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Old 26.12.2016, 19:34
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Renouncing U.S. citizenship - What to do with IRA / stocks?

I'm confident this forum has plenty of ex-Americans, perhaps one of them can answer my questions based on their experiences.

Me: From an IRS perspective, I am considered non-covered and nowhere near retirement age (younger than 59 1/2) . I plan to renounce early January. I have an IRA and stocks at a U.S. based brokerage firm. I would like to liquidate both these accounts.

Question: From a tax-savings perspective, when is it most beneficial to cash out my IRA and/or stocks? Before or after renouncing?

Did anyone here go through the same process?

Any advice would be highly appreciated. Thanks!
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Old 26.12.2016, 19:45
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Re: Renouncing U.S. citizenship - What to do with IRA / stocks?

What's with your SS?
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Old 26.12.2016, 19:50
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Re: Renouncing U.S. citizenship - What to do with IRA / stocks?

I left the U.S. decades ago and have not worked a day in my life in the U.S..
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Old 26.12.2016, 20:48
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Re: Renouncing U.S. citizenship - What to do with IRA / stocks?

Stocks:
Assuming there are capital gains on the stocks, I would vote to sell them after expatriation. Why? Because if they are sold before expatriation, the US will charge a capital gains tax on the capital gains. If sold after expatriation, the US will not charge a capital gains tax.
Switzerland is, of course, mostly neutral on capital gains (except for houses and by businesses).

IRA:
If cashed out before expatriation, you will be charged US taxes and a 10% early distribution penalty. Swiss pension taxes will also be due on the distribution. The Swiss taxes paid can be credited against the US taxes so you should get at least a partial refund of US taxes. If distributed after expatriation, you should only owe the Swiss pension taxes.

Note: Unless you're becoming self-employed, buying a home or for some other reasons, you generally are not allowed to distribute pensions before age 60 in Switzerland.

Suggested extra-credit reading:

https://www.irs.gov/instructions/i10...1.html#d0e1415

http://hodgen.com/ira-distributions-...d-expatriates/

http://hodgen.com/ira-distribution-t...ntry-taxes-it/

Please don't interpret any of the above as tax advice. This is a message board.
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Old 26.12.2016, 22:12
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Re: Renouncing U.S. citizenship - What to do with IRA / stocks?

Thanks for the reply!

It appears you are well versed in this matter. Is your advice based on personal experience, or on the experience of an acquaintance?

I'm well aware to take forum advice with caution - I am just curious to hear about other expatriates' experiences.
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Old 27.12.2016, 12:26
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Re: Renouncing U.S. citizenship - What to do with IRA / stocks?

I looked into this several years ago, and at the time I came away with the understanding that my tax obligations didn't change for a set time after renouncing citizenship - something like 10 years? Assuming you'll verify anything from a forum but perhaps worth checking this point.
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Old 27.12.2016, 12:48
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Re: Renouncing U.S. citizenship - What to do with IRA / stocks?

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I looked into this several years ago, and at the time I came away with the understanding that my tax obligations didn't change for a set time after renouncing citizenship - something like 10 years? Assuming you'll verify anything from a forum but perhaps worth checking this point.
Depends what you mean by "tax obligations". Once you're no longer a citizen, you do not owe new taxes from that point forward.
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Old 27.12.2016, 12:58
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Re: Renouncing U.S. citizenship - What to do with IRA / stocks?

Looks like you're right - it changed recently, I must have looked when it was still the old info :
http://www.expatinfodesk.com/expat-g...a-us-passport/
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Old 27.12.2016, 12:59
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Re: Renouncing U.S. citizenship - What to do with IRA / stocks?

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I looked into this several years ago, and at the time I came away with the understanding that my tax obligations didn't change for a set time after renouncing citizenship - something like 10 years? Assuming you'll verify anything from a forum but perhaps worth checking this point.
Not applicable if you've filed the 8854 form.

"Taxation Under Section 877
You are subject to taxation under section 877 if, within the 10-year period immediately preceding 2016, you lost your U.S. citizenship or you were an LTR who ceased to be a lawful permanent resident and any one of the following applies to you.

1. Your average annual net income tax liability for the 5 tax years ending before the date of your expatriation is more than the amount listed next.
a. $124,000 if you expatriated in 2004.
b. $127,000 if you expatriated in 2005.
c. $131,000 if you expatriated in 2006.
d. $136,000 if you expatriated in 2007.
e. $139,000 if you expatriated in 2008.

2. Your net worth is $2 million or more on the date of your expatriation.

3. You fail to certify on Form 8854 that you have complied with all of your federal tax obligations for the 5 tax years preceding the date of your expatriation."

https://www.irs.gov/pub/irs-pdf/i8854.pdf

However, this is probably what you're thinking of.

"Tax consequences of presence in the United States after expatriation.
If, for any tax year during the 10-year period in which you are otherwise subject to section 877, you are present in the United States for more than 30 days in a calendar year ending in such tax year, you will be treated as a U.S. citizen or resident for that tax year. You will be subject to U.S. tax on your worldwide income unless the following exception applies.

