to give generic EU answer because each EU member state has different taxation rules. (Unless one knows the tax rules of every member state.) In Finland there is nothing about US exit tax in taxation law or US tax treaty. Thus I believe that in Finland you would pay tax on $50 when you sell the assets.
IF that would be the case, then it would make sense to sell everything and buy it again before leaving the US

international001
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Re: European in the US wants to FIRE in 5 years. Questions.

Post by international001 » Thu Oct 10, 2019 3:38 am

Wannaretireearly wrote:
Thu Oct 10, 2019 2:04 am
What if u maintained US address/residency, while living most of the time in Europe?
Why wouldn't this work? E.g. 'retire', $0 income, file returns as usual (assume US citizen). But live where u want in Europe some/most of the time?

Love to see the comments/criticisms for above. Cos that above is my plan! And I'm sure folks here actually live like this today.
That's where many rich folks do in some countries south of Europe. In some upscale neighborhood you can see only people during the summer

international001
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Re: European in the US wants to FIRE in 5 years. Questions.

Post by international001 » Thu Oct 10, 2019 4:03 am

assyadh wrote:
Wed Oct 09, 2019 7:09 pm
international001 wrote:
Wed Oct 09, 2019 5:10 am
assyadh wrote:
Mon Oct 07, 2019 3:13 pm

France and the UK explicitly talk about Roth IRAs.

Belgium says that if the distribution is not taxable in the source country (US) then its not taxable in Belgium, effectively recognizing the Roth IRA.
Couldn't fine the word 'Roth' on the French/uk treaty.
For the Belgium treaty, do you refer to:

(1) Except as provided in Articles 17 (Social Security Payments) and 19 (Governmental Functions),
pensions and other similar remuneration paid to an individual who is a resident of one of the Contracting
States in consideration of past employment shall be taxable only in that Contracting State.
assyadh wrote:
Mon Oct 07, 2019 3:13 pm
Finally, the best broker in your case is IB. Because they tend to respect W8-BENs
You mean for the non-US citizen and resident of Sweeden? Is it allow by PRIIP rules?

It's in the updated protocol, not on the original one.

The only consolidated version of the treaty is the French one, and it clearly lists 401k and IRAs as recognized retirement account taxed in the US.

The original treaty is a classic "taxed in your country of residence" treaty.

The updated protocol is a new "taxed where it's sourced" treaty.
YEs.. that's a big change.. so it seems in the original treaty, SS was excluded to be taxed in the country of residency, but pensions (401k, IRA, roth IRA distributions were not)

It is this a global tend that we can expect for other countries (after all, you want to incentive rich foreigners to come)?

Based on this readings of the Belgium treaty, I was always trying to re-parse a discussion we had in another thread
But I don't have it clear. If you are a retiree US citizen living in Spain, it seems you pay SS taxes only in US. But what about retirement account distributions (pensions)

https://es.usembassy.gov/wp-content/upl ... S_1591.pdf

ARTICLE 16
Dependent Personal Services
1. Subject to the provisions of Articles 20 (Pensions, Annuities, Alimony, and Child
Support) and 21 (Government Service), salaries, wages, and other similar remuneration
derived by a resident of a Contracting State in respect of an employment shall be taxable
only in that State unless the employment is exercised in the other Contracting State. If the
employment is so exercised, such remuneration as is derived therefrom may be taxed in
that other State.
(...)
ARTICLE 20
Pensions, Annuities, Alimony, and Child Support
1. Subject to the provisions of Article 21 (Government Service):
17
a) pensions and other similar remuneration derived and beneficially owned by a resident
of a Contracting State in consideration of past employment shall be taxable only in that
State; and
b) social security benefits paid by a Contracting State to a resident of the other
Contracting State or a citizen of the United States may be taxed in the first-mentioned
State.

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Re: European in the US wants to FIRE in 5 years. Questions.

Post by TedSwippet » Thu Oct 10, 2019 5:05 am

international001 wrote:
Thu Oct 10, 2019 4:03 am
Based on this readings of the Belgium treaty, I was always trying to re-parse a discussion we had in another thread.
It is pointless trying to extrapolate one US tax treaty into another.
international001 wrote:
Thu Oct 10, 2019 4:03 am
If you are a retiree US citizen living in Spain, it seems you pay SS taxes only in US. But what about retirement account distributions (pensions)
...
ARTICLE 20
Pensions, Annuities, Alimony, and Child Support
1. Subject to the provisions of Article 21 (Government Service):
a) pensions and other similar remuneration derived and beneficially owned by a resident of a Contracting State in consideration of past employment shall be taxable only in that State; and
b) social security benefits paid by a Contracting State to a resident of the other Contracting State or a citizen of the United States may be taxed in the first-mentioned State.
Paragraph (b) above says that the US may tax social security benefits, but it does not say that Spain also cannot. If Spain does, foreign tax credits would be needed to protect from double tax.

