If you’re a US expat looking for clear, expert financial guidance, book your free, no-obligation consultation today with Tom Zachystal, President of IAM.
The following transcript was generated by AI and may contain inaccuracies.
Carlie: Hey there, it’s Carlie back with another episode of the Expat Focus podcast. If you are an American eyeing a move abroad, there is a list of financial must-dos that you may or may not be thinking about. Here to go through them with me is Tom Zachystal. He’s the President of International Asset Management at IAM Advisors.
Now you can get in touch with Tom for a free consultation via our website. Just head to expatfocus.com, click on services at the top, and then US Citizens Financial Planning. Tom, it’s lovely to have you back on the Expat Focus Podcast. Welcome.
Tom: Thanks for having me.
Carlie: It’s interesting. Tom, we’ve spoken a few times before over the years, and I’m not sure we’ve ever touched on this topic before, but when you sent me some briefing notes for today’s chat, I noticed that you were actually born in Prague and you grew up in Canada. So you really are walking the talk here. What can you tell me a little bit about your background?
Tom: Yeah, that’s right. I have ended up with three citizenships. Somehow I was born in Prague. We left when I was very young, four years old. I grew up in Canada, worked overseas. Originally I was an engineer by education. I worked for a company called Schlumberger in the oil services business for about 10 years in the Middle East and Africa and Europe a bit.
And then I settled down in California. I ended up there for a startup and eventually worked for Merrill Lynch briefly, and another firm, and started my business in 2002, providing investment management and financial planning to Americans living abroad.
Carlie: So when it comes to financial planning for foreigners, you really are coming from a place of direct experience then?
Tom: Yeah, direct experience and the experience of about 200 households as well. We have clients in 35 countries. About half our clients are in Europe, and so we’ve been doing that for about 25 years now.
Carlie: Tom, we have seen a spike in US citizens inquiring about moving abroad. What are the first steps that they should be thinking about from a financial perspective if they are going to pack up their lives and leave the USA?
Tom: Well, for Americans especially, you can never leave the USA entirely because the US taxes on the basis of citizenship. And the only other country that does that is Eritrea. And that’s just because they have more people outside the country than inside the country. So we’re not in the best of company there.
But for better or worse, if you want to maintain your US citizenship or if you’re a permanent resident with a green card, you’re always going to have to do the US tax reporting and that creates other issues for you. Mostly the biggest thing we see come up amongst our client base is the fact that a lot of banks and brokerage firms in the US just don’t want to deal with expats anymore.
And you may also have a problem, especially in places like Europe, opening local bank accounts or brokerage accounts as a US citizen. So that’s the number one issue we see as well.
Carlie: And why is that? Why is there such an incompatibility between American banks serving Americans living abroad and foreign banks not wanting American citizens as clients?
Tom: When I started this business 25 years ago, there was no such issue. It’s really just come into effect over the last decade or so because of a couple of reasons. Probably the major reason is what we call FATCA, Foreign Account Tax Compliance Act, which is essentially a tax information sharing agreement that the US has in place with many other countries.
Originally it was meant to find Americans hiding their money in places like Switzerland. And so through a carrot and stick method, the US compelled foreign financial institutions to disclose on their accounts held by US citizens and report to the IRS. But then these countries said, well, if we’re going to do that, you have to do that.
And most of these agreements have become reciprocal. And so now the US banks and brokerage firms have to report to your local tax authority on accounts held in the US if you’re a tax resident in some other country. And then there are also what are called KYC, Know Your Client rules that brokerage firms and banks have to respect. They may be different in other countries, and then there’s money laundering provisions. They also have to keep greater track of who you are, where you live, and how you’re moving money around.
Carlie: I was just in the US last week and when I went through customs, they asked me if I was carrying any cash and how much. I have a feeling it wasn’t enough to trigger any KYC concerns there.
Tom: Yeah, and that’s a question that also comes up. What about this $10,000 thing? Everyone says, oh, I’m going to bring $9,000 or something. Well, you should understand that that $10,000 thing has to do with cash in your pockets or money orders or something like that. It’s not transferring money internationally.
