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[miraceli]

I am clueless about investing, so I have the 40-year plan with Fidelity (in which they decide how to invest all my retirement money). I've had my account for five years.  I've frequently had negative return rates, but I figured that is ok if I have 30+ years to face market fluctuation.

Now, however, I have been thinking about going back to my home country in the future because of personal reasons (alining parents, etc.). It's not a firm plan yet, just an idea. But if I have reason to believe that  might move in, say, 5 years or so, should I make changes in my Fidelity options? I'm assuming I can take out the money if I'm leaving the country. Or would it be better to keep the account here even if I'm not a resident anymore?

If it matters, I have been contributing to the state retirement plan from my home country since I began working at 18. So I have a retirement safe net there, but the government rules on retiring are always changing, and the amount is not high.

[concordancia]

There are going to be a lot of taxes to pay on that money even if you leave the country.

[pedanterast]

The possibility you are maybe leaving in five years does not, by itself, indicate you should change anything, assuming you are going to continue working somewhere.  But you should know that the US does not consider your leaving the country a valid reason to withdraw the money before you are 55.  So if you are not 55 by the end of the tax year in which you withdraw the money, you face both immediate taxation and a 10% withdrawal penalty on the pre-tax amount.  You can either leave the money where it is, or you can roll it over to an IRA without tax or penalty.  But, if you roll it over to an IRA you will have to wait until you are 59.5 years old to withdraw it without penalty.

[monsterx]

My partner and I left the US several years ago, with money in a TIAA-CREF account.  The money is still there; we assessed the situation and decided it was not worth the fees, taxes and bureaucracy to take it out.  Our plan is that we'll get it when we retire.  There is currency risk and of course the market goes up and down, (mostly down it seems) but better to take the risk than to lose a lot for sure.  With our earnings, future retirement, and almost all of our other assets now in Euros, it seems to make sense to have a small currency hedge in dollars anyway. 

[miraceli]

Thank you, all. It's useful to learn that other people have left the country and kept their accounts in good standing until retirement age (I take that you don't need to keep making contributions in that case?). That seems to be the best option, considering taxes and fees

[pedanterast]

No need to continue to make contributions.  I have one (with Fidelity) I have not make contributions to for almost 15 years now.  No maintenance fees either.

[observer3]

Just to chime in also, I have left the US but kept my retirement account there for the time being. There is no reason to bother it until retirement age.

I would be curious to know, though, if anyone has paid into a US retirement account while living abroad and if there are some tax implications for this. Some of my account is a Roth IRA and I was thinking about contributing to it but I don't know if that is possible with a non-US income or residency abroad. Any thoughts?

[pigou]

As others have said, you should keep your account in the US. Although you may want to review just what it is you're investing in... you'll want to pay special attention to the fund's management fees and what percentage is invested in the US vs. internationally. Having an account with Fidelity does NOT necessarily mean you're holding USD and thus are hedging against currency losses after moving abroad. The fund may well invest internationally, in which case you are invested in all sorts of currencies as it is. That the value on your statement is printed in USD (or that the financial institution is based in the US) is not meaningful. (In my own research, I have found Vanguard funds to be significantly superior to those offered by Fidelity. Disclaimer: I invest in their funds and since the company is owned entirely by its own funds, I thus hold some miniscule amount of stock in the company.)

As for making contributions: it's unlikely that the other country will let you make tax deductions for contributing to a US retirement account - even if you could, there's really no reason to. Chances are, you will find the country has an equivalent that you can invest in, though. In those cases, you really have to look at the specifics. Switzerland, for example, has something equivalent to an IRA for voluntary contributions. The catch is that there are SEVERE limitations as to how the money can be invested. Ultimately, the tax deduction is not worth the lower rate of return unless you are within a few years of retirement. In that case (or when no voluntary retirement savings plan is available), you should just put the money in a regular investment account. There's no reason to surrender the flexibility of making penalty-free withdrawals at any time if you don't get tax breaks for putting money into the account.

In terms of what investments to pick, that would again depend on local tax laws. To use Switzerland again as an example, they tax dividends as regular income, but gains from the appreciation of stocks are not taxed at all. Consequently, you'd be best off there investing in companies that buy back their own shares instead of paying out dividends. This very much depends on the country, though, so you should talk to someone at a bank there.

