Expat Retirement Planning

Retirement in the United States becomes an option for many with family ties and a history in the United States

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The cost of living at almost every level is usually lower unless you are planning on living in New York ( 25 per cent more expensive than Sydney). Denver is about ten per cent cheaper than Sydney. ( www.expatistan.com ). Federal Tax levels are generally lower than Sydney but State Taxes will put you back near Australian rates unless you live in Florida, Texas, Alaska or Nevada which have no state income taxes. Medical costs are much higher and no one should be without insurance. ( see our posting on medical insurance).

The usual tax benefits from contributing to a US 401 K or IRA or Roth IRA apply as follows:

Australian Superannuation

If you have lived and worked in Australia, you have a compulsory interest in a Superannuation Fund. Contributions have been made to your fund at 9 per cent of salary which is expected to rise to 12 per cent. Retirement benefits can be received as a lump sum or an income stream free of tax in Australia. Deductible contributions can be made until age 75. Please see a full description at https://www.ato.gov.au/super/

Central management and control of a self managed fund ( not just record keeping) must be in Australia. If you are absent for more than two years you must appoint an active resident member who manages and controls the fund.

The IRS and Super

The tax status of Superannuation in accumulation, or Retirement Benefits in retirement,  remains open in spite of the recent Intergovernmental agreement on FATCA as it applies to Superannuation funds, depending on which law firm or accountant you consult.  

                                         We have sought and paid for written opinions from three highly qualified and experienced tax professionals

Based on our research it seems that Superannuation funds are not taxable during accumulation mode. Retirement benefits will be taxed by the IRS on withdrawal. In other words it is likely that Australian retirement funds will meet requirements that tax on investment income attributable to the member is deferred given that, in an Australian context, the investment income attributable to the member is not taxable to the member until the member takes their retirement benefits out of the Australian retirement system even though that income is taxable to the fund in the year that it is derived by the fund. https://www.law.cornell.edu/cfr/text/26/1.1471-6 ( see section F). 

This seems to be a very similar outcome to the situation that applies to all US based retirement funds such as the 401k, IRA and others. There are many complexities and potential further reporting requirements. We have listed a number of sources in LINKS below for those who want to see more detail. 

We are willing to share our findings with our clients, however it is only a well informed and not a legal opinion. A professional opinion that is congruent with the specific needs of a client should be sought.

Contact us for more details.