As for other pensions, paragraph (a) above, see also Article 1 paragraph 3 of the treaty, in which the US denies most treaty benefits to US citizens:
3. Notwithstanding any provision of the Convention except paragraph 4, a Contracting State may tax its residents (as determined under Article 4 (Residence)), and by reason of citizenship may tax its citizens, as if the Convention had not come into effect.
Article 1 paragraph 4 lists some exceptions to this. Article 20 paragraph 1 is not an exception, and this suggests that a US citizen retiring in Spain cannot use treaty Article 20 paragraph 1, is taxed on pensions by both countries, will pay the higher of the two countries' tax rate, and must rely on foreign tax credits to avoid double-tax. Tax treaties and any amending protocols all need to be read in their entirety in order to understand a given situation.

https://www.irs.gov/businesses/internat ... -documents

international001
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Re: European in the US wants to FIRE in 5 years. Questions.

Post by international001 » Thu Oct 10, 2019 9:49 am

Thanks for helping me parse this. For me it's difficult language, and in my mind Article 20.1.a and article 1 paragraph 3 are contradictory

Checking on the protocols, I see
Article 20 (Pensions, Annuities, Alimony, and Child Support) of the Convention
shall be amended by adding a new paragraph:
“5. Where an individual who is a resident of one of the Contracting States is a
member or beneficiary of, or participant in, a pension fund that is a resident of
the other Contracting State, income earned by the pension fund may be taxed as
income of that individual only when, and, subject to the provisions of
16
subparagraph (a) of paragraph 1 of Article 20 (Pensions, Annuities, Alimony
and Child Support), to the extent that, it is paid to, or for the benefit of, that
individual from the pension fund (
New Paragraph 5 of Article 20
New paragraph 5 provides that, if a resident of a Contracting State participates in
a pension fund established in the other Contracting State, the State of residence will not
tax the income of the pension fund with respect to that resident until a distribution is
made from the pension fund. Thus, for example, if a U.S. citizen contributes to a U.S.
qualified plan while working in the United States and then establishes residence in Spain,
paragraph 5 prevents Spain from taxing currently the plan’s earnings and accretions with
respect to that individual. When the resident receives a distribution from the pension
fund, that distribution may be subject to tax in the State of residence, subject to
paragraph 1 of Article 20.
So what makes me understand is that Article 20.1.a says that they cannot be tax during accumulation phase, but on retirement they can be taxed in Spain. Whether/how to tax 401k/SS/Roth, it would be up to Spain. It's not discussed in the treaty. Also, transfer between plans, like a roth rollover, is protected by the treaty (I would have to pay tax only in US).

Sounds about right?

TedSwippet
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Re: European in the US wants to FIRE in 5 years. Questions.

Post by TedSwippet » Thu Oct 10, 2019 11:43 am

international001 wrote:
Thu Oct 10, 2019 9:49 am
Thanks for helping me parse this. For me it's difficult language, and in my mind Article 20.1.a and article 1 paragraph 3 are contradictory.
They are not exactly contradictory. It works like this:
  • Article 1 paragraph 3 overrides all other treaty clauses, and says that US citizens have no treaty benefits ("as if the treaty had not come into effect").
  • Article 1 paragraph 4 then says that actually there are a few exemptions to paragraph 3.
  • Article 20 paragraph 1 is not listed in Article 1 paragraph 4, so it is not an exemption to Article 1 paragraph 3.
So US citizens living in Spain do not get the benefit of Article 20 paragraph 1, because Article 1 paragraph 3 disallows it. Non-US citizens living in Spain can use this Article, though. And many others. This special treaty 'saving clause' is in pretty well all US tax treaties, and is just one of the ways in which the US implements its extraterritorial citizenship-based taxation. In general, US citizens living outside the US cannot use (most of) any applicable tax treaty.
international001 wrote:
Thu Oct 10, 2019 9:49 am
Checking on the protocols, I see
New Paragraph 5 of Article 20
New paragraph 5 provides that, if a resident of a Contracting State participates in a pension fund established in the other Contracting State, the State of residence will not tax the income of the pension fund with respect to that resident until a distribution is made from the pension fund.
So what makes me understand is that Article 20.1.a says that they cannot be tax during accumulation phase, but on retirement they can be taxed in Spain.
This says that Spain may not tax a US 401k or IRA until withdrawals are made. Article 20 paragraph 1 does come into things until withdrawals are made, and then Spain can (and will) tax them under normal Spanish law, and the US will tax them too because a US citizen has no protection from Article 20 paragraph 1 thanks to the 'saving clause' in Article 1 paragraph 3. Avoiding double-tax requires foreign tax credits, then.
international001 wrote:
Thu Oct 10, 2019 9:49 am
Whether/how to tax 401k/SS/Roth, it would be up to Spain. It's not discussed in the treaty.
Anything not stated or defined in a treaty is left up to local tax law. In this case, whatever tax Spain would apply to payments of non-Spanish pensions to Spanish residents.
international001 wrote:
Thu Oct 10, 2019 9:49 am
Also, transfer between plans, like a roth rollover, is protected by the treaty (I would have to pay tax only in US).
Maybe, or maybe not. The treaty is silent on US pension transfers or rollovers by Spanish residents, so again you would need to understand Spanish tax law on this.

