Foreword by Tim Kochis, JD, MBA, CFP® xvii
Preface xix
Acknowledgments xxiii
About the Author xxv
Part I: Financial Challenges of a Cross-Border Life 1
Chapter 1 Who Are These Cross-Border Families? 3
The Growing Need for a Definitive Guide 4
Who's Who: Who This Book Is Meant to Serve 6
Examples of Who Might Benefit from This Book 7
Diagramming a Cross-Border Person: Residency and U.S. Income Tax Status 8
How Many Cross-Border Professionals and Families Are There? 10
Unique Challenges Faced by Cross-Border Families Connected to the United States 11
Chapter 2 Unique Challenges and the Regulatory Landscape 12
The Unequal Nature of Tax Regimes and Reach 12
The Unique Worldwide Reach of the U.S. Tax System 13
Complexity in Taxation and Other Regulations 14
Scarcity of Professional Help and Information 15
A Changing Legal, Financial, and Regulatory Landscape 17
The Far Reach of the Foreign Account Tax Compliance Act (FATCA) 19
Recommending Against Secretive Offshore Wealth Strategies 20
Part II: Saving and Investing: Building Your Personal Net Worth 21
Chapter 3 Building a Strong Foundation 23
Retirement Destination Unknown: Invest Globally 23
Spreading It Around 24
Wealth Creation and Accumulation 25
Saving from Earnings 25
Real Estate Ownership 26
Stock-Based Compensation 27
Entrepreneurs and Businesses Ownership 27
Investment Gains and Reinvestment 28
Inheritance 28
Diversification: Protecting and Growing Wealth 28
Considering Your Entire Balance Sheet 29
The Meaning of "Diversification" versus "Asset Allocation" 30
Spreading Thing Around 30
Asset Allocation in Investment Portfolios 30
A Well-Allocated Portfolio Can Still Lack Diversification 32
Allocating Your Net Worth: A Balance Sheet Approach 32
Six Primary Asset Categories 33
Three Additional Items of Importance 33
Cash and Cash Equivalents 33
Personal Residences 34
Income Property 35
Publicly Traded Securities: Stocks and Bonds 36
Bonds and Bond Funds (Fixed Income) 36
Stocks and Stock Funds (Equities) 37
Downsides of Owning Stocks 38
Concentrated Business Ownership 39
Personal Debt 40
Collectibles and Other Hard Assets 41
Other Private Investment Vehicles 41
Conclusion 42
Chapter 4 Investing in the Markets: Stocks and Bonds 43
Three Important Attributes 43
Easy Diversification 43
No Active Involvement 43
Source of Growth and Risk Control 44
Stocks and Bonds Work Better Together 44
Setting a Risk Objective 45
Managing Emotions While Focusing on the Long Term 45
Stock Picking-Maybe Not 46
Investment Advice to Live By 47
Avoiding the Herd Mentality 48
Staying Calm in Times of Change 49
Determining Investment Goals and Objectives 49
Four Common Investor Objectives Defined 50
Fundamental Investment Guidelines 51
Low-Cost Passive Investing 52
Tax Efficiency Is Huge 53
Global Diversification for All 53
Risk Control Through Asset Allocation 54
Regular Rebalancing Adds Value: Don't Invest and Forget 54
Strategic Versus Tactical Asset Allocation 55
Strategic Asset Allocation (SAA) 55
Tactical Asset Allocation (TAA) 55
Take It Slow 56
A Jurisdictional Review: Where to Hold Investments? 57
Large Foreign Banks in Europe or Asia 58
Have You Earned Your Own Private Banker? 58
Not World-Class Investments 58
Not World-Class Advice 59
Tax Reporting and FATCA 59
Large Offshore Private Banks 60
Smaller Offshore Banks and Insurance Companies 61
U.S. Brokerage Accounts 62
Problems with Maintaining Accounts in the United States 63
Foreign Residents with U.S. Accounts 64
The Best Choice for Many People 65
Part III: 401(k)s, IRAs, and Other Pensions and Savings Plans 67
