Retire abroad all you'd like: Uncle Sam and the states still want their cut of your livelihood elsewhere.
Folks retiring abroad may have considered how they'll pay for health care, make money and cover federal income taxes will work. They even may have consulted a financial advisor about the Foreign Account Tax Compliance Act (FATCA) that was passed in 2010, went into effect in July 2014 and ordered all non-U.S. financial institutions (including banks, insurance companies, investment funds and pension funds) to report the financial information of American clients who have accounts holding more than $50,000 directly to the Internal Revenue Service. But they often overlook issues such as state income taxes and estate plans.
"Retiring outside the U.S. involves more than researching the cost of living," says Shomari Hearn, managing vice president of Palisades Hudson Financial Group. "Without planning, you could be hit with surprises that cost time and/or money."
Nigel Green, founder and CEO of U.K.-based deVere Group says it's had negative repercussions for both his firm and its U.S. clients abroad. Thousands of U.S. citizens have taken drastic measures just to escape FATCA's reach. Last year, 5,411 U.S. citizens gave up their long-term U.S. residency, according to the Treasury Department. That's up 26% from 4,279 individuals in 2014 and adds to the 10,693 total who dropped their citizenship between 2013 and 2015. That's more than the 10,189 who did the same between 1998 and 2012.
"Tackling tax evasion is a noble and worthwhile objective," Green says, "yet FATCA's dragnet approach will be highly ineffective at achieving this as well as being prohibitively costly."