international001
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Re: European in the US wants to FIRE in 5 years. Questions.

Post by international001 » Thu Oct 10, 2019 4:58 pm

Ok.. so I see that on top of the wording you have to understand the implied priority of each paragraph over the rest

Are you saying that a resident of Spain with a US 401k should pay taxes only in US (per Article 20.1.a would be applied)
Doesn't the below means that the overwrite comes into effect *just* because you are resident of Spain?
3. Notwithstanding any provision of the Convention except paragraph 4, a Contracting State may
tax its residents (as determined under Article 4 (Residence)), and by reason of citizenship may tax its
citizens, as if the Convention had not come into effect.

I thought this quote in the protocol meant that the transfer is a rollover. And that the transfer is a exception to the 'paid to the individual'.
But I guess Article 20. is not valid for the US citizen, so it doesn't apply.
5. Where an individual who is a resident of one of the Contracting States is a
member or beneficiary of, or participant in, a pension fund that is a resident of
the other Contracting State, income earned by the pension fund may be taxed as
income of that individual only when, and, subject to the provisions of
subparagraph (a) of paragraph 1 of Article 20 (Pensions, Annuities, Alimony
and Child Support), to the extent that, it is paid to, or for the benefit of, that
individual from the pension fund (and not transferred to another pension fund in
that other Contracting State).”

TedSwippet
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Re: European in the US wants to FIRE in 5 years. Questions.

Post by TedSwippet » Thu Oct 10, 2019 5:45 pm

international001 wrote:
Thu Oct 10, 2019 4:58 pm
Are you saying that a resident of Spain with a US 401k should pay taxes only in US (per Article 20.1.a would be applied). Doesn't the below means that the overwrite comes into effect *just* because you are resident of Spain?
3. Notwithstanding any provision of the Convention except paragraph 4, a Contracting State may tax its residents (as determined under Article 4 (Residence)), and by reason of citizenship may tax its citizens, as if the Convention had not come into effect.
No. It looks like you may be misinterpreting the treaty again. Please read it more closely. Saying that a treaty country may tax something is not the same as saying the other treaty country may not tax it.

Article 20 paragraph 1 says that only Spain may tax US pensions paid to a resident of Spain. Article 1 paragraph 3 above does not change anything about that -- Spain already has taxing rights on these pensions. What Article 1 paragraph 3 does say is that Article 20 paragraph 1 does not apply to US citizens resident in Spain. So now not only Spain but both the US and Spain can tax US pensions paid to a US citizen Spanish resident.

Put another way, if there were no treaty, Spain would tax US pension payments paid to any Spanish resident (US citizen or not) under its normal tax rules, and the US would tax them too under its extraterritorial citizenship-based tax rules, and the taxpayer would need to use foreign tax credits to avoid double-taxation. However, there is a treaty, and Article 20 paragraph 1 removes the US's ability to tax these payments to a resident of Spain. But ... Article 1 paragraph 3 undoes that specifically for US citizen residents of Spain, so that now both countries can tax these payments to a US citizen, as if there were no treaty.
international001 wrote:
Thu Oct 10, 2019 4:58 pm
I thought this quote in the protocol meant that the transfer is a rollover. And that the transfer is a exception to the 'paid to the individual'.
5. Where an individual who is a resident of one of the Contracting States is a member or beneficiary of, or participant in, a pension fund that is a resident of the other Contracting State, income earned by the pension fund may be taxed as income of that individual only when, and, subject to the provisions of subparagraph (a) of paragraph 1 of Article 20 (Pensions, Annuities, Alimony and Child Support), to the extent that, it is paid to, or for the benefit of, that individual from the pension fund (and not transferred to another pension fund in that other Contracting State).”
This article might protect from Spanish tax on a Roth conversion, provided that Spain recognises a rollover/conversion as a pension transfer and not a pension withdrawal. As already noted, you need to investigate Spanish tax law thoroughly here.

international001
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Re: European in the US wants to FIRE in 5 years. Questions.