Chapter 5 A Global Approach to 401(k)s and IRAs 69
Investing Your Serious Money 69
401(k) Plan Basics 70
Key Benefits of 401(k) Plans 70
Global Investing for a Global Retirement 72
The Location of Underlying Assets Is What Matters 72
401(k) Plans Lack a Global Perspective 74
Inherent Currency Risks 74
Target Date Funds: A Lot to Like and Dislike 76
IRA Rollovers 76
IRAs Offer Distinct Advantages 77
Owning Real Estate Within an IRA 78
Leave It Alone and Let It Grow 78
Chapter 6 Unique Cross-Border 401(k) Issues 80
A Lack of International Tax Agreement 81
Do the Benefits of a 401(k) Follow You? 82
International Tax Law Is Unclear 82
The 401(k) Gets Respect 82
Benefits May Travel with You, but Your Account Stays Put 83
Taking It with You 84
Must I File a U.S. Tax Return Because of a 401(k)? 84
How Are Distributions Taxed? 85
What If You Are Living Abroad When You Draw Out Money? 85
Tax Withholdings on Distributions to Nonresidents 87
Many U.S. Institutions Will Overwithhold Tax on Distributions 87
How Are Foreign Residents Recovering U.S. Withholding Tax? 87
Unreported Income Isn't Right 88
Contributions to IRA Accounts While Living Abroad-Be Careful 89
Chapter 7 Foreign Retirement Plans, Pensions, and Other Savings Accounts 91
Foreign Retirement Plans 91
U.S. Tax Treatment of Foreign Retirement Plans Is Often Unclear 92
What Is Really Happening Now? 92
Contributions by U.S. Citizens and Residents to Foreign Plans 93
For U.S. Taxpayers: Foreign Contributions Typically Do Lower Taxes 93
It Is Likely Not Being Reported to the IRS at All 94
Best Planning of All-Save Now and Save Later 94
Existing Foreign Retirement Accounts: The Real World 95
Better International Reporting and Coordination Is Needed 96
Investing Inside a Foreign Retirement Account 96
High Fees and Poor Investments: A Headwind Against Growth 96
Roth IRAs and Roth 401(k)s 97
How to Get Money In 98
Foreign Implications of Roth IRAs and Roth 401(k)s 99
Roth Accounts Don't Speak Foreign Languages 99
Traditional Pension Income 100
Pensions Paid Across Borders 100
U.S. Taxpayers Abroad with U.S. Pension Income 101
Not Reporting to Foreign Authorities Is Risky 101
U.S. Taxpayers Abroad with Foreign Pension Income 102
Nonresidents Living Abroad with U.S. Pension Income 102
Don't Claim to Be a U.S. Tax Resident When You Are Not 103
Proper Tax Treatment 103
Educational Savings: 529 Plans 104
To Maximize Benefit, Start Very Young 105
Foreign Residents Beware 105
Finding Good Advice Is a Challenge 106
Part IV: Real Estate 107
Chapter 8 Renting, Owning, and Investing 109
Crazy for Real Estate 109
Real Estate Appreciation Likely to Slow in Future 109
Primary Residences and Vacation Homes 110
Advantages to Owning Your Home 110
Owning a Vacation Home 111
The Process of Buying a Home in the United States 112
Selling Expenses and Property Taxes 113
Buy or Rent upon Arrival? 113
When You Should Probably Own 115
Real Estate as an Investment 115
Before Even Considering an Investment 115
Benefits (and Some Negatives) to Investing in Real Estate 116
Property Types: Single-Family Homes Versus Commercial 117
Types of Commercial Real Estate Assets 117
Owning Property: Directly or with Other Investors 119
Real Estate Partnerships 119
To Rent Out or Sell a Former Home 120
Why Turn Your Old Home into a Rental Property? 120
Do You Like Fixing Toilets? 121
You Have Three Years to Decide 121
Cross-Border Situations Where a Home Is Left Behind 122
Americans on the Move 122
Foreign Nationals with U.S. Residency 122
Foreigners Might Sell Before Becoming a U.S. Tax Resident 123