Exception. You can be present in the United States for up to 60 days without being treated as a U.S. citizen or resident if you are performing personal services in the United States for an employer who isn't related (within the meaning of sections 267 and 707) to you and you meet either of the following requirements.

You were a U.S. citizen and, within a reasonable period following your expatriation, you became a citizen or resident fully liable to tax in the country in which you, your spouse, or either of your parents was born; or

For each year in the 10-year period ending on the date of expatriation, you were physically present in the United States for 30 days or less.
See Pub. 519 for details about what constitutes a day of presence in the United States."

This would only apply if you haven't filed the 8854 and are subject to taxation under section 877.

Ha, just reading some of those comments on your link shmoelle. Loved Robert's one on "neutral American". Good luck with that idea when he tries to get past US passport control with nothing but his US birth certificate and the Constitution.
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Old 27.12.2016, 13:06
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Re: Renouncing U.S. citizenship - What to do with IRA / stocks?

This might be of interest as well:
http://www.cnbc.com/2016/05/17/expos...tizenship.html

I looked into this at the birth of my second child. Both born in France to a Belgian father, it seemed excessive to expect them to file US taxes for a lifetime that had every chance of not including employment or residence in the US. Sounds like the OP's scenario?

PS Those annual net incomes could easily be exceeded by Swiss salaries, couldn't they?
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Old 27.12.2016, 13:13
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Re: Renouncing U.S. citizenship - What to do with IRA / stocks?

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"Tax consequences of presence in the United States after expatriation.
If, for any tax year during the 10-year period in which you are otherwise subject to section 877, you are present in the United States for more than 30 days in a calendar year ending in such tax year, you will be treated as a U.S. citizen or resident for that tax year. You will be subject to U.S. tax on your worldwide income unless the following exception applies.
.
It's like the Hotel California ...

Editing after reading the comments on the link above -- yikes! One more reason to verify any 'helpful' info from the internet :-)
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Old 27.12.2016, 13:17
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Re: Renouncing U.S. citizenship - What to do with IRA / stocks?

Unfortunately, the US is excessive when it comes to taxing its non-resident citizens. Best not to file their births with the American embassy/consulate or if you've done that already then they have the option to renounce it as soon as they turn 18. It can be tried when they're over 16, but the process is more carefully looked at.

https://travel.state.gov/content/tra...tizenship.html

Main problem of course is the cost. Already outrageous compared to other fees and by the time they're grown up it'll probably be even more outrageous. Better start saving up now.
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Old 27.12.2016, 13:23
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Re: Renouncing U.S. citizenship - What to do with IRA / stocks?

What I found is that if they travel into the US and have the right to US citizenship they are considered US citizens whether that right has been claimed or not, and arrival in the US must therefore be on a US passport or it's considered renouncing citizenship. We go there frequently to see my family so that didn't leave many options.
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Old 27.12.2016, 13:39
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Re: Renouncing U.S. citizenship - What to do with IRA / stocks?

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PS Those annual net incomes could easily be exceeded by Swiss salaries, couldn't they?
No, because what was listed was tax liabilities, not net incomes. For a tax liability of 120k, I guess you have to have a gross income approaching 1 million (given that you deduct Swiss taxes and a variety of other things). So it's not so easily triggered by a Swiss salary.
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Old 27.12.2016, 18:51
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Re: Renouncing U.S. citizenship - What to do with IRA / stocks?

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What I found is that if they travel into the US and have the right to US citizenship they are considered US citizens whether that right has been claimed or not, and arrival in the US must therefore be on a US passport or it's considered renouncing citizenship. We go there frequently to see my family so that didn't leave many options.
Yeah, the country seems to insist you must have the citizenship, even if you don't want it!

Entering on a non-US passport isn't an expatriating act unfortunately so not able to lose the citizenship that way. Believe me, if it was that easy thousands of Americans would have been travelling to the US without their US passports these last few years - in most cases it would work out cheaper than the renunciation/relinquishment fee.
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Old 27.12.2016, 21:53
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Re: Renouncing U.S. citizenship - What to do with IRA / stocks?

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Depends what you mean by "tax obligations". Once you're no longer a citizen, you do not owe new taxes from that point forward.
"New taxes" - crucial point.

Since an IRA consist of deferred taxes based on past obligations, I'm wondering if the deferred taxes are "canceled" once one renounces citizenship. From what research I've done it seems they are - i.e. after renouncing, one can cash out the entire IRA without having to pay taxes on the withdrawal (unsure about the 10% early withdrawal penalty though).
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Old 27.12.2016, 21:56
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Re: Renouncing U.S. citizenship - What to do with IRA / stocks?

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Yeah, the country seems to insist you must have the citizenship, even if you don't want it!
Yes, easy money. I wouldn't be surprised if the renunciation fee goes to a nice round figure, say $10,000, in the next couple of years.
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