Can moving your investments overseas help you escape U.S. taxes?

For American citizens and green card holders, the answer isn't as simple as moving money to Switzerland, Malta, Cyprus, the Isle of Man, or another supposedly tax-friendly jurisdiction.

In Episode 35 of the Divorce the IRS Podcast, we wrap up our series on living, working, and retiring abroad by looking at one of the biggest investment mistakes American expats can make: owning certain foreign investments.

The United States generally requires U.S. persons to report and pay taxes on their investments regardless of where those investments are located. Moving your money outside the United States doesn't automatically remove it from the U.S. tax system.

And some foreign investments can create an entirely new set of problems.

One of the biggest is the Passive Foreign Investment Company, better known as a PFIC.

In this episode, you'll learn:

• Why moving investments overseas doesn't eliminate U.S. tax obligations
• What a Passive Foreign Investment Company, or PFIC, is
• Why foreign mutual funds and ETFs can create problems for Americans
• How UCITS funds can be treated for U.S. tax purposes
• Why a foreign version of a familiar U.S. investment isn't necessarily the same investment
• How foreign pensions and retirement plans can potentially create PFIC issues
• Why certain foreign life insurance and money market products may also be problematic
• How complicated PFIC reporting can become
• Why PFIC taxation can be significantly less favorable than traditional U.S. investment taxation
• Why Americans don't necessarily need foreign investment accounts to invest internationally
• How a U.S.-based portfolio can still provide exposure to companies and markets around the world

For Americans living overseas, one of the easiest mistakes to make is assuming an investment available locally works the same way as a similar investment available in the United States.

It may not.

A foreign mutual fund or ETF could look nearly identical to its U.S. counterpart but be legally structured differently, potentially turning it into a PFIC for U.S. tax purposes.

Owning a PFIC isn't necessarily illegal. But the reporting requirements and potential tax consequences can make these investments extremely unattractive for U.S. taxpayers.

And hiding money overseas isn't a strategy for divorcing the IRS.

If you want international diversification, you don't necessarily have to move your investments overseas to get it. U.S. financial markets provide access to investments and companies throughout the world while potentially avoiding many of the complications associated with foreign investment accounts.

The goal isn't to discourage Americans from living or retiring overseas. It's to understand the rules before making a financial decision that could create unexpected taxes, reporting requirements, penalties, or headaches later.

FREE U.S. EXPAT GUIDE

Considering living, working, or retiring abroad? Download the free U.S. Expat Guide for more information about the financial and tax issues Americans should consider before and after moving overseas.

Download the Expat Guide:
https://baobabwealth.com/financial-planning-for-americans-overseas/?guide=expat-guide-download

You can also learn more at baobabwealthabroad.com.

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Living overseas can create tax-planning opportunities that simply aren't available while you're living in the United States, especially when it comes to Roth conversions.

In Episode 34 of the Divorce the IRS Podcast, we continue our conversation about living, working, and retiring abroad by exploring Roth conversion strategies Americans overseas may be able to use to reduce their future tax burden.

One potential advantage is simple: while Americans abroad generally remain subject to U.S. federal income taxes, they may no longer owe state income taxes.

For someone who previously lived in a high-tax state such as California or New York, that can create an attractive window for moving money from tax-deferred retirement accounts into Roth accounts.

But the opportunities don't stop there.

Americans who qualify for the Foreign Earned Income Exclusion (FEIE) may also have situations where their standard deduction can offset income created by Roth conversions. With the right circumstances and careful planning, this could allow someone to move money from a tax-deferred account into a Roth while paying little or potentially no U.S. federal income tax on the conversion.

In this episode, you'll learn:

• Why living abroad can create unique Roth conversion opportunities
• How eliminating state income taxes can make conversions more attractive
• Why properly ending residency in a high-tax state matters
• How the Foreign Earned Income Exclusion can affect your Roth strategy
• How your standard deduction may create room for Roth conversions
• Why your income level determines which strategies are available
• How a move from a high-tax state could potentially produce significant tax savings
• Why the country you're living in matters before completing a conversion
• How foreign countries may treat Roth IRAs differently than the United States
• Why FATCA and FBAR reporting requirements shouldn't be ignored
• Why expat-specific financial and tax planning becomes increasingly important as your strategy gets more complex

We'll also walk through the example of the Smith family, who moved from California to Dubai for a five-year work assignment.