You can transfer as much as you want, there’s no limit on that. There’s no tax on it. There may be a reporting thing, but really it’s not an issue transferring even larger sums of money internationally.
Carlie: Do you have cases where your clients do want to carry cash between countries, and what do you advise there?
Tom: Well, it’s exceedingly rare. I mean, why would you do it when everybody uses their phone these days to pay for things, especially outside the US? People don’t even use checks in Europe anymore. You use your phone or you have a debit card or a credit card. Generally speaking, people don’t carry a ton of cash with them.
If you are going to someplace where maybe they don’t accept credit cards, a little more off the beaten path, and you need some cash, usually what people do is they just use a debit card at some local bank and withdraw some local money once they get there. The days of converting your money before you leave or traveler’s checks and things like that, I think are more or less gone.
Carlie: I always have a little chuckle when my mom sends me 50 euros in an envelope for my birthday. It’s very cute, but it’s probably not the most secure way to send me a gift, especially money. I have to get her on the bank transfer app next time I see her, I think.
Tom: Yeah.
Carlie: The second point from a financial perspective for Americans looking to make a move abroad is to consider the tax treaties between the USA and the country that they’re looking to move to. Tom, how important is this, especially before you settle on the country you want to live in?
Tom: Yeah, exactly. Well, it’s very important and the US has tax treaties with many countries. Not every country, but most countries. And so what a tax treaty is designed to do is eliminate double taxation. So you should not have to pay tax on the same amount twice if there’s a tax treaty in place between the US and your country of residency.
And this again goes back to citizenship-based taxation, because you always have to report the income. So typically what happens is on most sorts of income, you will be taxed in your country of residency under most tax treaties that the US has in place, except for Social Security, which generally gets taxed by the country that pays it. But most of your income will be taxed locally.
And so what you end up doing is you put all your income on both sets of tax forms and then you take a credit for the tax paid locally against your US taxes. And in many cases you may be living in a higher tax jurisdiction like Europe, so that’ll wipe out your US tax obligation. But for Americans, essentially you end up paying the higher of the two tax rates, the US one or the local one is what it amounts to.
And then there are other things you can use like a foreign earned income exclusion. If you have income from abroad, you can exclude up to about $125,000 or so from US taxation using that, or you can use foreign tax credits to exclude that as well. So generally speaking, the nice thing about having these tax treaties is that they eliminate double taxation.
Carlie: What are some countries that you don’t recommend based on the tax treaty?
Tom: I always say don’t let the tax part of it wag the lifestyle dog. Because at the end of the day, it’s the lifestyle you’re after as an expat for most of the time. And then there are other taxes you need to be aware of sometimes though.
For example, Spain has a wealth tax and it’s a wealth tax that isn’t just on the super rich. They’re talking about a wealth tax in France, but it’s on people who have over like a hundred million dollars or something like that. In Spain it isn’t like that. It’s on people who even have more modest amounts, and so you have to be aware of that.
You have to be aware of inheritance taxes in some places. In the US we have a big estate tax exemption and no inheritance tax. Many other places have an inheritance tax, so all kinds of taxes come into play, and you have to be aware of what you’re getting yourself into.
But in terms of a good country tax-wise, for example, Portugal has no wealth tax. The tax rates are modest compared to other places. And in some cases if you’re on a certain type of visa, you might even get a tax holiday for a certain period of time.
Carlie: And the weather’s pretty good.
Tom: And the weather’s great and people like it. And generally speaking, a lot of people speak pretty good English in Portugal, unlike say Spain, where maybe in the smaller towns they don’t necessarily speak English. But in Portugal they all, most of them learn English, especially the younger people in school. So yeah, it’s great that way too.
Carlie: Hashtag move to Portugal. There you go. We do have that inheritance tax here in France, and that’s been an interesting one to navigate, especially in explaining to my family that if anything happens to them and they leave me money in their wills, then I’m subject to needing to pay the French government some of that money. And it’s sometimes a hard thing to explain to someone who doesn’t live in France, like why that’s the case.
Tom: Yeah. And also speaking of France, one of the ways that people avoid probate, for example, in the US is they’ll have a family trust, but that doesn’t really pass muster in France. They don’t recognize trusts. And in fact, if you have a US trust, it gets taxed at an unfavorable rate in France.
