US Expat Financial Planning

The US is one of two countries that taxes citizens on worldwide income regardless of residency. You file Form 1040 every year, even if you owe nothing. The bill is usually offset by one of two mechanisms:

• •Foreign Earned Income Exclusion (FEIE, Form 2555) — excludes up to $130,000 of earned income (2026) if you pass the Physical Presence Test (330 days abroad in 12 months) or the Bona Fide Residence Test.
• •Foreign Tax Credit (FTC, Form 1116) — dollar-for-dollar credit for foreign income tax paid. Better than FEIE for high earners and anyone in a high-tax country (UK, Germany, France, Australia).

Filing is easy; the informational forms are what create six-figure penalties.

• •FBAR (FinCEN 114) — required if aggregate foreign account balances exceed $10,000 on any day. Filed separately, not with 1040.
• •Form 8938 (FATCA) — thicker thresholds ($200k+ single abroad); filed with 1040.
• •Form 8621 (PFIC) — every foreign mutual fund and most ETFs are Passive Foreign Investment Companies. Punitive tax rates and painful reporting. Never buy foreign-domiciled funds; use US-domiciled ETFs via an international broker.
• •Form 3520 — for gifts from foreigners over $100k or foreign trusts (many workplace pensions qualify).

Your US retirement accounts stay yours, but new contributions get tricky.

• •401(k) / IRA: you generally can't contribute unless you have US-source earned income (or income that exceeds the FEIE exclusion).
• •Roth IRA: contribution room disappears fast when using FEIE — earned income minus excluded income is the cap.
• •Local pension schemes: most are treaty-recognized (UK SIPP, Canadian RRSP), but employer matches into foreign plans may be taxable to you as US income.
• •Never buy Roth-equivalents abroad (UK ISA, Canadian TFSA) — the US doesn't recognize the wrapper and taxes gains annually.

Federal taxation follows citizenship; state taxation follows residency. Sever ties before you leave from sticky states.

• •Sticky states: California, New York, New Mexico, South Carolina, Virginia — they'll keep taxing you unless you can prove you moved with no intent to return.
• •Cutoff checklist: cancel voter registration, change driver's license, sell or lease out the primary home, move investment accounts to a no-tax state (TX/FL/WA) before you leave.

Social Security follows you; Medicare doesn't leave the US.

• •Totalization agreements with ~30 countries let you count foreign work years toward US Social Security eligibility (need 40 credits).
• •Windfall Elimination Provision (WEP) can reduce your US SS benefit if you also draw a foreign pension based on non-SS-taxed earnings.
• •Medicare doesn't cover care abroad. Budget for local public system + a private supplemental plan, or an international policy (Cigna Global, GeoBlue).