Because the Smiths properly broke their California residency before leaving and the UAE doesn't impose an income tax, they have an opportunity to execute Roth conversions without paying the 9.3% California marginal state income tax they would have faced back home.

But there's an important warning: just because a Roth conversion makes sense from a U.S. tax perspective doesn't mean it will make sense in the country where you're currently living.

Some countries may treat Roth conversions, Roth IRA growth, or distributions as taxable income. That's why understanding both sides of the equation is essential before making a move.

Living abroad can create powerful opportunities to divorce the IRS, but international tax planning can become complicated quickly.

FREE EXPAT GUIDE

Thinking about living, working, or retiring overseas? Download the free U.S. Expat Guide for a deeper look at the financial and tax considerations Americans should understand before making the move.

Download the Expat Guide:
https://baobabwealth.com/financial-planning-for-americans-overseas/?guide=expat-guide-download

And stay tuned for the next episode, where we'll look at investing overseas and whether moving your investments outside the United States can actually help you avoid U.S. taxes.

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Thinking about living, working, or retiring overseas? Moving abroad may change your lifestyle dramatically, but it doesn't mean leaving the IRS behind.

In Episode 33 of the Divorce the IRS Podcast, we explore some of the most important financial and tax-planning considerations for Americans living abroad, as well as those considering making the move.

Whether you're retiring overseas, working remotely from another country, or embracing the digital nomad lifestyle, your finances can become significantly more complicated once you cross U.S. borders. The good news is that proper planning can also create valuable tax opportunities.

In this episode, you'll learn:

• Why Americans living abroad generally still have U.S. tax obligations
• How the Foreign Earned Income Exclusion (FEIE) works
• What types of income do and don't qualify for the FEIE
• The physical presence and bona fide residence tests
• How the Foreign Tax Credit (FTC) can help reduce double taxation
• Why the FTC may sometimes be more valuable than the FEIE
• How living abroad can affect your ability to contribute to retirement accounts
• Why your former state of residence can still matter after moving overseas
• How establishing domicile in a no-income-tax state may help before leaving the U.S.
• How Social Security and Medicare taxes work for Americans abroad
• What totalization agreements are and why they matter
• How working overseas could affect your eligibility for Social Security benefits

One of the biggest misconceptions about becoming an expat is that leaving the United States means leaving the U.S. tax system. The United States generally taxes its citizens and green card holders on worldwide income regardless of where they live.

But that doesn't mean expats are without options.

Strategies such as the Foreign Earned Income Exclusion and Foreign Tax Credit can provide significant tax relief when they're used appropriately. Your state residency, retirement accounts, Social Security benefits, and the country you choose to call home can also play an important role in your overall financial plan.

If you're considering moving abroad, planning before you leave the United States can make a major difference.

FREE EXPAT GUIDE

Thinking about living, working, or retiring overseas? Download the free U.S. Expat Guide for a deeper look at the tax and financial planning considerations Americans should understand before and after moving abroad.

Download the Expat Guide:
https://baobabwealth.com/financial-planning-for-americans-overseas/?guide=expat-guide-download

And stay tuned for the next episode, where we'll continue the conversation with even more tax strategies Americans abroad can use to potentially reduce their tax burden and work toward divorcing the IRS, even from overseas.

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If you're expecting a pension in retirement, your strategy for divorcing the IRS may look very different from someone relying primarily on Social Security and investments.

In this episode of the Divorce the IRS Podcast, we wrap up our three-part case study series by looking at how taxable pension income affects your Ideal Number and the amount you may want to keep in tax-deferred retirement accounts.

Pensions can be an incredible retirement benefit. They can provide guaranteed lifetime income, reduce the overall risk of a retirement income plan, and create a stable foundation alongside Social Security.

But pensions can also create challenges that are easy to overlook.

Many pensions don't increase with inflation, spousal protection can come at a significant cost, and most importantly for your tax strategy, pension payments are generally taxable income.

That last point can dramatically change your ability to pay little or even no federal income tax during retirement.

