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Roth IRA vs. traditional IRA: Which retirement account is right for you?

14 Nov 2024

IRS announces inflation-adjusted tax penalties for 2025

12 Nov 2024

IRS announces e-filing shutdown for system update

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For those who have not filed and want to become compliant with amnesty from penalties.

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American retirees abroad

Many Americans are finding it increasingly attractive to move abroad for their retirement. The cost of living is lower, quality of medical care is often high and climate more favorable - Costa Rica is the new Boca Raton!

There are, however, important tax considerations that you must take into account before and while you execute your foreign retirement. The United States requires its citizens to report their worldwide income annually - regardless of where they reside. Your income may come from a variety of sources - including domestic and foreign investments, real estate, pensions and retirement plans - all of which must be correctly accounted for in your U.S. tax return.

This is where you can rely on our expertise - as we’ve helped hundreds of American retirees plan and file their US tax returns from abroad.

Frequently asked questions

1. Do I have to file a tax return while retired? I live off social security and investment income.

When seniors must file

If you are single and at least 65 years old and U.S. Social Security is the only income you receive, then you don't have to file a federal income tax return. But if you do earn other income , then you must file if the total income other than Social Security exceeds $11,850. If greater, then you have to file. Keep in mind that this income thresholds only apply to the 2015 tax year, and generally increase slightly each year.

When to include Social Security in gross income

There are certain situations when seniors must include their Social Security benefits in gross income. If you are married but file a separate tax return and live with your spouse at any time during the year, then all of your Social Security benefits are considered gross income which may require you to file a tax return.

In addition, a portion of your Social Security benefits are included in gross income, regardless of your filing status, in any year the sum of half your Social Security plus all other income, including tax-exempt interest, exceeds $25,000 or $32,000 if you are married filing jointly.

2. Will I owe any tax?

It depends. If you receive pension distributions, this is considered passive income and is not able to be excluded via the foreign earned income exclusion. If the pension contributions were previously taxed this will mitigate or remove any potential tax due. Aside from FEIE there are other measures that can be taken to help reduce taxable income - we will take care of this during tax preparation.

3. Will I have to file a state tax return?

As a retiree abroad, the most likely reason for potential state tax filing requirement is from rental properties in the states. If you have rental properties, you will likely have a state tax obligation (some states do not have state tax filing obligations (Texas, Nevada, Florida). When we review your documents we will determine your filing obligations.

4. Do I have to declare my non-US bank accounts?

Yes - all US persons are subject to FATCA and FBAR reporting if thresholds are met.

5. Do I have to file a local tax return?

Please consult your local tax advisor in your country. If you need local tax preparation services, please let us know as we have developed strong relationships with local firms around the globe who can prepare your local (ie - non-US) tax return. All firms that we partner with have been recommended by other clients and vetted by us. Please get in touch with us and we can assist.

6. Will visiting family in the U.S. have any impact from a tax perspective

Likely not. The physical presence test is not relevant for you if you do not have any earned income.

7. I receive disability - is this taxable?

Most often, disability is not earned income but it may be taxable. It is considered earned income if disability is reported on W-2. https://www.irs.gov/publications/p907/ar02.html#en_US_2015_publink10008633

As far as foreign disability - it depends. It is never taxable when payments are proceeds from disability insurance that was paid for (purchased) by the employee.

However, employer-paid short or long-term disability it is taxable depending on the treaty country. Generally, it may be taxable because the employer deducts it as an expense. If it is taxable in the foreign country, it is likely taxable in the US. However, any foreign tax paid will be credited against your US tax liability. If it is expressed on foreign employer pay stub it is also likely to qualify for FEIE. If it is social security type disability - then this is not qualified for FEIE.

Roth IRA vs. traditional IRA: Which retirement account is right for you?

IRS announces inflation-adjusted tax penalties for 2025

IRS announces e-filing shutdown for system update

Roth IRA vs. traditional IRA: Which retirement account is right for you?

IRS announces inflation-adjusted tax penalties for 2025

IRS announces e-filing shutdown for system update

TFX Mobile app

Phone

Contacts

American retirees abroad

Frequently asked questions

When seniors must file

When to include Social Security in gross income

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