Should You Move Out of the Country?

Recently, several of our clients have raised the possibility of moving out of the country in our periodic meetings.

At first, I thought it was mostly about expressing legitimate concerns about the state of our country (and venting a bit).

However, when one client mentioned opening a bank account in Canada and researching how to get a visa, it became clear this wasn’t just a passing thought but something they had been considering for a while.

Now, although these discussions were triggered by political shifts and uncertainty, I want to avoid any political comments.

Instead, I wanted to share some thoughts for you to consider if the idea of moving out of the country has crossed your mind.

So here are our five top concerns before you book your one-way ticket…

1. Taxation

When you move abroad, remember that as a U.S. citizen, you must still file a U.S. federal tax return annually, even if you don't owe any tax.

The United States is one of the countries that tax its citizens on their worldwide income, regardless of where they live.

The great news is that the IRS offers ways to prevent you from being taxed twice.

The Foreign Earned Income Exclusion lets you exclude a significant amount of your foreign salary from U.S. tax.

The Foreign Tax Credit provides a dollar-for-dollar credit against your U.S. tax bill for income taxes you paid to your new country.

The U.S. government also requires you to report your foreign accounts, and the penalties for skipping this are serious.

You must file an FBAR if the total value of all your foreign bank or investment accounts exceeds $10,000 at any time during the year.

FATCA requires you to report specified foreign financial assets if they exceed certain, higher dollar amounts.

For state taxes, you’ll have to sever state residency officially.

Be thorough, as some states, like California, are tough to quit. Take clear legal steps to officially sever state residency to avoid extra taxes.

The bottom line is to get professional help, as expat tax rules are complicated!

(If you need a referral, feel free to reach out.)

2. Investing

Moving abroad complicates things because many U.S. brokers are legally restricted from keeping non-U.S. residents as clients.

Contact your brokerage early, as they might require you to move your accounts to their international division or even close them.

You can usually keep your existing IRAs and 401(k)s open but be aware of two things.

You may not be eligible to contribute to US retirement accounts like IRAs if you use the exemption I mentioned earlier.

Your new country might not recognize the tax protection of your U.S. retirement accounts, such as Roth IRAs, meaning they could tax your distributions.

Be extremely cautious about buying investment funds offered in your new country.

The IRS often labels these as PFICs (Passive Foreign Investment Companies) which can lead to complex reporting and huge penalties.

When possible, keep it simple by sticking to U.S.-based investments to avoid this issue.

3. Cash Flow

Your day-to-day access to funds, credit and managing exchange rates needs a plan.

Maintain at least one U.S. checking or savings account for direct deposits, investment linkage, and paying U.S. bills.

Use a new international address to update your records.

Research cost-effective money transfer services, such as Wise or Revolut, as traditional bank wires can be expensive.

Switch to a credit card with no foreign transaction fees and notify the issuer of your move.

Research the true cost of living in your new city, including housing, groceries, and utilities and adjust your emergency fund accordingly.

4. Healthcare and Social Security Eligibility

Your existing benefits will change dramatically the moment you cross the border.

Medicare does not cover medical expenses outside of the United States.

You must secure private international health insurance or enroll in your host country's national health system, which may have eligibility waiting periods.

U.S. citizens can generally receive their Social Security benefits while living abroad, though the method of payment and any taxability will depend on the country.

However, Supplemental Security Income (SSI) benefits stop if you are outside the U.S. for more than 30 consecutive days.

5. Test Drive: Try Before You Buy

Before making a permanent move, consider a 6- to 12-month test drive in your potential new country while renting out your U.S. home.

This short term immersion is the single best way to stress-test your finances and life plan.

Instead of a vacation, this is a deep-dive reality check where you live like a local.

During this time, focus on critical questions.

• Does your planned budget hold up?
• How do you feel about the local culture, language, and politics after the initial excitement wears off?
• How do you feel about the financial security of the country you’re in and the hoops you must jump through as an expat?
• If you are retiring, test the local healthcare system and social scene.

By renting out your U.S. home, you maintain a financial safety net and a clear path back if the test drive proves the country isn’t the right fit.

What does this mean for you?

If you’re still considering making the move, I hope this newsletter serves as a helpful checklist.

Moving out of your country of residence is a big deal, so please do your own due diligence to ensure this is the right decision for you!