Plus there’s the inheritance laws there. You can’t disinherit your kids, for example. So there are rules around that in France and in other places as well that we’re not used to as Americans.
Carlie: I know, Tom, you said earlier that you shouldn’t base the country you want to move to on things like the tax treaty situation, but for people that may have, as you mentioned, a family trust, does the country they move to become a bit more important when it comes to recognition of that and how it’s treated for tax purposes?
Tom: Well, it becomes important, like we just mentioned with the France situation. And sometimes it’s a trust. Sometimes, because you have common law and you have civil law—the trusts are under our legal system and they’re generally not recognized in places that have a different legal system. So that’s one issue.
The other thing that comes up sometimes are certain types of accounts, like for example, Roth IRA accounts are often not recognized under tax treaties and they can be treated as just regular taxable brokerage accounts in your country of residency, which defeats the purpose of having something like a Roth, which is supposed to be tax-free money for you somewhere down the road in retirement.
And sometimes it works the other way around. In the UK for example, they have accounts called ISAs, which work like a Roth account for local tax purposes, but they are not recognized by the US as being tax deferred or tax free. So that can create an issue on your US tax reporting.
Carlie: Now, we mentioned this just earlier, but to dive in a little deeper, the acronyms FATCA and FBAR—what are they and why are they so important to Americans moving abroad?
Tom: Right. So important for a couple of reasons. We talked about FATCA in the context of the reporting that banks and brokerage firms have to do to the other tax authority. You also have a personal tax reporting obligation as a US citizen under FATCA, and then what’s called an FBAR form, which is something that probably most Americans that have foreign accounts have to report on.
So the FBAR is actually something you report to the Treasury Department. It’s a report you have to file with the Treasury Department. It doesn’t really involve taxation, it’s informational reporting. They just want to know where your money is overseas. And so if you have accounts, non-US accounts, totaling over $10,000 at any point during the year, then you have to report all of them on an FBAR form.
So you can’t put $9,000 into 10 accounts. It’s $10,000 in aggregate. So that’s what the FBAR form is about, this $10,000 limit on foreign accounts. And then there’s FATCA reporting. The personal FATCA reporting is what’s called Form 8938 in the US, and it’s a form that has the term “specified foreign assets.” That has a higher bar, and it depends on whether you’re filing jointly or singly and whether you’re a US resident or non-US.
But it’s another form where you have to report things like a bank account, or it might be if you own a company overseas or something like that—specified foreign assets. So you might want to have a look at that. It generally kicks in at around $200,000 if you’re filing singly and you’re overseas.
Carlie: I can assume what this answer is, Tom, but is there any country in the world you can move to that gives you a bit less of a reporting burden?
Tom: Well, there’s no reporting burden in places like a lot of the Arab countries. United Arab Emirates, they don’t even have tax.
Carlie: Well, let’s all move to the UAE.
Tom: Yeah. I mean, they do VAT now though. There’s always something, right? They always have to make money somehow. But generally speaking, where are you going to move? The thing is, as a US citizen, you’re always going to have this US tax reporting issue. Unless you’re at the point where you’re below the standard deduction and you don’t have to file tax forms at all, but for most people, that isn’t the case.
Carlie: It’s probably not so compatible with the move abroad generally.
Tom: Exactly.
Carlie: Now, how should American expats approach the subject of health insurance if they’re moving abroad for a long time?
Tom: Right. Again, it depends where you’re moving. For example, you may be moving to a country where they have national health. National health exists in many places outside the US—Europe, Canada, New Zealand, Australia—they all have national health. And then the regulations are different on when you can get on that plan.
Generally you have to be a permanent resident in most cases. Sometimes you have to pay into it. Sometimes you have to show private insurance for a certain period of time, and then you can get on the national plan. National health is an option. The usefulness of that is variable in some cases.
Having grown up in Canada, it’s great to have national health, but you might also be waiting a long time to get treatment. And sometimes this is the case in the UK as well. So sometimes people have private insurance in addition to that, if that’s a possibility.