In this episode, you'll learn:

• Why pension income can change your Ideal Number
• How a pension interacts with your standard deduction
• Why pension income can make divorcing the IRS more difficult
• How pension income differs from Social Security for tax-planning purposes
• Why some pension recipients may want $0 in their tax-deferred bucket
• How Roth accounts can become especially important for pension recipients
• How the Roth TSP can help military and federal employees prepare for retirement
• When converting Traditional TSP or IRA assets to Roth may make sense
• Why pension planning should begin well before retirement
• How to determine whether your pension could prevent you from completely divorcing the IRS

The key is understanding how much guaranteed taxable income you'll already have before deciding how much money belongs in tax-deferred accounts.

If your pension equals or exceeds your standard deduction, your Ideal Number may be $0 in your tax-deferred bucket if your goal is to get as close as possible to divorcing the IRS.

That doesn't mean you're out of options. It means your strategy may need to change.

By understanding your pension, your Social Security benefits, your tax-deferred savings, and your Roth opportunities, you can build a plan designed to minimize the taxes you and your heirs may ultimately pay.

Want to find your Ideal Number?

Visit divorce-the-irs.com and use the free calculator, which factors in pension benefits to help determine how much you should currently have in tax-deferred retirement accounts.

And stay tuned for the next episode, where we'll explore strategies and potential benefits for Americans living and working overseas, including expats and remote workers.

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Welcome back to Episode 31 of The Divorce the IRS Podcast.

In this episode, Jimmy Miller walks through the second retirement planning case study from Divorce the IRS. Unlike the first case study, this one follows a couple who are much closer to retirement and have already accumulated most of their wealth inside traditional pre-tax retirement accounts.

Meet Bob and Helen.

They're both 50 years old, earn solid incomes, have diligently saved for retirement, and have accumulated $1.5 million in traditional retirement accounts. Like many successful savers, they've done everything they thought they were supposed to do. But they also have a problem they don't yet realize: a future retirement filled with unnecessary taxes.

Jimmy breaks down the step-by-step strategy they use to gradually transform their retirement plan over the next 15 years, showing how thoughtful tax planning can dramatically improve retirement income, reduce lifetime taxes, and create far greater flexibility.

In this episode, you'll learn:

• Why traditional retirement accounts can become future tax liabilities
• How Roth 401(k) contributions can change a retirement plan
• When Roth conversions may make sense
• Using after-tax contributions to build tax-free wealth
• How a 72(t) strategy can create early retirement flexibility
• Why paying taxes today can sometimes save significantly more later
• Coordinating Social Security with Roth withdrawals
• Reducing or eliminating Required Minimum Distribution problems
• Charitable giving strategies using RMDs
• How surviving spouses can avoid the "widow's tax penalty"
• Why retirement tax planning should be viewed over a lifetime, not one tax year at a time

By the end of this case study, Bob and Helen have transformed their retirement from one heavily dependent on taxable income into one that generates substantially more spendable income while dramatically reducing what they pay the IRS. According to Jimmy's analysis, the strategy ultimately saves them more than $800,000 in federal taxes over retirement compared to staying on their original path.

This episode demonstrates one of the central themes of Divorce the IRS: retirement isn't just about accumulating assets. It's about deciding which accounts you'll spend from, when you'll pay taxes, and how to keep more of what you've worked so hard to build.

If you've accumulated significant savings in traditional IRAs or 401(k)s and are approaching retirement, this case study offers a practical framework for thinking differently about lifetime tax planning.

Listen now to learn how strategic Roth conversions, tax bracket management, and coordinated retirement income planning can potentially save hundreds of thousands of dollars over the course of retirement.

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In this episode of the Divorce the IRS Podcast, Jimmy Miller begins a new three-part case study series showing how the concepts discussed throughout the podcast can work in real life.

This first case study focuses on Mary, a fictional saver who starts making smart retirement planning decisions at age 30. By using Roth accounts, taking advantage of her employer match, and carefully managing withdrawals in retirement, Mary creates a strategy designed to keep her in the 0% tax bracket throughout retirement.

