Yes, non-US pooled funds (e.g., ETFs, mutual funds, etc.) as well as most non-US pensions fall afoul of PFIC rules and their complex & expensive reporting requirements. This usually bites people with mandatory contributions, such as Australia's Superannuation.
Nationality & tax laws are two different though, in the case of the USA, intertwined things.
One can be born abroad to a US citizen and not be eligible for US citizenship; Keanu Reves is a great example of that.[1] However, that child would be considered a "US Person" by the IRS and subject to US taxes.
> One can be born abroad to a US citizen and not be eligible for US citizenship;
Note that I wrote "parents", not "parent", although full rules do specify additional residency requirement, so my statement may be considered incorrect, but not because of what you are pointing out. : - P
Keanu was born in 1964. I believe the rule at the time was that you needed to be born to a US mother in order to automatically have US citizenship at birth. Otherwise you needed to go through a processes.
No doubt this was to avoid having all the children of anyone a US serviceman interacted with abroad claim US citizenship.
No, though that was the case pre-1934 [1]. Remember that Hawaii, where his father is from, didn't become a state until 1959 and there are physical residence/presence tests required to pass on citizenship[2]; ex:
"A U.S. citizen may have automatically acquired U.S. citizenship based on birth in the United States, but never actually resided in the United States. This U.S. citizen will not have established residence in the United States, and may be unable to transmit U.S. citizenship to his or her own children."
Incorrect, as until the business reaches a certain size it is considered a Controlled Foreign Corporation [1]. In addition, it is subject to GILTI[2] (pronounced "guilty").
No, generally one must provide evidence from the IRS of 5 years worth of tax compliance in order to relinquish.
The majority of US taxes go towards Social Security, healthcare (Medicare), benefits for US veterans/federal employees, etc.[1] Most of these systems are not available to "US persons" who haven't lived/worked in the USA. Those that have worked there will see their US benefits decreased by amounts paid into non-US tax systems.
> Tax compliance is not required for renunciation of US citizenship, but only to formally exit the US tax system after expatriation. Consular officials will not inquire about a person's tax status during the renunciation interview, nor is a potential renunciant required to supply a Social Security Number at any point during the process. The common but mistaken belief that tax compliance is required prior to renunciation is encouraged by the US tax preparation industry, often at great cost to unsuspecting Accidental Americans. It appears, however, that a significant number of former US citizens have renounced without any attempt at tax compliance.
Post-tax US retirement accounts (e.g., Roth-IRA/401K, etc.) are generally seen as normal investment accounts by the tax authorities in the US expat's country of residence. Therefore they offer no retirement tax benefits.
1) In a traditional (vs a roth), you save taxes at your marginal rate today.
2) In a traditional (vs a roth), you save on state taxes today.
3) you can take those tax savings and invest them in a taxable account (or spend them on things you need to spend them on)
4) In retirement, if your income is lower than your income today, your tax rate will be lower, so the savings of not paying on disbursments from the Roth will be lower.
5) In retirement, you have more ability to choose where you live, i.e. can live in a tax free state (or move overseas) and hence just have federal tax liability on the disbursements (at a lower overall rate if income is lower).
6) A roth is a promise of a benefit in the future vs a traditional giving you a benefit today. It's hard to take away a benefit already given, while I don't expect the roth rules to adversely change, there's still risk.
Now, a big benefit of the Roth is for people who can't save and are bad financial planners. "prepaying" the tax, even if its worse decision overall, is better than blowing the immediate tax savings of a traditional on "hookers and blow".
Another big benefit of a roth is if one expects tax rates to severely rise, prepaying tax at a much lower rate vs a future possibly higher rate is a benefit (but one has to factor in the ability to get out of state taxes in future as well, so if your state tax rate is nearin 10%, does one expect federal future tax rate to really be 10% higher than today).
Over a long period of time if one has high income in retirement, a Roth probably is better (even if the traditional tax savings are invested). However, at those income levels, I don't think it actually matters much as the difference wont be huge (in terms of savings/income). If one expects retirement income to be reduced relative to one's current income, traditionals become much more attractive.
Personal context: I am American, have lived in 9 countries on 5 continents & currently live in Europe, and am the same age as the OP.
Immersing oneself within another culture is almost always worth it, but like anything valuable there are always challenges. Psychologically, the Gartner hype cycle will apply to you and your family (replace “innovation trigger” with “new culture trigger”). Given your visa situation is unknown, what’s your backup plan if you can’t work? (e.g., go back to university, learn a new language, etc.) I can’t stress enough to have a plan here. Having one partner being productive in a new culture while the other is mired in the “trough of disillusionment” for a long time is a recipe for immense family/financial strife.
A good starting point for financial questions you might ask yourself:
• Will your children go to private ($$$$) or public schools?
• Will your partner’s employer pay for tax preparation and for how long? Finding international tax people, let alone competent ones, in the USA is extremely difficult & $$$$. Do not underestimate how Byzantine/inane/amoral the US tax system is.
• How are you handling international banking & investments? (Goes with the tax part above)
• How are you handling private pension contributions? (Goes with the tax part above; *warning*: different governments may not recognize foreign pensions and instead treat them as taxable investment accounts…. Tread *very* carefully here.)
• How are public social taxes handled between DE & the USA? (e.g., US $$$ into Social Security is credited as DE €€€? Or just time credits to qualify for a DE pubic pension? Where will you retire, the USA or DE?)
• Are there any social taxes that need to still be paid in DE while you are in the USA in order to use healthcare, education, etc.? (for your return, in case your partner looses her job, kids want to go to DE university, etc.)
• How will you establish credit? Remember, you are starting with no credit history so large purchases (car, etc.) will be difficult. Especially in the USA where credit is the norm.
• Will you rent or buy a home? Can you qualify for a mortgage and if so, when?
• How can you obtain a US drivers license? (e.g., Can your DE one be instantly swapped for a NJ one? Or will you have to take a drivers test? If so, does that require you pay for drivers school? Does your new license have restrictions on car types that you can drive and for how long?)
• Is your partner’s company paying for shipping of your furniture, etc.? Or will you buy everything new? What about electronics that need to be replaced? (e.g., vacuum cleaners, kettles, etc.)
• What is the best visa for you & your partner? *warning*: Do some research or pay for independent legal counsel here. Remember that the types of visas that your partner’s company will suggest/initially sponsor may be in their best interests and not yours. Can you qualify for a visa independent of your spouse? (i.e., so that your whole family isn’t 100% dependent on your partner being at her current employer.) Are there any preferential visas available to you via DE/USA treaties? (E.g., E1/E2, etc.) This area can be really expensive to fix afterwards, so make sure you get what’s best for you.
• Is your partner’s company paying for “home visits”? (e.g., return flights to DE 2x a year, etc.) If so, for how long?
The above is just a starting point, but I’m sure the “global mobility industry” has others to be found.