Post by international001 » Thu Oct 10, 2019 7:02 pm

I understand the meaning but I think the words lead to confusion if you don't make assumptions. I guess the unerlying problem is that law uses words
instead of (programming-language-like) logical expressions. Sort of the issues you see discussed about the oxford comma interpretation.

The *only* in Art 20.1.1, can mean many things, and you could consider that Article 1.p3 negates that meaning or just expands on it.
pensions and other similar remuneration derived and beneficially owned by a
resident of a Contracting State in consideration of past employment shall be taxable only in that
State;
Anyway, that's very useful. Hopefully not just to me but to anybody trying to parse tax treaties. It's difficult to find quality comments online. If you look into https://www.expatforum.com, many folks will see that many people complain getting a different answer depending who (all paid professionals) you ask.

Even this thread corrects some of your old posts (viewtopic.php?t=140340, where you suggested that perhaps Roth treatment was described in the treaty). I'll update the other thread with a reference to this one. Sure those folks will find it useful.

Wannaretireearly
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Re: European in the US wants to FIRE in 5 years. Questions.

Post by Wannaretireearly » Thu Oct 10, 2019 9:17 pm

international001 wrote:
Thu Oct 10, 2019 3:38 am
Wannaretireearly wrote:
Thu Oct 10, 2019 2:04 am
What if u maintained US address/residency, while living most of the time in Europe?
Why wouldn't this work? E.g. 'retire', $0 income, file returns as usual (assume US citizen). But live where u want in Europe some/most of the time?

Love to see the comments/criticisms for above. Cos that above is my plan! And I'm sure folks here actually live like this today.
That's where many rich folks do in some countries south of Europe. In some upscale neighborhood you can see only people during the summer
Thanks. But why do you have to be rich? ;)
Buy Low, Sell High

EddyB
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Re: European in the US wants to FIRE in 5 years. Questions.

Post by EddyB » Thu Oct 10, 2019 10:36 pm

Wannaretireearly wrote:
Thu Oct 10, 2019 2:04 am
What if u maintained US address/residency, while living most of the time in Europe?
Why wouldn't this work? E.g. 'retire', $0 income, file returns as usual (assume US citizen). But live where u want in Europe some/most of the time?

Love to see the comments/criticisms for above. Cos that above is my plan! And I'm sure folks here actually live like this today.
Assuming you mean to spend enough time in one country (not just Europe) to be a tax resident under its physical presence test, you’d be a tax resident ....

international001
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Re: European in the US wants to FIRE in 5 years. Questions.

Post by international001 » Fri Oct 11, 2019 8:36 am

Wannaretireearly wrote:
Thu Oct 10, 2019 9:17 pm
international001 wrote:
Thu Oct 10, 2019 3:38 am
Wannaretireearly wrote:
Thu Oct 10, 2019 2:04 am
What if u maintained US address/residency, while living most of the time in Europe?
Why wouldn't this work? E.g. 'retire', $0 income, file returns as usual (assume US citizen). But live where u want in Europe some/most of the time?

Love to see the comments/criticisms for above. Cos that above is my plan! And I'm sure folks here actually live like this today.
That's where many rich folks do in some countries south of Europe. In some upscale neighborhood you can see only people during the summer
Thanks. But why do you have to be rich? ;)
No.. but it's more worth the hassle the more money you have.. At some point if you are very rich it doesn't make sense to pay so much to a country just because you are resident on it.
I think Italy got a new law where the max you can tax a year is 100k euros for income outside Italy

Topic Author
euinvestor1234
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Re: European in the US wants to FIRE in 5 years. Questions.

Post by euinvestor1234 » Fri Oct 11, 2019 2:09 pm

Thank you all for the information.
This topic seems very complicated to me. Would anyone in a similar situation post their approach and what country they retired to? I understand there is a lot of variation, but some examples of what people ended up doing in practice would be helpful.

For example my plan was to have most holdings in taxable accounts with US domiciled ETFs using a US broker. This would be in the accumulation phase while I am working in the US. Then once I retire and am not a US person anymore I would have 2 options. The one I am leaning towards is to keep the ETFs as they are and not care about the estate tax because my portfolio is designed to be spent until I get free pension in my home country. Other than estate tax, are there any other problem with this?

The other option which I am not very sure about is moving to a third country for one year and sell all the ETFs there. Then I buy Ireland domiciled ETFs. I read somewhere on this forum that a person did something similar by moving from the US to Japan for 1 year (which apparently has no capital gains on foreign assets for the first few years). Then this person moved to their favored country without paying capital gains. I have not researched this option much. Does anyone have experience with this?

international001
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Re: European in the US wants to FIRE in 5 years. Questions.

