You are an US Expat. You have some money. What do you do with it?

February 13, 2017 6:46 AM

I have no idea where to put this money as an American abroad.

When I lived in the US, I often invested in Roth IRA's, and my work's 401k. But now I've been warned that this is not allowed if you're an expat, and Vanguard won't even sell to you with a foreign address. Ok. But then I've heard that I also shouldn't invest in stocks where I am (in the UK) for reasons I can't quite understand. I think it all has to do with taxes.

I am not financially savvy at all, but I know having cash sitting in the bank at these interest rates is not a good idea. Any financial advice for expats (especially in the UK) or someplace I can look? Financial advisor or accountant is a good answer, but the ones that I've contacted require more money than I have, or I'm just still wary if they're reputable.

Any advice much appreciated!

posted by caoimhe to Work & Money (11 answers total)

When I was an ex-pat in Australia I used the Australian Vanguard website to invest. Had to pull the money out and repatriate it when I came back, but that was no problem.

Vanguard appears to have a UK portal...
posted by GamblingBlues at 6:57 AM on February 13, 2017

Have you spoken to your work's HR department? It seems odd to me that a U.S. citizen would not be permitted to invest in a 401(k) simply because he or she is resident abroad. If they offer any kind of tax-advantaged account, they ought to be able to explain to you their position on your eligibility to use it. (You can certainly buy U.S. stocks as a non-U.S. resident, it's just more complicated.)
posted by praemunire at 7:42 AM on February 13, 2017

Two key questions:
- What is your time horizon for these investments? (Do you want to save for retirement? Do you want money easily accessible for a down payment for a house?)
- Where do you want to extract these investments? (eg, are you planning on retiring in the UK? US? Elsewhere?)

As a UK resident, you could put it in an UK ISA. I believe you can put it in a Roth IRA, even if you live abroad (check with an expert on that). You can also just invest in the stock market, with an US investment firm (like eTrade) - you can do that even if you live abroad.

Unless you are willing to invest some time in learning a lot about investing and living abroad, it sounds like it is worth it to pay to consult an expert/accountant. Especially with the voltaility of the British pound (given the low pound, I might personally keep the money in the UK, but your situation is different than mine). Expat forums can often recommend someone to advise you.
posted by troytroy at 8:36 AM on February 13, 2017

Well they can't do a 401k because its employer sponsored and I'm guessing OP is on the local payroll, not his US payroll. You can do an IRA no problem, except the contribution won't be deducted from your local taxable income. You can certainly buy US stocks in a UK domiciled account, although you might be better off doing it offshore so the income isn't taxable in the UK, tho you would still report it and pay it into the US, so the net tax you pay wouldn't be materially different. Also you need to be careful about PFIC if you are located outside the US. PFIC basically means you need to find ETFs that are properly registered in the US and available for sale offshore. Individual stocks aren't a problem either. But most funds will trigger the issue. PFIC basically means a disadvantaged tax status for gains and income.

American institutions generally don't like foreign residents investing in US domiciled products purely for compliance/tax/money laundering prevention reasons. There isn't a legal bar, its just a huge hassle.

If you have a relative you can send the statements to and a US bank account to fund it out of your best and easiest option is to just use their address. Avoiding UK tax on the contributions is I think pretty hard, but you should ask a UK accountant who specializes in taxes for people with your status.
posted by JPD at 8:39 AM on February 13, 2017 [1 favorite]

Use this as an opportunity to diversify, especially in what I think is an uncertain climate.

I am an American in the UK. Without going into too much detail, I have:
- Stocks and Cash accounts in the US. (USD)
- UK bank account. UK ISA. UK Pension Plan. (UK Sterling)
- (Also various Euro accounts based in the EU since my wife is European) (Euro)

I feel better at least having stuff in multiple currencies. If the UK goes into hyper-inflation, we have our USD and Euros to fall back on.
posted by vacapinta at 9:18 AM on February 13, 2017 [1 favorite]

Yeah, US citizens abroad basically have zero tax advantaged savings/investment options. You can invest in regular mutual funds, etc through Vanguard or the like, but you have to lie a bit and use someone else's US address. Also, in my experience banks abroad will not open investment accounts for US citizens, but you may be able to find some if you look really hard.

What I do is the following:

Local pension plan maxed out. Not tax advantaged in the US but I still get an employer match so it's worth it.

Real estate- bought a house and a rental property. This has both US and local tax consequences, you'll probably need an accountant.

Cash in plain old savings accounts for liquidity.

On a side note, HR Block has a surprisingly good US expat tax department. They are specialized in only that and actually know what they are talking about. The rates are super reasonable.
posted by ohio at 9:41 AM on February 13, 2017 [4 favorites]

In my research about this I've been told HSBC / HSBC Premier is a good banking option (comfortable with US citizens abroad). I haven't tested this yet though, but several co-workers who are in the same situation recommended them.
posted by thefoxgod at 11:06 AM on February 13, 2017

Response by poster: All very helpful, thanks! Yes i really need an advisor (and good to know HR Block might work ohio!) It's this kind of stuff about UK ISA's that wig me out . . . I do think I could use a US address for buying Vanguard, but I get tax benefits by NOT living in the UK so I'm worried if I get audited, they are going to be like where do you live???

But yes, diversification is good!
posted by caoimhe at 11:57 AM on February 13, 2017

Don't worry about the tax stuff. Lying to Vanguard about your domicile isn't going to get reported to the US government, and even if it does, they don't care as the tax treatment of the investment income is the same. Its just the deductions that are different. The only thing the IRS is actually going to check is if you paid the appropriate tax given your situation.

And yeah, you'll need to hunt around for someone willing to give you an account domiciled in the UK. But not because what you are doing is illegal, but because the vendors don't want the cost of reporting a few american clients to the IRS, and the US government has put foreign private bankers in jail for helping people hide money.
posted by JPD at 12:13 PM on February 13, 2017

Yes, the problem comes from a law called FATCA. The intent was to stop very rich people from hiding money overseas. A side effect is that foreign banks don't want to deal with a ton of hassle/overhead that comes from having US clients now, and thus many refuse to open accounts for us. It also affects US banks with overseas US customers.

Any bank could choose to just deal with the extra stuff, but most choose not to. A few are willing (HSBC is the only one I am pretty sure about), so you have to seek them out.
posted by thefoxgod at 12:37 PM on February 13, 2017

Are you applying the Foreign Earned Income Credit? That is going to save you way more money than any other technique you apply. Don't forget, you still have to file U.S. taxes.

You can't do a 401k because......1) a 401k is a U.S. financial instrument, and 2) you aren't going to be paying any taxes ( at least up to $102,100 for 2017 ) anyway so there is nothing to apply pre-tax. After that, dump the money wherever you want. If there is a local pension you can dump into, go for it. I was able to put that money into a Vanguard IRA once I repatriated after a whole lot of red tape.

I chose to just send the bulk of my money back to the States every month and then straight into a Vanguard Non-Retirement Index Fund. I didn't feel like dealing with the hassle of foreign banking and the potential of some huge crackdown on offshore assets.
posted by jasondigitized at 7:06 AM on February 14, 2017