Things like Medicare are less useful for you if you’re older. You can have Medicare in the US, which is basically our national health system. But you might want to consider paying into Medicare as well, keeping up your Medicare benefits, Part B benefits in this case, even if you’re overseas, because maybe later in life you might want to come back to the US and avail yourself of what comes under Medicare. And then you’d have to pay a penalty to get back in it. It would be more difficult. So that’s another thing to think about.
And then things like HSA accounts, if you have those, those again are not terribly useful if you have national health. I mean, you can still use them for things like prescriptions and so on. And later in life you can cash them out. In the meantime, the money can be invested, for example. Things like long-term care insurance are almost unheard of outside the US, and if you have an LTC policy in the US it may not apply when you’re outside the US. So that’s another thing to keep in mind.
And one of the things I’ve seen come up, and it’s really a terrible situation, is that people don’t plan for later in life. For example, say you’re living in Mexico, you moved there with your spouse, at some point one of you is going to pass, and it’s going to leave one person alone. And then at some point that person is going to have to make provisions for maybe going into a nursing home, or are they going to come back to the States later in life? Or how are they going to manage that situation where they can’t care for themselves? So it’s important to think about those things ahead of time.
Carlie: I’ve been in expat circles for a while now, and I remember one woman whose husband died suddenly and they were living abroad. She had to manage closing out the operations of his business, as well as how do I deal with his death abroad? Where do I want him to be buried or cremated? If I want to repatriate him to the US, how do I even go about that? There’s a lot of things you don’t think about until you need them.
And another couple were in the situation where the husband really needed additional support. They didn’t have the community in their foreign country, and they were looking at moving back to their passport country just to have the support in older stages of life that they needed.
And is it the case that even if you are in a country’s national health scheme, that you still need private insurance, or is that not always necessary?
Tom: Well, you don’t need the private insurance if the national health will cover everything you need. But like I said, in some cases, the national health system is essentially free or very low cost, but the quality of service may not be ideal. So some countries have sort of a dual system where you can also have private insurance on top of that.
And then if you need something quickly, then the private insurance is maybe useful when something like that happens. So it’s certainly worth thinking about. Also if you’re traveling, maybe you need to have some kind of a policy that’ll cover you while you’re traveling, because a lot of people will travel later in life as well. They might not necessarily sit around in their country of residency all the time. So it might be useful to have something like that.
And those traveler’s policies are a lot less expensive if you don’t include the US as one of the countries under the policy, because things are just so expensive in the US healthcare-wise. So they’re a lot cheaper if they’re ex-US healthcare policies.
Carlie: So I just ticked over into the 40+ age category, and it’s a bit of an eye-opener to see my policy for travel insurance, the price go up at the same time. Nothing makes you feel older than that.
Tom: Well wait until you start getting seniors discounts. Nothing makes you feel older than that.
Carlie: I like the word discount though. Before we move on from this topic, I want to point out too, an Australian friend applied for her and her husband to move back to Australia—so him on a partner visa—and he actually got declined, which was unexpected. And it’s because he has Crohn’s disease, a permanent long-term illness.
And the Australian government decided he would cost the local health system too much money in medication over the course of 10 years. And they said no to his immigration even though the wife is Australian. So that’s something also I suppose for Americans to keep in mind when they’re applying, particularly for something more like permanent residency in another country, is if they do have any underlying long-term conditions and how that might affect their applications.
Tom: Yeah, exactly. An important consideration. And again, it varies by country like you say.
Carlie: As I mentioned, I just got back from a trip to the States and actually earlier this year, my husband and I went back to Australia to get married, and we were feeling quite chuffed because all the euros were transferring to Australian dollars were almost doubling, and that felt pretty good, Tom. But what do Americans moving abroad need to think about in terms of currency fluctuations and how that can affect their long-term financial goals?
Tom: Yeah, it’s a topic that is coming up quite a bit lately with the US dollar basically in a downward trajectory versus many other currencies, especially the Euro for example. One thing to keep in mind is that currencies are not like the stock market. The major currencies don’t go in one direction forever.