Post by international001 » Fri Oct 11, 2019 5:53 pm

TedSwippet listed a bunch of possible problems, so you may want to check on those. But if you don't hit any of those issues, it seems to me that you would pay at most the tax you owe in Sweeden (after credits)

It seems Japan is a loophole, since capital gains would not be excempt on being taxed in the US
ARTICLE 16
(Capital Gains)
Gains from the sale, exchange, or other disposition of capital assets derived by a resident of a Contracting State
shall be exempt from tax by the other Contracting State unless-
But with my track record, wait for somebody else to confirm my interpretation.
I wonder how easy is to become Japanese resident just for one year, since they are notorious for not accepting many immigrants. As Tourist is enough?

Topic Author
euinvestor1234
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Re: European in the US wants to FIRE in 5 years. Questions.

Post by euinvestor1234 » Sat Oct 12, 2019 5:40 pm

If I have understood correctly, a Swedish citizen with a Swedish broker who buys US investments that pay dividends (using the treaty) pay 15% tax in the US and another 15% tax in Sweden (total 30% tax on dividends). This is for taxable accounts. Would the same be true if the broker was US based instead? I assume this rate would be the same for Irish ETFs because the tax rate for dividends in Sweden is 30% (in taxable account).

TedSwippet
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Location: UK

Re: European in the US wants to FIRE in 5 years. Questions.

Post by TedSwippet » Sun Oct 13, 2019 4:36 am

euinvestor1234 wrote:
Sat Oct 12, 2019 5:40 pm
If I have understood correctly, a Swedish citizen with a Swedish broker who buys US investments that pay dividends (using the treaty) pay 15% tax in the US and another 15% tax in Sweden (total 30% tax on dividends). This is for taxable accounts.
Assuming that a) the tax rate in Sweden for dividends is 30%, and b) Sweden allows you the full foreign tax credit for the 15% you lose in US tax on these dividends, then yes.
euinvestor1234 wrote:
Sat Oct 12, 2019 5:40 pm
Would the same be true if the broker was US based instead?
Yes. Broker location makes no real difference for this holding. Remember though that you risk US estate tax on holding of any US assets above $60k. So as well as your US domiciled funds or ETFs, any cash you hold in a US broker would also be at risk from US estate tax. In contrast, cash in a non-US broker would not be. (US domiciled funds or ETFs are US situs assets no matter where the broker is located.)
euinvestor1234 wrote:
Sat Oct 12, 2019 5:40 pm
I assume this rate would be the same for Irish ETFs because the tax rate for dividends in Sweden is 30% (in taxable account).
Possibly not. And the degree of difference depends on what the ETF holds.

If Sweden is like most countries here (and you should check this), it will not allow you a foreign tax credit for the 15% US tax that the Ireland domiciled ETF will pay internally to the US on dividends from US stocks that it holds. In the worst case, an Ireland domiciled S&P 500 index fund say, you will only receive 85% of the underlying stock dividends (after US tax paid internally by the fund), but Sweden will tax that at 30%, giving an effective 40.5% tax rate on dividends. Worse than the 30% you might pay on an equivalent US domiciled fund.

For an ETF containing no US stocks at all, the outcome is neutral. The tax loss to the underlying stock countries will be broadly the same for both US domiciled and Ireland domiciled funds, so the dividend paid out to you as the investor would also be the same in both cases.
euinvestor1234 wrote:
Fri Oct 11, 2019 2:09 pm
The one I am leaning towards is to keep the ETFs as they are and not care about the estate tax because my portfolio is designed to be spent until I get free pension in my home country. Other than estate tax, are there any other problem with this?
Sweden may have adverse tax rules for 'offshore' fund holdings, something similar to the US's horrible PFIC rule and the UK's less nasty 'reporting fund' regime, and any adverse tax rules it does have might encompass US domiciled ETFs. Check then that Sweden will not apply punitive tax when you hold or (particularly) when you sell non-UCITS funds or ETFs outside a sheltered account such as a 401k or IRA.

Also, be sure that you are not dismissing the US estate tax issue too lightly. If you take this course, you need to prepare for the possibility of your relatives cursing you at your graveside for needlessly throwing away between 26% and 40% of their bequest to what is to them a foreign government.

international001
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Re: European in the US wants to FIRE in 5 years. Questions.

Post by international001 » Sun Oct 13, 2019 6:18 am

TedSwippet wrote:
Sun Oct 13, 2019 4:36 am
Possibly not. And the degree of difference depends on what the ETF holds.