Selling Before Entering the United States, When Gains Are Very Large 124
Sale and Lease Back 124
Chapter 9 Real Estate Taxation and Other Considerations 125
Basic Tax Treatment of Real Estate 125
Taxation of Primary Residences 125
Tax-Free Gain on Sale of a Primary Residence 126
The Treatment of Vacation Homes 127
Taxation of Rentals and Other Investment Property 127
Reducing Income Tax-A Shelter from the Tax Man 128
Selling Investment Property-Calculating Taxable Gains 129
Tax Basis and Accumulated Depreciation-Shifting Income Down 129
Foreign Properties Often Not Reported to the IRS 130
Go Ahead, It Won't Hurt Too Much 131
It's Not Really "Forever"-But It Might Be 131
Global Transparency Is Coming 132
Foreign Property Gifted by Family Members 132
Owning Property Inside of an IRA 133
Rules to Be Carefully Followed 133
Be Careful to Read the Fine Print 134
Other Cross-Border Considerations 135
Tax-Free Exchange of Investment Property-Doesn't Travel Well 135
Sorry, This Only Works for U.S. Properties 136
Avoid Owning Foreign Real Estate Through a Foreign Corporation 136
Unique Currency Risk When Owning Property Abroad 137
Strange Gains and Losses on the Retirement of Debt on Personal Residence 137
Nonresident Aliens: Investing in the United States and the EB-5 Program 139
Nonresident Aliens Investing in U.S. Real Estate 139
Becoming a U.S. Resident-EB-5 Visas 140
Estate Taxes on U.S. Property Owned by Nonresidents 140
Risk of Estate Taxes with Foreign Property 140
Part V: Cross-Border Taxation 143
Chapter 10 Understanding the Three Types of Cross-Border Families 145
The Unique Complexities of Cross-Border Taxation 145
Tax Profiles: Three Types of Cross-Border Families 147
Type 1: Foreign Nationals in the United States 147
Learning the U.S. Tax System 148
Type 2: American Citizens and Permanent Residents Living Abroad 148
Foreign Citizens Leaving the United States for Short-Term Assignments 149
Expatriate Assignments and Tax-Equalized Employment Packages 150
"Localized" Employment Contracts in Another Country 151
Reducing U.S. Tax for Taxpayers Living Abroad 152
Foreign Earned Income Exclusion 152
Foreign Housing Exclusion 152
Foreign Tax Credits 153
Revoking the Foreign Earned Income Exclusion 153
Likely U.S. Tax Liabilities for U.S. Taxpayers Abroad 154
Type 3: Foreign Nationals with Assets in the United States 155
Taxation by the IRS-On Passive U.S. Investments 156
Interest Income, Dividends, and Capital Gains 157
Rental Real Estate Property In the United States 157
Overwithholding Tax on Bond Interest Inside a Fund 158
Estate Tax Exemptions for Nonresidents 159
Becoming a U.S. Resident for Tax Purposes 159
Two Tests to Determine U.S. Residency 160
Lawful Permanent Resident Test (the Green Card Test) 160
Substantial Presence Test 161
Situations When Taxed Only on U.S.-Sourced Income 162
Tax Treaty Basics 163
Chapter 11 U.S. Tax Overview: Federal and State 165
Taxing Worldwide Income: The IRS Is Different 165
Filing Deadlines 166
Income Tax Overview 166
Gross Income 167
Deductions from Gross Income 168
Itemized or Standard Deductions from AGI 168
Personal Exemptions 169
Final Taxable Income 169
Understanding Marginal Tax Rates 169
Lower Tax Rates on Capital Gains and Dividends 170
Real Estate Rental Income 171
Stock-Based Compensation: Options 173
Stock-Based Compensation: Stock Grants and RSUs 173
Exchange Rate Issues When Taxing Foreign Income 174
State Income Taxes 176
State Tax Returns Often Based on Federal Returns 176
Different Treatments of Long-Term Capital Gains and Qualified Dividends 176
State Tax Residency: Requirements and Termination 177
