5 Investment Mistakes Made by Americans living abroad


1. Buying foreign mutual funds

Mutual Funds play a key role in the investment strategy of most Americans, but I believe care is needed when considering investing in mutual funds while living abroad.

As per the IRS, a foreign mutual fund is considered a Passive Foreign Investment Company (PFIC) and can be a tax nightmare for U.S. tax filers. PFIC’s are subject to specific, highly punitive tax treatment which can result in any gains being eroded compared to similar investment for US mutual funds.

There are also specific tax reporting requirements which can incur additional costs for the investor.


2. Freeze and Do Nothing

With the passing of Foreign Account Tax Compliance Act (FATCA), I believe there are a lack of financial providers and financial advisory companies willing to assist Americans living abroad. When you combine this problem with the other complex tax and reporting rules and pitfalls many Americans decide the best course of action is to do nothing.

However, this is not always a good strategy as leaving your hard earn salary in cash will not allow you to work towards your goals. There are many compliant investment options which a qualified financial advisor, like me, can help you with.


3. Do not report correctly with the IRS

The requirements under FATCA and the many reporting requirements for all foreign assets can be a minefield for American investors living abroad.

There are numerous tax filings and compliance to these reporting requirements require comprehensive management to ensure they are done in a timely and correct manner.  Late or incorrect filing can result in penalties which adds to the investor reluctance to invest outside of the US.

If the portfolio is correctly set up and managed in accordance with IRS rules, then this requirement should not be a headache that most investors think it will be.


4. Contribute to non-qualified foreign pension plan

While working abroad Americans may participate in their employer’s retirement scheme and receive tax benefits in their country of residence. It is very important that Americans are aware that not all retirement plans are the same and that they may not receive favourable tax treatment under the US tax system when the expat starts to draw it down.

The impact of US tax on the pension plans needs to be fully understood so that the American expat can make an informed decision if their employer scheme is the best option for their retirement goal.

There are options for Americans to save for their retirement in vehicles that can give similar
benefits to their 401(k) and IRA plans back in the USA.


5. Buy non-U.S. tax compliant insurance

I believe Insurance is a key part of financial planning for all clients and nationalities.

While living abroad, Americans need to be careful which type of product they purchase as most non-U.S. registered insurance products that hold cash value almost never qualify as insurance under U.S. tax rules. Also, the underlying investments may hold PFICs which brings the additional costs and reporting requirements mentioned above.

With these concerns and the lack of tax deferral within the plan it is very important that correct advice is received to ensure that your insurance protection matches your needs as efficiently as possible. You should always obtain the advice of a licensed insurance agent in your state.

If you require any further information on any of the above points, please feel free to reach out to me and I am happy to help.

Author: Ben Buckley

Tel: +971 56 955 1328, +353 83 148 0637
Email:[email protected]
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