The single most important thought that preoccupies the mind of a person who is nearing the end of his or her working life is how best to spend their retirement years. Most people dream of an idyllic location where they can constantly have the sun on their backs and wind blowing on their faces. That might mean relocation to another country. Apart from considering the political stability, safety and security of that country, there are tax implications when retiring that can cause you unexpected grief. This requires careful planning. However, because of the convoluted intricacies involved in US tax laws your best bet would be to seek help from a reputable international tax advisor.
Contrary to widespread belief US citizens are not exempt from tax obligations even if they leave the United States to retire in another country. Retirees may not owe any US income tax but they still may be required to file tax returns with the IRS. Even if they do not owe any taxes, they may still need to file the forms.
Retirement income whether in the form of social security or pension or annuity income may or may not be taxed, depending in the type of income. Likewise, income received from other sources such as employment earnings in another country is not taxable in the US up to a threshold income of $100,800 in 2015 if certain criteria are met.
Additionally, do not get lured by the sunny beaches. Study the tax regime of the host country before burning your fingers. Some countries do not recognize the social security benefits of the US. Hence they treat it as any other income. So even if Social security benefits are not taxed in the US they may be so in your host country. That is why US has tax treaties with a number of countries, albeit with differing terms. Therefore it is highly advisable to research about international tax laws.
Access to health care is another area to be considered. Retirees living abroad for at least 330 days in a year or qualify as bona fide residents of the host country are treated as having the minimum essential coverage and will not owe shared responsibility payments according to the Affordable Care Act.
A good starting point for your research is the IRS website. However care should be taken to use it just as a reference point as treaties change rapidly and it takes a while to get updated in the website. Moreover, the technical language used is not decipherable to a layperson. Before leaving the country consider employing the services of cross border tax advisers of both the home country as well as the host country.
You may be on your way to your dream paradise. But be strategic in your long term planning and take time to obtain the buy-in of your family members, evaluate whether you would be able to adjust to the culture of your host country and look for ways to make it is easy to connect and keep in touch with your loved ones back home.
