The dream of living abroad is more attainable than ever, whether it’s for business opportunities or to satisfy the desire to experience a new culture. Portugal, Spain, and the Philippines are top destinations for Americans living outside the U.S., and the reasons to move abroad are as diverse as the destinations themselves.
Before packing your bags, it’s important to understand that financial considerations can either ease your transition or cause unexpected stress.
Managing your finances overseas isn’t the same as it is in America. The practical details—banking, investing, taxes, real estate, and healthcare—require careful planning because each country has its own unique set of rules and tax treaties with the U.S. Understanding this in advance will help you avoid potential headaches.
These are key financial considerations to help you prepare for your new adventure abroad.
Banking and Credit Cards: Plan Ahead
One of the first steps in preparing to move abroad is setting up a local bank account in your new home country. While some countries make this process simple—requiring little more than a passport—others may take up to a month to establish a checking account. It’s crucial to get this done ahead of time to ensure easy access to your funds.
In addition to setting up a local account, make sure your credit cards are widely accepted in your new country and don’t charge foreign transaction fees, which can quickly add up. Many people living abroad find that using a credit card is more efficient than using cash, especially since you can pay it off from your U.S. bank account and benefit from fraud protection.
Services like WISE and Revolut can be invaluable for transferring money, as they tend to offer lower fees than traditional banks. However, be aware that funds transferred through non-bank apps aren’t FDIC insured, which could pose a risk if large sums are involved.
Lastly, don’t overlook the impact of currency fluctuations. Exchange rate changes can have a negative effect on your spending power, and while you might enjoy savings in some countries, a weakening U.S. dollar can make costs rise quickly.
Taxes: Don’t Get Caught by Double Taxation
One of the most complex issues of living abroad is dealing with taxes. As a U.S. citizen, you are required to file taxes on your global income, regardless of where you live. The Foreign Earned Income Exclusion (FEIE) allows you to exclude up to $126,500 of income earned abroad in 2024, but it doesn’t apply to investment or retirement income, which means tax complications can arise.
It’s also important to note that living abroad doesn’t exclude you from U.S. tax obligations on your global investments or capital gains. Brett Spencer, CFP, a fee-only advisor and founder of Impact Financial, has several clients currently living abroad. He shares that, “One of my clients lives in the Netherlands which doesn’t currently have a capital gains tax.”
If your new country has a tax treaty with the U.S., you may be able to avoid double taxation or qualify for credits on your U.S. tax return for taxes paid abroad. However, these treaties don’t always cover all income, so working with a tax advisor familiar with both U.S. and international tax laws is crucial.
Susan Black, CFP, managing director and wealth manager at Boston Financial Management, agrees and adds that it’s important to consider the tax policy of all countries involved for any strategy.
Along with federal taxes, check whether your home state requires you to file state taxes. Some states, like California, aggressively pursue income tax even if you’ve moved abroad. If you plan to leave the U.S. permanently, establishing residency in a state with no income tax, like Florida or Texas, could save you a lot in the long run.
Investments: Keep It Simple
When it comes to managing your investments, keeping investments U.S.-based helps you avoid a lot of trouble. Opening foreign investment accounts can trigger complex reporting requirements to the IRS, and penalties for failing to report properly can be severe.
Foreign mutual funds, for example, fall under the IRS’s Passive Foreign Investment Company (PFIC) rules, which can involve higher taxes and burdensome reporting.
“Everything is more complicated when you live and work abroad,” says Spencer. “Say you have a new job that’s based in the Netherlands. Just opening an investment account can be complicated and expensive due to compliance issues, and you may inadvertently incur heavy penalties by using a foreign bank or broker. Instead, stick to investing through your U.S. investment accounts to avoid compliance issues.”
You can continue funding a Roth IRA while living abroad, provided you meet the income requirements after claiming the Foreign Earned Income Exclusion. However, not all countries treat Roth IRAs as favorably as the U.S., with some countries taxing distributions heavily.
“It’s really smart to have a U.S. financial advisor who understands the country’s rules and can help you navigate the financial details in the country where you’ll live. Make sure the U.S. advisor is fiduciary and fee-only,” Spencer recommends.
Real Estate: Renting vs. Buying
Real estate decisions can be more complicated than they seem. While renting provides flexibility, buying can offer a sense of permanence and an opportunity to invest in your new home country. However, before making any commitments, research the legal and financial landscape thoroughly.
For example, some countries restrict foreign ownership, or the political situation may pose risks to long-term property investments. In Ecuador, for instance, crime rates have risen sharply, causing many potential buyers to rethink purchasing property there.
Therefore, spend a few months in your chosen location before deciding to buy, and work with a local real estate attorney to ensure you understand all the nuances of property ownership. While purchasing property can seem like a great investment, it’s important to balance the potential financial benefits against the legal complexities and risks.
Healthcare: Make Sure You’re Covered
Healthcare is a critical concern when moving abroad. Many countries offer healthcare systems that are far more affordable than those in the U.S., but the quality and coverage can vary. If you’re working abroad, don’t assume that your employer will automatically cover your healthcare needs.
“For health insurance coverage abroad, your employer may be paternalistic and take care of you, but don’t assume it’s the case,” warns Spencer. “It’s very common for international health insurance to exclude coverage in the U.S. Ask your benefits manager to verify that your health insurance’s full coverage extends to that country.”
Additionally, for those eligible for Medicare, keep in mind the program won’t cover your medical expenses abroad. You’ll need to purchase private health insurance. Some expats retain certain parts of Medicare as a safety net in case they return to the U.S. for medical treatment. Research the healthcare system in your new country thoroughly, including any gaps in coverage that private insurance will need to fill.
Estate Planning: Update Your Plan
Each country has its own inheritance and estate tax laws, which can impact how your assets are distributed upon your death. Some countries require that your executor be a local resident, so be sure your estate documents comply with both U.S. and foreign laws.
Additionally, foreign countries may impose inheritance or wealth taxes on your global assets. Working with both a U.S. and a local attorney can help ensure that your estate plan reflects the rules of both countries and that your heirs aren’t burdened by unexpected tax obligations.
Finding an experienced professional who is intimately familiar with the tax and investment rules of your new home country is the key. Most U.S. financial advisors do not understand international laws or the financial pitfalls that come with moving abroad. Take your time to make sure the advisor is a fiduciary who doesn’t sell investments but does offer excellent investment and financial planning advice.
