How to handle your money before starting a job overseas
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For some people, getting to work abroad is a perk — a chance to see the world. For others, it may be a necessary evil, forced on them by a giant global employer.
Either way, going to work in a foreign country is a huge adjustment. You have to learn a new culture, living situation and possibly language.
To top it off, the finances of a move abroad can be complicated. Basically every aspect of your financial life has to change. Here are the big money moves to make if you work abroad.
The tax man cometh, no matter where you are. The United States taxes its citizens worldwide. But many Americans working abroad qualify for the foreign earned income exclusion, which allows you to exclude up to $100,800 of your foreign earnings from your taxable income.
Because of this, many people may see their taxes decrease when they move abroad, said Katie Lenz, a financial planner for Timberchase Financial, a wealth management firm.
If you expect the wages from your foreign job to fall below $100,800, you may want to make moves to lower any taxable income you've made in the U.S. before going abroad. These moves include maxing out an individual retirement account.
Maxing out an IRA before your move also smart since the IRS won't let you make tax-free contributions to a traditional IRA if all your income falls under its foreign earned income exclusion. A Roth IRA may be a better choice, but talk to a tax consultant about the best move for your situation.
You also have to pay taxes in your new place of residence. Like in the U.S., you might owe income tax to multiple jurisdictions, said Malte Zeeck, CEO of InterNations, an online community for people who live and work abroad.
"Switzerland is the best-known example," he said. "Such taxes are due to the federal government, as well as to the canton and the municipality where you reside."
It's important to know your tax liability while you're abroad: Will you pay taxes on just your local income or your worldwide income?
You'll have to become familiar with the concept of "tax residence," or "fiscal residency," or "residence for tax purposes." Whatever the term, it determines whether and how you're taxed in a given country, Zeeck said.
Often you become a resident of a place for tax purposes if you're physically present for at least 183 days out of the year, Zeeck said. It can vary from country to country, but if you think you'll approach that length of time, find out, because it can have a big impact on what you owe in taxes.
A local bank account can provide a place to deposit your salary and help you avoid exorbitant ATM fees from using a U.S. debit card in a foreign country, Zeeck said. Also, using a local debit card may save you money when shopping online in some countries.
You will most likely need to keep an account open back in the U.S., especially if you plan to come back one day or you own property. You can use your U.S. account to pay any expenses you need to cover back home, like a mortgage payment.
You may want to open an account with a global bank that operates both in the U.S. and your host country, Zeeck said. A larger bank may have more experience helping expatriates with financial planning and foreign transactions and offer faster international service in case you need access to money in an emergency.
You should add a co-signer to your bank account so you have someone back in the U.S. to handle any money moves, Lenz said. This should be someone you trust, like a family member or close friend.
Get a credit freeze for your trip if you don't plan to borrow money or open new credit accounts, Lenz said. It's harder to deal with credit fraud while you're away, and a freeze can help shut down identity thieves.
If you have investments, check with any firms to see if they'll work with you after you move, said David Kuenzi, founding partner of Thun Financial, a financial planning firm specializing in American expatriates. Many firms terminate Americans as clients once they move abroad because of stricter compliance rules for cross-border transactions.
"You have the option of leaving your U.S. address on these accounts, but some firms, like Fidelity, Vanguard and Merrill Lynch are known to very aggressively investigate if they think you're conducting business outside the United States," Kuenzi said.
When it comes to cost of living, not all countries are created equal. For example, owning a car can be pricey in Europe, but eating and entertainment may be cheaper than in the U.S., Kuenzi said.
You can find various cost of living indices, like this one from consulting firm Mercer, which covers a variety of goods, or something simpler like the Economist Big Mac Index, to get an idea of what costs you'll face before you leave.
The biggest variable in your budget will likely be travel costs if you're shuttling back and forth, Lenz said. Some months will be more expensive than others if you happen to be traveling.
You may want to adopt a yearly budget instead of a monthly budget because of these spikes.
You should also budget for your eventual return home, Lenz said. Whatever the costs, whether they include new housing or a new vehicle, factor them into your long-term budget.
If you want life or disability insurance, it's best to get it in the states before you leave, Lenz said. Prices tend to get higher for people living abroad, because the risk of death and injury are higher in certain countries.
"A lot of times it will cover you when you're over there," she said. "You just need to put it in place before you leave."
Term life insurance is generally valid across borders, Kuenzi said, while whole life policies may face extra taxes abroad. In addition, whole life policies purchased abroad may violate tax laws back in the states. (We can help you compare term life insurance prices.)
Most employers will provide medical insurance to their expatriate employers that covers them both in the U.S. and abroad. Even if your employer does cover you, you may still need to buy additional coverage if the policy doesn't cover pre-existing or chronic conditions, Zeeck said. Read your policy carefully to see what it covers.
Freelancers are typically on their own when it comes to medical insurance, but you may be able to ask your employer to add coverage to your contract. If you're only working a short stint abroad, travel insurance may suffice.
If you have private U.S. insurance, some policies may offer some coverage abroad for a limited time, but you should check with your provider, Zeeck said.
Some countries may require you to buy public health insurance or contribute to the public health system.
"If this is the case, you should find out if most expatriates take out additional private insurance in order to have access to higher-quality health care and avoid long waiting times," Zeeck said.
International policies may save you trouble if you're traveling from country to country. Some cover you worldwide, but not in the U.S., so you may need to buy a separate short-term policy for when you're home.
"Since there's no longer the mandate to have insurance in the U.S., you won't be penalized if you don't have it, but you also don't want to be completely uncovered when you're visiting here," Lenz said.
If you receive Social Security, the U.S. will make those payments worldwide, with some exceptions. Check the Social Security website to learn how to receive your benefits.
People with elaborate estate plans need to make sure they're still valid if they live outside the U.S., Kuenzi said. In Europe, for example, they may not be and may be subject to taxation. Your best bet is to talk to an expert, he said.
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