4 Things You Didn’t Know About Living Abroad and Saving For Retirement

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Living overseas is an enriching experience that you can’t put a price tag on, though you’d still be wise to pay close attention to the financial implications. One thing you’ll quickly learn is that there are different rules for everything from taxes and investments to real estate and retirement savings.

Before making the decision to relocate to another country, be sure to research all the different ways you could be impacted financially. This is important not just for meeting everyday expenses, but also for retirement planning.

Here are four things you might not know about living abroad and saving for retirement.

1. You Might Not Be Able To Use the Same Financial Accounts

Many American banks and brokerages don’t allow non-U.S. residents to keep accounts, so if you move overseas and you are not keeping a U.S. address, contact your financial institutions to learn their policies on living in a foreign country. If you can’t keep the account, you’ll need to transfer it to a bank that will allow you to have foreign residency. This includes retirement accounts.

2. Limited IRA Contributions Due to FEIE

The Foreign Earned Income Exclusion (FEIE) refers to the maximum a U.S. expat can earn abroad without paying federal taxes. For tax year 2024, the maximum exclusion is $126,500 per person, according to the IRS.

To contribute to an individual retirement account, an expat must have earned more foreign income than the FEIE amount, Bright!Tax noted in a blog. For example, if you live in Germany and earn $100,000 while working for a German company, your German salary will be excluded from your 2024 U.S. tax return — meaning you’ll have no earned income in the IRS’s eyes. 

This is important because if you contribute to an IRA when you weren’t allowed to, the IRS will treat the extra amount you’ve contributed as an excess contribution and “slap you with a 6% penalty on the excess contribution,” according to BrightTax.

3. Required Foreign Bank Account Reporting (FBAR)

If you have financial accounts in a foreign country and the total value of all your foreign accounts exceeds $10,000 at any time during the calendar year, you must file an FBAR (FinCEN Form 114) with the Financial Crimes Enforcement Network (FinCEN). Failure to file can result in severe penalties that will cut into your savings.

4. You Might Want To Change Retirement Plans

Americans who live abroad can keep their U.S. retirement plans and might even be able to keep contributing to them, Forbes reported.

But if you are paid in foreign currency, you’ll want to balance the transfer/conversion fees against the tax benefits of your U.S. plan. If you intend to remain overseas indefinitely, it might make more sense to contribute to a local retirement plan in your new country — especially if the country doesn’t recognize the tax benefits of U.S. retirement saving plans (and vice versa).

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