If Sweden is like most countries here (and you should check this), it will not allow you a foreign tax credit for the 15% US tax that the Ireland domiciled ETF will pay internally to the US on dividends from US stocks that it holds. In the worst case, an Ireland domiciled S&P 500 index fund say, you will only receive 85% of the underlying stock dividends (after US tax paid internally by the fund), but Sweden will tax that at 30%, giving an effective 40.5% tax rate on dividends. Worse than the 30% you might pay on an equivalent US domiciled fund.
That's why I like US investment (less taxes)
But also to keep in mind that you can get an Irish fund that it's accumulating, so for a buy and hold strategy, this extra 30% becomes less and less important for the long term

TedSwippet wrote:
Sun Oct 13, 2019 4:36 am
For an ETF containing no US stocks at all, the outcome is neutral. The tax loss to the underlying stock countries will be broadly the same for both US domiciled and Ireland domiciled funds, so the dividend paid out to you as the investor would also be the same in both cases.
Can you explain why this would happen. US gives you a tax credit if the underlying stock is in a foreign country and taxes the dividends.

TedSwippet
Posts: 2483
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: European in the US wants to FIRE in 5 years. Questions.

Post by TedSwippet » Sun Oct 13, 2019 7:45 am

international001 wrote:
Sun Oct 13, 2019 6:18 am
That's why I like US investment (less taxes)
Not necessarily. At the extreme, a US investor might pay more than 35% federal tax, more than 10% state tax, and then 3.8% on top of both of these due to NIIT. Even at moderate levels of income, US federal and state tax combined can be high.

I live in the UK, which is (again) nobody's idea of a low-tax country, and my overall tax liability reduced when I moved from California back to the UK some years ago, with the same salary, benefits, and investment income. The headline UK rate may look higher, but most comparisons ignore US state tax and things like the NIIT and focus on federal only, and no comparison I have ever seen adequately takes the higher UK tax-free allowances into account.
international001 wrote:
Sun Oct 13, 2019 6:18 am
But also to keep in mind that you can get an Irish fund that it's accumulating, so for a buy and hold strategy, this extra 30% becomes less and less important for the long term.
It depends. If Sweden allows dividends in accumulating ETFs to 'roll up' without annual tax, there may be a benefit to these types of ETFs for Swedish residents. A US citizen living in Sweden cannot not hold them though, thanks to the US's horrible PFIC tax rule. Only usable for non-US persons, then.
international001 wrote:
Sun Oct 13, 2019 6:18 am
TedSwippet wrote:
Sun Oct 13, 2019 4:36 am
For an ETF containing no US stocks at all, the outcome is neutral. The tax loss to the underlying stock countries will be broadly the same for both US domiciled and Ireland domiciled funds, so the dividend paid out to you as the investor would also be the same in both cases.
Can you explain why this would happen. US gives you a tax credit if the underlying stock is in a foreign country and taxes the dividends.
The US does. It seems though that most other countries do not.

The UK, for example, taxes the dividends paid out by an Ireland domiciled ETF as ordinary income, even though the US may already have taken 15% of any dividends received by the ETF from US stocks (and likewise any other country's dividend tax withholding). There is no way to offset UK tax with any indirect foreign tax -- that is, tax paid internally by the ETF or fund. Only direct foreign taxes paid can be used for a UK tax credit.

I don't know how Sweden specifically would handle this, but so far the only country I know of that does allow a foreign tax credit for indirect foreign tax paid internally by a fund or ETF is the US.

As for how it can happen that ETFs domiciled in different countries can produce the same outcome, imagine two ETFs, one US domiciled and one Ireland domiciled, holding only UK stocks and with identical holdings. The UK does not tax dividends paid to non-UK investors or non-UK funds. So the dividend flow to each of these from the stocks it holds is identical. Now, the broker will (must) withhold 15% US tax on dividends paid out by the US domiciled ETF to the investor, but nothing on dividends paid out by the equivalent Ireland domiciled ETF. If the investor's local tax rate is above 15% and if they can claim a foreign tax credit for the US tax paid, the results of the two are equivalent -- neutral outcome.

If however the investor's local tax rate is below 15%, or if they cannot claim full foreign tax credits for any other reason, they will not be able to recover the full 15% paid to the US if they hold the US domiciled ETF. In this case, Ireland domiciled funds win.

international001
Posts: 1142
Joined: Thu Feb 15, 2018 7:31 pm

Re: European in the US wants to FIRE in 5 years. Questions.

Post by international001 » Sun Oct 13, 2019 6:05 pm

TedSwippet wrote:
Sun Oct 13, 2019 7:45 am
international001 wrote:
Sun Oct 13, 2019 6:18 am
That's why I like US investment (less taxes)
Not necessarily. At the extreme, a US investor might pay more than 35% federal tax, more than 10% state tax, and then 3.8% on top of both of these due to NIIT. Even at moderate levels of income, US federal and state tax combined can be high.

