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6 keys to retiring overseas

Sardella urges expatriate retirees to hire a financial planner with cross-border experience. If you don't, you could be putting your retirement nest egg at risk by paying unnecessary taxes. You also risk running afoul of federal tax law.

"You have to have someone who is familiar with the tax treaties because once you get outside the U.S., that becomes almost 80 percent of the battle in preparing a tax return," Sardella says.

If you think you can cash out your retirement account and avoid paying U.S. taxes by renouncing your citizenship, think again.

The tax regime for high-net-worth expatriates who renounce their citizenship is even more complicated. The IRS requires these individuals to continue paying taxes for up to 10 years after renouncing citizenship (and leaving the country) unless qualified for one of two very narrow exemptions pertaining to dual nationality or age.

The rule largely applies to people with a net worth of $2 million or more on the date of expatriation or who averaged at least $139,000 (for 2008) in annual net income tax liability for the five years prior to expatriation.

A new U.S. law raises additional tax concerns for expatriates.

Passed in May, the Heroes Earning Assistance and Tax Relief Act, or HEART Act, goes a step further and imposes income tax on any net unrealized gain from a property sale in excess of $600,000.

The tax is based on the property's fair market value on the day before the expatriation or residency.

The expatriate provisions of the HEART Act were largely meant to provide revenue to pay for other benefits of the act, mostly benefiting U.S. service personnel. It is aimed at individuals of high net worth who seek to permanently escape the long arm of the IRS, rather than the average expatriate who retires to someplace like Belize.

John Olivieri, a partner with the New York law firm White & Case, thinks the act was passed to discourage U.S. citizens from renouncing citizenship in order to avoid paying taxes.

"I think the amount of people who expatriate is still very small, so it's largely symbolic," Olivieri says. "But now if you expatriate, you're essentially paying an exit tax."

Prescher contends that most expatriate retirees are not interested in making a permanent break from the U.S., and if they are, it's not to avoid paying taxes.

"The two things you don't want to give up are a U.S. mailing address and your U.S. citizenship," he says. "Those things to me are incredibly important. I'm not living offshore because I don't want to be a U.S. citizen. I'm living offshore because it's cheaper and the weather's better."

Banking logistics 
When Americans travel for a week or two, they are most likely to exchange currency to pay for things like taxis, souvenirs or dinners.

But if you're planning on retiring or spending significant amounts of time abroad, you'll probably have to open a foreign bank account.

"It just makes a lot of sense in terms of ease of moving money around," Sardella says.

When deciding how much to deposit, consider exchange rates and how much money you need to keep in a foreign account to pay bills and buy groceries.

"The U.S. dollar seems to be taking a bit of a beating right now, so if you feel the dollar keeps weakening, you might want to hold your money in euros," he says.


Prescher says he keeps bank accounts in the U.S. and Mexico because it's convenient.

"I still keep a U.S. bank account to pay bills and I also have an account in Mexico that I can move money into and out of," he says. "There are times where you want dollars and times you want pesos."

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