Are you an American expat wondering if IRAs are taxable in France? Many Americans who currently – or are planning – to live in France have previously invested in retirement accounts while living in the US, and are wondering if their new status as a French resident will have an impact on their IRA distributions. In reality, the situation is a bit tricky, but the right financial guidance can provide a safe and easy way to comply with both US and French laws, and pull the full benefit of your IRA while living in France.
What is an IRA?
An Individual Retirement Account (IRA) is a type of retirement account designed to help accumulate funds for retirement years. They are offered to people who work and live in the United-States, and have tax advantages to incentivize saving for the future, when you are no longer working full-time. Certain restrictions do apply such as contribution limits and age requirements, but nevertheless, IRAs remain a very common retirement account in the United-States.
Are IRAs taxable in the US if I live in France?
As you may already know, American citizens and US-connected persons must file taxes with the IRS no matter where they live. It’s one of the inconveniences of being an American expat, because the US tax system works on a citizen-based basis. Your IRA contributions will be counted as US based income even if you live in France, so yes, you will have to declare them to the IRS and possibly pay taxes.
Why choose a Harrison Brook international IRA solution?
- Can use your foreign address
- Guaranteed to be US and France compliant
- Keeps your funds in the US with a US custodian
- Can have account in EUR to avoid exchange rate risk
- Access to a large choice of investments such as stocks, bonds, and ETFs
- Low management fees, no commission fees
Case Study
A 60 year old, semi-retired American executive whocurrently lives in France, decided to take out $80,000 from his IRA in order to remodel his house in France. His income for the year was $120,000.
Result in US: His income is below the IRS foreign earned income exclusion, which means he will only need to pay US taxes on the $80,000 IRA distributions, putting him in the US income tax-bracket of 22%.
Result in France: In France, a $120,000 salary would be in the 41% tax bracket. However, while the IRA distribution is not taxed in France, it will figure into his French marginal tax rate, and will consequently jump him up to the 45% tax rate for his $120,000 earned income.
Are IRAs taxable in France?
The short answer is “no”, because of the tax treaty between the United-States and France. In the treaty, they stipulate that all retirement income is only taxed in the country of origin of the account. Since IRAs are American, you are not taxed in France. However, you still need to declare the amount received on your French taxes in order to calculate your marginal tax rate (“taux d’imposition”) in case you have French income as well.
Watch out for your home address
As highlighted in our recent blogs, many American IRA providers are requiring non-US residents to close their accounts. The stringent FATCA and KYC reporting rules require American providers additional reporting requirements for overseas clients, which they simply do not want to do. This has left many former clients scrambling to find a solution.
The Harrison Brook IRA Solution
If you find yourself in this situation, do not hesitate to contact us at Harrison Brook. We partner with IRA providers who allow non-US residents to maintain their accounts and ensure convenient access to their pension funds whenever they need them. Our cross-border advisors will provide you with financial peace of mind and help you avoid costly penalties. Harrison Brook is here to assist you in managing your cross-border financial assets, so don’t hesitate to book a meeting with us.