I live in the UK, which is (again) nobody's idea of a low-tax country, and my overall tax liability reduced when I moved from California back to the UK some years ago, with the same salary, benefits, and investment income. The headline UK rate may look higher, but most comparisons ignore US state tax and things like the NIIT and focus on federal only, and no comparison I have ever seen adequately takes the higher UK tax-free allowances into account.
international001 wrote:
Sun Oct 13, 2019 6:18 am
But also to keep in mind that you can get an Irish fund that it's accumulating, so for a buy and hold strategy, this extra 30% becomes less and less important for the long term.
It depends. If Sweden allows dividends in accumulating ETFs to 'roll up' without annual tax, there may be a benefit to these types of ETFs for Swedish residents. A US citizen living in Sweden cannot not hold them though, thanks to the US's horrible PFIC tax rule. Only usable for non-US persons, then.
international001 wrote:
Sun Oct 13, 2019 6:18 am
TedSwippet wrote:
Sun Oct 13, 2019 4:36 am
For an ETF containing no US stocks at all, the outcome is neutral. The tax loss to the underlying stock countries will be broadly the same for both US domiciled and Ireland domiciled funds, so the dividend paid out to you as the investor would also be the same in both cases.
Can you explain why this would happen. US gives you a tax credit if the underlying stock is in a foreign country and taxes the dividends.
The US does. It seems though that most other countries do not.

The UK, for example, taxes the dividends paid out by an Ireland domiciled ETF as ordinary income, even though the US may already have taken 15% of any dividends received by the ETF from US stocks (and likewise any other country's dividend tax withholding). There is no way to offset UK tax with any indirect foreign tax -- that is, tax paid internally by the ETF or fund. Only direct foreign taxes paid can be used for a UK tax credit.

I don't know how Sweden specifically would handle this, but so far the only country I know of that does allow a foreign tax credit for indirect foreign tax paid internally by a fund or ETF is the US.

As for how it can happen that ETFs domiciled in different countries can produce the same outcome, imagine two ETFs, one US domiciled and one Ireland domiciled, holding only UK stocks and with identical holdings. The UK does not tax dividends paid to non-UK investors or non-UK funds. So the dividend flow to each of these from the stocks it holds is identical. Now, the broker will (must) withhold 15% US tax on dividends paid out by the US domiciled ETF to the investor, but nothing on dividends paid out by the equivalent Ireland domiciled ETF. If the investor's local tax rate is above 15% and if they can claim a foreign tax credit for the US tax paid, the results of the two are equivalent -- neutral outcome.

If however the investor's local tax rate is below 15%, or if they cannot claim full foreign tax credits for any other reason, they will not be able to recover the full 15% paid to the US if they hold the US domiciled ETF. In this case, Ireland domiciled funds win.
Yes.. US tax may be higher, but it's usually at higher income levels. So it depends on your situation
I thought all European countries allowed accumulation funds, but just an assumption and worth checking

About foreign tax credit, it's a nice (fair) thing from US. But I was thinking just from the point of view of US resident. What I guess was not the point for your example. If the US ETF holds stocks from country X and the country X (unless UK) taxes those dividends, if you are residing outside US and not US citizen, you don't care about those foreign tax credits. So better Irish funds (and likely no difference), I agree.

Also for consideration to the OP, if taxes for US stocks become to high in Sweeden, invest in BRK. It follows closely the SP500 performance but doesn't give dividends (so it's like an accumulation fund)

Topic Author
euinvestor1234
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Joined: Mon Oct 07, 2019 1:32 pm

Re: European in the US wants to FIRE in 5 years. Questions.

Post by euinvestor1234 » Tue Nov 12, 2019 1:53 pm

Which of these options would be the best given my situation?

1. Accumulate cash only when living in the US. Once I move to Europe I start buying Ireland ETFs. However I would miss on 5 years of possible gains in the market.

2. Invest in US ETFs while in the US and then sell before moving to Europe and pay capital gains tax in the US.

*I could lose a large portion of the gains in this case if my ordinary income is high in my final year.

*Is it correct that I would pay a very low capital gains tax rate if I quit my job and sell one year later (lowest tax bracket)? How does capital gains tax work if I don’t have ordinary income but large long term capital gains? For example I could wait 1 extra year without working before giving up my green card while staying in the US as long as I am within the time limit of 8 years. Could I go to Europe for "vacation" during this time?

*Do you still have to pay US capital gains tax if you buy a similar ETF immediately only that the domicile is different?