So for example, if you’re looking at US dollar versus Euro, the range over as long as the Euro has been around—at one point the Euro was as strong as a dollar fifty to one Euro. And at one point it was as weak as 67 US cents to one Euro. So it’s a big range, but it doesn’t go in one direction forever. Right now we’re probably at about the middle of that range. So it could go either way.
But certainly just looking at the policies out of the US these days, it seems like the Trump presidency is more in favor of a weaker dollar policy. And so the expectation might be that there’s more downward pressure on the dollar, especially if we start lowering interest rates in the US because maybe we get into a bit of a recession or something like that. So something to keep in mind.
And the nice thing is investment markets have done very well recently. And so it might be a good time to take some money out of your investments, convert that to local currency, and then you’ve got maybe money you can spend down for a year or two, and you don’t have to worry about the currency fluctuations that much. And so that’s one way that I suggest people do it sometimes, and it’s also a nice way to optimize something like retirement spending.
If you just think about it, if you take more money out of your investments when you do well one year, and then maybe you can take less when the market’s down or something like that, then that’s a good way to optimize your investment income as well as maybe iron out some of the currency fluctuations.
Carlie: Another point you gave me ahead of this conversation was emergency liquidity. What is that and how much should you have on hand?
Tom: Yeah, that’s what I just mentioned. How much should you have on hand is a moving target. It depends on what other income streams you have. Some people, for example, have all of their basic needs covered by guaranteed income. Maybe it’s covered by Social Security. If you’re living in a place like Mexico or Ecuador, maybe you have a defined benefit pension plan. Those are increasingly rare, but you might still have one. Maybe you have an annuity or something like that that covers your needs as well.
So much depends on how much is covered by guaranteed income. If it’s a smaller amount that’s covered by guaranteed income, then I would say it would be nice to have a bigger cushion, and then I’m thinking maybe six months, maybe even a year’s worth of spending. So you should think of it in terms of how much you spend on at least your basic needs, but maybe your overall needs, including discretionary things like travel, for example, and eating out and entertainment, that kind of thing.
So I think six months is sort of a good average target, but again, it depends on your personal situation and how much is being covered by guaranteed income.
Carlie: My husband and I are going through this at the moment. We’ve got one of those financial planning apps and we’re filling our buckets based on different things we want to do. We’re not at retirement age—I like to think, obviously, for anyone watching the Expat Focus YouTube channel.
And yeah, it’s really sobering to go, okay, so accounting for property tax every year, the renovation we’d like to do, the car we’d like to buy in a couple of years, this and that. And once you start allocating your money against all those different goals, you’re like, oh, should maybe curb the monthly spending a little bit.
Tom: Yeah, and there’s apps like that out there. We do a lot of financial planning for our clients too. And sometimes it’s a bit of a moving target because sometimes people forget about the taxes, for example. The more money, if you’re spending down in retirement, the more money you have to take out of your retirement accounts. Generally that’ll be taxable income to you.
And so it’s like a spiral. You need to take more money out, but then that money gets taxed, so you need to take a little more money out. That kind of thing. So it can get a little complex for sure when you’re planning that. But the bucket approach is a nice way to think of it as well. You have your basic needs that you absolutely need to cover, and then you have things that maybe can be deferred, like a car purchase or something like that.
Carlie: Oh, it’s really interesting, Tom, to start to classify your spending by wants versus needs.
Tom: Yeah. And you may not agree on what’s a want and a need necessarily. If you’re a couple, right.
Carlie: Absolutely not. Well, that actually brings me into the question of who needs a financial advisor. Tom, is there an income level at which it becomes important, or an investment type, or whether you are a property owner or not? At what point should you be looking at this, especially if you’re looking to make a move abroad, and decide, I can do this myself, I can do this with the help of a few apps, or I really need to speak to someone?
Tom: Well, I think it’s especially complex if you are moving abroad. I would highly recommend at least getting some good cross-border tax advice before you make a move, especially if you’re planning to move permanently, because things will come up that you haven’t even thought of.
Like selling a home, for example. Let’s say you’re moving from the US to Spain. Typically people moving there for retirement might have a house in the US to sell. Well, you want to sell that house while you’re still a US tax resident, because we have a capital gains tax exemption. And if you sell it once you’re a Spanish tax resident, you don’t get that in Spain, and the gain could be taxable income to you.