When States Come Looking for You 178
U.S. Tax Residents Living Abroad with State Tax Liabilities 179
Avoiding Unnecessarily Becoming a State Resident in the First Place 179
Chapter 12 Additional Tax-Planning Considerations 181
Investing Outside of the United States-Avoiding PFIC Rules 181
Passive Foreign Investment Corporations (PFICs) Explained 181
Complex Reporting and Punitive Tax Treatment 182
Advice on Foreign Accounts and PFIC 184
Three PFIC Scenarios to Consider 185
Foreign Asset Reporting and Tax Evasion 186
Foreign Bank Account Reporting (FBAR) Requirements 187
FBAR Penalties 188
Other Foreign Asset Reporting: Form 8938 188
Additional Foreign Asset Reporting 191
Voluntary Offshore Disclosure Programs (OVPD) 191
Other Forms of Taxation in the United States 192
Social Security Taxes 192
Social Security Tax Calculation 192
Totalization Agreements 192
Special Taxes on High-Earners 193
Additional Medicare Taxes on Ordinary Income 193
Net Investment Income Tax (NIIT) 194
Gift and Estate Taxes 194
Gift Taxes 195
Estate Taxes 196
Estate Taxes for Nonresidents 197
Expatriation Tax (Exit Tax) 197
Prearrival Planning 198
Accelerate Gift Planning 199
Accelerate Income When Possible 199
Distribute Deferred Income When Possible 199
Consider Realizing Gains Before Moving Here 200
Review Existing Asset Structures Before Arriving 201
Review Immigration and Visa Alternatives 201
Part VI: Retirement Planning 203
Chapter 13 Planning for a Global Retirement 205
Where to Retire? A Common Dilemma 205
Being Near Family Is Most Important 206
Plan to Retire Anywhere, to Maximize Flexibility 206
Worldwide Planning Is Also Inherently More Complex 207
Investing for Retirement 207
Having Enough Money to Retire 208
How Much Money Will You Need? 208
First Question: What Will You Need to Live On? 208
Second Question: What Are Your Sources of Ongoing Retirement Income? 209
Third Question: Will Your Retirement Savings Make Up the Difference? 209
Safe Withdrawal Rates: The 4 Percent Rule 210
What Is a Successful Retirement? 211
The Important Role of Financial Planning 211
Longevity Risk Is Alive and Well 212
Inheritance: Plan for It, But Don't Count on It 212
Organizing and Optimizing Worldwide Income and Assets 213
Assessing Sources of Income in Retirement 213
Organizing Your Assets 214
Cash and Cash Equivalents 215
Qualified Accounts: 401(k)s, IRAs, and Other U.S. and Foreign Retirement Accounts 215
Nonqualified Investment Accounts-Generally Holding Stocks and Bonds 216
Concentrated Stock and Stock Options 217
Real Estate 217
Alternative Investments 217
Currency Exposure: A Real Retirement Risk 218
Chapter 14 Considerations for Cross-Border Retirees 219
Tax Planning for Retirement 219
Taxes on Pension and Social Security Income 219
Taxes on Investment Income and Gains 219
Taxes on Distributions from Qualified Accounts 220
Taking Retirement Accounts with You 221
Cash Management and Account Administration 221
FATCA Fallout: Harder to Deal with Big International Banks 222
Accessing Your Money 222
Foreign Exchange Costs-Minimize Translations 223
Efficient Cross-Border Money Transfers 223
Social Security and Foreign Government Pensions 224
Social Security Benefits Earned Are Usually Yours for Life 225
Possible "Windfall Elimination" Reduction to Benefits 226
Long-Term Viability and Ongoing Changes 226
Filing for Benefits Early, on Time, or Late? 227
Foreign Government Pensions 228
Drawing on Tax-Deferred Accounts 228
The Ordering of Withdrawals 229
Conclusion 230
An Overview of Key Points 230
Final Thoughts and Words of Encouragement 234
Index 235
