Read the text from the article below. To read the PDF, click here.
A READER ASKS:
I spent many years as an expat, am currently working in the US, but plan to retire in Latin America. I have and hope to keep retirement accounts – a taxable account, an IRA and a Roth IRA – at Merrill Lynch, Charles Schwab and Vanguard.
My question is: will US financial services companies continue to work with an American client who moves abroad in retirement? Can I continue to hold these investment accounts, and use them (mostly for withdrawals for retirement income)? Do I need to keep a US address in order to remain a client? I probably will use some kind of US address for mail forwarding, but will be upfront about the fact that I’m living abroad and not use it to make it seem like I’m still a US resident.
Would be very grateful if you can address this topic.
Many thanks,
Lynne
JONATHAN LACHOWITZ, A FINANCIAL PLANNER AND FEE-ONLY INVESTMENT ADVISOR, RESPONDS:
Dear Lynne,
Thank you very much for your question on WSJ Expat about a very important topic for American living or planning to live outside of the US.
Just as the tax code changes every year, so do other regulations that affect financial services and financial products. This is especially so for cross-border services.
The short answer to your question is that it is generally the compliance department of a particular financial institution which will determine if they can work with you in your new country. The compliance department will interpret various laws in the US and overseas; general business strategy of the firm; and overall risk in order to determine which services they may or may not be qualified or comfortable to offer to Americans living in a particular country, in a particular year.
Today, many of the large US financial institutions will not allow any Americans living overseas (even their own employees) to buy US-listed mutual funds, and many have been choosing to no longer work with overseas Americans – in the most dramatic cases, forcibly closing their investment. and even IRA accounts. Most large financial institutions have a list of countries (though this is generally not available from their websites) where they will either not work with new clients from that country or they will close your accounts if you move there.
One company I know of would close your accounts if you moved to, say, Canada or the Netherlands (and several other countries), but would allow you to keep your account open if you moved to Mexico, Brazil, Argentina, and many other countries. If you happened to be living in France and wanted to open a new account, however, they would refuse, but. if you decided to move there with existing accounts it would be okay with them. These generally are internal policy decisions on a company-by-company basis rather than compliance with a specific law.
If you are working with an advisor at a US firm (rather than self-directed accounts), it may have a policy that does not allow the advisor to continue working with you if you live outside of the US. This may be a good thing for you since your advisor may no longer be qualified to give advice on many aspects of your situation. If the advisor is really only selling investment products and earning commissions, they may be in violation of your new country’s securities regulations, for instance.
Some advisors have been known to suggest to clients that it is okay to use a US address as your legal address (when you really live overseas) and to not be honest with your financial institution as to your real residency. This path is fraught with peril and should cause you to consider your advisor’s ethics as well as their risk management on your behalf. I believe that your approach to be honest with your financial institutions is absolutely the best. There are still many high-quality US financial institutions who will work with overseas Americans, although finding competent cross-border tax, estate-planning and financial advisors can be challenging and sometime costly.
When you are within a year of moving and have a better idea of your likely destination, you can start planning for your cross-border move. Your financial planning may include retirement, estate, taxation, and investment issues both before and after your move; and part of this review should be discussions with your financial services companies to clarify their current policies on working with you in your new or intended country of residence. I would recommend that you consider working with at least two different US-based financial institutions when you move overseas in case one of them changes policies once you’ve moved; this way you won’t be in a panic to find a replacement. If you plan to return to the US, you may want to review the impact on things like Medicare and your credit rating after having spent considerable time in retirement overseas.