Jimmy walks through how Mary contributes to a Roth 401(k), receives a traditional 401(k) employer match, funds a personal Roth IRA, and allows those accounts to grow over 30 years. He then explains how Mary structures her income in retirement using Roth withdrawals, traditional IRA withdrawals, Social Security, the standard deduction, and required minimum distribution planning.

In this episode, Jimmy discusses:

• Why starting early can make a tax-free retirement much easier to achieve
• How Roth 401(k) contributions can build future tax-free income
• Why employer matching contributions usually go into a traditional pre-tax account
• How Mary saves 15% of her income each year for 30 years
• How her accounts grow to more than $2.2 million by age 60
• Why Roth accounts can provide flexibility in early retirement
• How the standard deduction can help offset traditional IRA withdrawals
• Why provisional income matters when Social Security begins
• How Mary keeps her Social Security benefits from becoming taxable
• What happens when required minimum distributions begin at age 73
• How QLACs and charitable giving may help manage future RMDs
• Why saving taxes while working may not be worth paying much more in retirement

Jimmy also compares Mary’s Roth-focused strategy to friends who followed conventional tax-deferral advice. While Mary gave up tax deductions during her working years, her retirement income was structured to remain tax-free, while her friends ended up owing significantly more in retirement taxes.

In the next episode, Jimmy will look at another case study involving a couple closer to retirement who already has more than their ideal amount saved in tax-deferred accounts.

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In this episode of the Divorce the IRS Podcast, Jimmy Miller discusses a retirement philosophy that has become increasingly popular: die broke, also known as die with zero.

The idea behind this strategy is to maximize retirement income and enjoy more of your money during your lifetime, especially when leaving a financial legacy is not a major goal. Jimmy explains why the concept can make sense in theory, but why trying to personally spend your portfolio down to zero without guarantees can create serious risks.

Jimmy also explains how the die broke philosophy can work together with the Divorce the IRS framework when lifetime income annuities are used properly, especially inside Roth IRA accounts.

In this episode, Jimmy discusses:

• What the die broke or die with zero philosophy means
• Why the concept appeals to many retirees and future retirees
• The danger of becoming too frugal and never enjoying your money
• Why aiming for exactly zero can be risky without the right structure
• How lifetime income annuities can support a die broke strategy
• Why guaranteed income may help reduce retirement stress
• The risk of running out of money before running out of life
• How annuities can allow retirees to spend both growth and principal
• Why Roth IRA annuities can create tax-free lifetime income
• The importance of understanding annuity rules before purchasing one
• How fixed index annuities may help address inflation concerns

Jimmy also shares why dying broke can be a reasonable goal for some people, but only when the plan is built carefully and includes the right guarantees. When structured correctly, the goal is not simply to spend everything. It is to create a retirement income strategy that allows you to enjoy your money with confidence while reducing the risk of outliving it.

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In this episode of the Divorce the IRS Podcast, Jimmy Miller continues the conversation from last week’s episode on the FIRE movement by taking a closer look at real estate investing and how it fits into the Divorce the IRS framework.

Real estate is one of the most common investment topics Jimmy gets asked about. How does it compare to the stock market? Can it work as a retirement income strategy? Does it help or hurt when the goal is to reduce taxes in retirement?

Jimmy gives his honest perspective on the appeal of real estate, including the ability to own something tangible and understandable, while also explaining why he does not view rental properties as an ideal primary investment strategy for retirement.

In this episode, Jimmy discusses:

• How real estate compares to long-term stock market investing
• Why home values and investment returns are not always the same thing
• The hidden costs of rental properties, including repairs, vacancies, insurance, HOA fees, and management
• Why being a landlord may not fit the retirement lifestyle many people actually want
• How rental income can affect the taxation of Social Security benefits
• Why provisional income matters in the Divorce the IRS framework
• How depreciation recapture works when a rental property is sold
• Why some investors underestimate the tax bill that can come at the end
• The difference between owning rental properties directly and investing in REITs
• How REITs can offer real estate exposure inside a diversified portfolio

Jimmy also explains why real estate investment trusts, or REITs, may be a more practical way to include real estate in a retirement portfolio, especially when used inside Roth accounts where income and growth can potentially avoid creating provisional income.

In the next episode, Jimmy will discuss another popular retirement philosophy: the desire to die broke.

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