3. Move to a country without capital gains tax and sell there? Is this a legal strategy to use? Do you live somewhere for 1 year and then sell all the US ETFs and immediately re-buy Ireland ETFs? Which countries would allow this and how long do you have to live there?

4. Give all my cash to non US family member who invests in Ireland ETFs. Once I move back to Europe they gift me the ETFs. Would this be legal?

TedSwippet
Posts: 2483
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: European in the US wants to FIRE in 5 years. Questions.

Post by TedSwippet » Tue Nov 12, 2019 2:44 pm

euinvestor1234 wrote:
Tue Nov 12, 2019 1:53 pm
1. Accumulate cash only when living in the US. Once I move to Europe I start buying Ireland ETFs. However I would miss on 5 years of possible gains in the market.

2. Invest in US ETFs while in the US and then sell before moving to Europe and pay capital gains tax in the US.
Unless there is a crash that pushes you into a loss, or you face a capital gains tax rate of 100% or more, 2 is better than 1.
euinvestor1234 wrote:
Tue Nov 12, 2019 1:53 pm
*I could lose a large portion of the gains in this case if my ordinary income is high in my final year.
Yes. But as long as there are gains, you come out better than not investing at all.
euinvestor1234 wrote:
Tue Nov 12, 2019 1:53 pm
*Is it correct that I would pay a very low capital gains tax rate if I quit my job and sell one year later (lowest tax bracket)? How does capital gains tax work if I don’t have ordinary income but large long term capital gains? For example I could wait 1 extra year without working before giving up my green card while staying in the US as long as I am within the time limit of 8 years. Could I go to Europe for "vacation" during this time?
I'm sure this has been done. You'll need to pay very close attention to residency rules across at least two countries, but I don't see anything overtly impossible about it.
euinvestor1234 wrote:
Tue Nov 12, 2019 1:53 pm
*Do you still have to pay US capital gains tax if you buy a similar ETF immediately only that the domicile is different?
Yes, of course, if you are a 'US taxable person'. Not if you are a nonresident alien, though.
euinvestor1234 wrote:
Tue Nov 12, 2019 1:53 pm
3. Move to a country without capital gains tax and sell there? Is this a legal strategy to use? Do you live somewhere for 1 year and then sell all the US ETFs and immediately re-buy Ireland ETFs? Which countries would allow this and how long do you have to live there?
This sounds conceptually no different to taking up residence in FL or TX for a while before then moving abroad, which is a standard tactic for US expats to use to minimise state taxes. Again, you'll want to watch residency rules closely. Less than a year might work. I am sure there are countries where this would be feasible, but I couldn't list them.
euinvestor1234 wrote:
Tue Nov 12, 2019 1:53 pm
4. Give all my cash to non US family member who invests in Ireland ETFs. Once I move back to Europe they gift me the ETFs. Would this be legal?
This one sounds questionable. It breaks the IRS definition of a gift ("You make a gift if you give property (including money), or the use of or income from property, without expecting to receive something of at least equal value in return."). How would they know? It also potentially entangles your family member; if nothing else, they might face tax on the gains and/or "gift" back to you. If going this route, you'll want to make extra-sure it is completely watertight before embarking. It might be doable in some countries, I suppose.

international001
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Re: European in the US wants to FIRE in 5 years. Questions.

Post by international001 » Tue Nov 12, 2019 3:12 pm

For 3 or 4, I would look for tax advice in those countries. I had considered myself these kind of strategies on the past, but I didn't pursue further and I won't comment on it.

1 is a bad bet. 2 is preferred. Depending how much you have, you may pay up to 20% + 3.8% (NIT) + state taxes. But still, better than no taxes because of no gains.

wineandplaya
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Re: European in the US wants to FIRE in 5 years. Questions.

Post by wineandplaya » Tue Nov 12, 2019 10:16 pm

euinvestor1234 wrote:
Tue Oct 08, 2019 7:55 pm
The country is Sweden. Does anyone have experience with this?
If you speak Swedish, the forum at www.skatter.se is a good resource for international tax-related questions. You can probably write in English there as well.

Realize that Swedish tax rates are much steeper than US ones, especially income taxes. You reach the top 50-ish percent marginal rate with an income of around $80k. Capital gains are less brutally taxed so you might want to shift work income to capital income before relocating. On the other hand, property taxes are low and there is no estate or gift tax. Swedish authorities, including the tax agency, work much more efficiently than their US counterparts so count on getting audited every year. Filing taxes is much more automated and they quickly discover any inconsistencies. The IRS live in the stone ages in comparison. There is no "married filing jointly", so if you are married, try to even out your income with your spouse. Whatever you do, don't attempt a 401(k)/IRA rollover while Swedish tax resident: they will tax the whole lot even if you roll it over to some other tax deferred account according to a recent ruling.

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