[pedanterast]

I would be curious to know, though, if anyone has paid into a US retirement account while living abroad and if there are some tax implications for this. Some of my account is a Roth IRA and I was thinking about contributing to it but I don't know if that is possible with a non-US income or residency abroad. Any thoughts?

You can contribute to an IRA with non-US income or residency unless you claim the foreign earned income exclusion.   

[totoro]

I have a TIAA-CREF and Roth (with a different broker) account in the US. I have lived in Australia for the past 4 years and am not a US citizen. I have kept both accounts. The TIAA-CREF one is recognized by Australia as a retirement account because it is held through my former employer and I don't need to pay any taxes on it. If I withdrew the money I would have to pay US taxes and penalties etc. The Roth one is not recognized here and I do include any earnings etc. on my tax return here in Aus. I keep it open because maybe one day I'll move back to the US. It doesn't hurt to keep it. So some of this will depend on tax laws in the country you are moving to. No reason to do anything now I think.

[monsterx]

I would be curious to know, though, if anyone has paid into a US retirement account while living abroad and if there are some tax implications for this. Some of my account is a Roth IRA and I was thinking about contributing to it but I don't know if that is possible with a non-US income or residency abroad. Any thoughts?

You can contribute to an IRA with non-US income or residency unless you claim the foreign earned income exclusion.   

US retirement accounts are only tax shelters from US taxes; as an academic in a foreign country US taxes are not likely to be a problem, but you will probably have to pay taxes where you live.  There is no point in paying in to a US retirement account, unless you are paying taxes in the USA - i.e. earning enough above the foreign earned income exclusion that you need to pay taxes on it, and you are living in a place with no tax treaty with the US.  For most academics, making large amounts of money is not a problem we are likely to encounter, and if you are cursed with giant paychecks, usually there is a tax treaty to avoid double taxation.   

[pedanterast]

There is no point in paying in to a US retirement account, unless you are paying taxes in the USA

Totally wrong.  The advantages remain:  tax-deferred growth, and in the case of a Roth, the attendant benefits of later having tax-free income.  The Roth can help avoid future taxation of Social Security, can keep you in a lower overall bracket in retirement, and can increase the likelihood you are eligible for senior housing.  Those are just a few examples.  Another advantage is asset protection; Roth IRAs cannot be tapped by your creditors.

It's true that you can defer capital gains merely by following a buy and hold strategy, but you are still paying tax on the dividends or interest, unless the assets are in a retirement account.

[monsterx]

There is no point in paying in to a US retirement account, unless you are paying taxes in the USA

Totally wrong.  The advantages remain:  tax-deferred growth, and in the case of a Roth, the attendant benefits of later having tax-free income.  The Roth can help avoid future taxation of Social Security, can keep you in a lower overall bracket in retirement, and can increase the likelihood you are eligible for senior housing.  Those are just a few examples.  Another advantage is asset protection; Roth IRAs cannot be tapped by your creditors.

It's true that you can defer capital gains merely by following a buy and hold strategy, but you are still paying tax on the dividends or interest, unless the assets are in a retirement account.

I still don't see the advantage.   If I paid into a tax-deferred retirement account in the USA, I'd have to pay income tax on that money here, in the European country where I live.   And I would theoretically have to pay tax in the EU country where I live on the interest income in the Roth IRA account, although I suppose the government in the EU country where I live woudn't know about it.  Maybe Roth IRAs would be shielded from creditors, but this seems a pretty marginal benefit (unless it actually happened of course).  If I retire in the USA, there would be an advantage. 

[pedanterast]

If you can't see the advantage of tax deferred growth, I really can't help you.  Obviously the degree of the advantage will depend on where the person eventually retires.

[totoro]

If you can't see the advantage of tax deferred growth, I really can't help you.  Obviously the degree of the advantage will depend on where the person eventually retires.

If I pay into a US Roth now I am resident in Australia (I don't have any US earned income so I didn't think that was allowed anyway) I need to pay Australian taxes on dividends, capital gains etc. The Australian government does not recognize it as tax deferred. There is no tax deferred growth. They do happen to recognize the tax deferral status of my 403b but that will vary from country to country. It is better to put the money into an Australian retirement account from a tax perspective (superannuation account) though that isn't tax deferred it is lower taxes on earnings now and tax free after retirement.