So things like that come up that maybe you’re not even thinking about. The wealth tax would be another one. So at least get some good cross-border tax advice. It’s more expensive than going to H&R Block in the US or something like that, but it’s worth doing, at least in the year where you’re changing tax residency.
And then the rest of it, the investment accounts—you might have issues that come up where your brokerage firm just doesn’t want to deal with you. For example, we use Charles Schwab and Interactive Brokers as custodians for our client accounts, and Schwab is pretty good. But if you open an account yourself with Charles Schwab and you live in Europe, you won’t have access to US mutual funds or exchange traded funds. But we do have access to those products, well, to the ETFs at least, for our clients living in Europe.
So things like that can come up where an advisor might give you some kind of advantage on the product side. And then on the financial planning, a lot of this is like if your car breaks down. Some people can fix it themselves and they like doing that. Other people, even if they could do it, they prefer to outsource it because maybe they have other things they want to do. Outsourcing depends on your mindset.
Carlie: Especially when it comes to the renovations, just quietly.
Tom: Well, there you go. We like people like you. But those are mostly our clients—the people who like to outsource this kind of stuff. They like to know that there’s somebody they can call if they have some kind of a financial problem. And if we don’t know the answer, we’ve got clients all over the place. We have other professionals that can find that answer for them. So it just makes their life easier and they don’t mind paying for those services.
Carlie: And are you, on the other hand, able to consult just for people looking to move abroad who may not be wanting a long-term financial advisor commitment situation?
Tom: Well, we are, but to be honest, we’re so busy right now that we’ve really stopped the one-off consultations. We don’t have an hourly rate anymore. Sometimes we might do it in the context of a financial plan, which would be like a one-time fee for financial planning. But even that, there are so many people moving abroad from the US right now that we’re just very focused on our ongoing clients. Because after all, those are the people that are paying us.
Carlie: So longer-term commitments where you can really help people over the course of their financial life.
Tom: Right, right now, that’s about what we have time for. And to be honest, that’s one of the things that people run into as well, is that a lot of firms like ours that deal in the cross-border sense—first of all, there are very few firms for US expats. And then they tend to have higher investment minimums.
Our minimum is $400,000. Other firms, and that’s a relatively low minimum—other firms have higher minimums than that. So it’s a bit difficult sometimes to get advice if you have a smaller amount or you don’t necessarily want investment management or something like that. But sometimes you can get some limited advice.
For example, if you go directly to Charles Schwab, they do have an international group, or through some international tax people. They could also offer you perhaps some limited advice around the issues that you need.
Carlie: So, Tom, if you are an American who does have that $400,000 minimum and is looking at a move abroad and wants to make sure that you’re doing it in a financially savvy and sound way, how can they get in touch with you and get some support?
Tom: Well, we have a great website. And I should mention we also have a business in Europe, a separate business that holds our European license. We’re one of the few firms—there’s maybe two or three US firms that have a European license. So we’re well set up, especially for people in Europe.
But we have a great website with a contact form up there. A lot of good information. Or you can email us. I don’t know if the email information will come up later on. But usually that’s the best way through the contact form or by email. And then we can schedule a call. There’s no charge for the call. And we’re happy to give some basic advice.
If you have a few questions, we do a lot of that as well. But just an intro call, no fee for that. And then we decide whether there’s a good fit and you want to go forward with our services. Or if not, then maybe we can refer you to a tax advisor and estate planning attorney if you need those services. Happy to do that as well.
Carlie: Tom, thanks so much for your time and for talking financial need-to-knows for Americans looking at a move abroad.
Tom: My pleasure. Thank you very much.
Carlie: That’s a wrap for today. If you are currently planning an international move, let us know what’s on your money checklist. Leave a comment on this episode over on our YouTube channel. Just search Expat Focus.
Now Tom will be back on the show soon to walk you through how to get your money out of the USA. If you have a burning question on this subject for Tom, let us know on social media and I can ask it for you. And if you want to know when that episode drops, sign up to our monthly newsletter. Just head to expatfocus.com/newsletter. I will catch you in the next one.