Are you wondering what retirement accounts are available for American expats in France? Do you already have a 401k or IRA from a previous employer in the US? Or, are you currently working in France and would like to set some money aside for retirement? As a US expat, there are ways to keep your retirement accounts, and/or open new ones.
What is a retirement account?
An investment account is considered a retirement account if it has special provisions to encourage you to invest in the long term. As we’ll see below, there are various types of retirement accounts, each with their own set of features to lighten your tax obligations, and essentially providing more money in the long run. In addition, several retirement accounts can include employer contributions or matching, thus multiplying the amount of money you set aside.
Individual Retirement Accounts (IRAs)
An IRA is one of the most common US retirement funds, which can be opened through a bank or broker. The big benefit of IRAs is your contributions are considered pre-tax, so you don’t pay taxes on that amount. In other words, whatever amount you deposit in an IRA fund will enter tax-free, as well as reduce your taxable income for the year of the contribution.
401k accounts
Despite its awful name, (taken directly from the U.S. Internal Revenue Code) a 401k plan can be very beneficial. A 401k is very similar to an IRA, but has the extra advantage that your employer can match some of your contributions, essentially providing free money to boost your retirement savings.
Roth accounts
You may be a little wary about the term “Roth”, but a Roth IRA or a Roth 401k is just a retirement account that is taxed slightly differently compared to their traditional counterparts. Essentially, Roth accounts allow you to contribute to the account funds that have already been taxed, and then receive all the withdrawals tax-free. This is a great solution if you don’t want to worry about taxes when you retire or for your inheritance.
Less common retirement plans: profit sharing and public sector
In the US, there are a few other types of retirement accounts, but they tend to be linked to two profit sharing schemes or public sector jobs. For example, “ESOPS” or stock-bonus plans are retirement plans meant to retain valued employees and have them invest into the success of the company. Employees working in the public sector have access to special retirement plans such as the 457(b) or the 403(b), often based on salary and seniority, and can also have special features such as a lump sum or annuity option.
Can I have a US retirement account while living in France?
The short answer is yes and no. It is perfectly possible to conserve a US retirement account if you’ve worked in the US before moving to France. However, you will need to place the account with a custodian that will accept your French foreign address, which most US banks will not do. At Harrison Brook, we are one of the few financial firms who can manage these accounts, as our custodian partners not only allow French addresses, but can also consolidate various retirement accounts together, as well as take advantage of Roth IRA conversions – tax-free in certain cases.
If you already live in France and are looking to open an American retirement account, that can be a lot trickier. First of all, employer-sponsored plans such as a 401k are only available from US employers, which, for French residents, will likely not be the case. Non-employer plans – IRA and/or Roth IRA – are possible, but contributions can only be tax efficient if your income surpasses the Foreign Earned Income Exclusion. We can open new IRA and Roth IRA accounts for our French resident clients. If this is the case, reach out to a cross-border financial specialist at Harrison Brook to guide you through the process.
Brokerage accounts options for US expats in France
French residents – US expats included – must abide by the European MiFID rules which, unfortunately, makes it harder to invest in diversified investment vehicles such as ETFs. As you probably know, non-US residents are prohibited from purchasing mutual funds, and conversely, Americans cannot invest in local European funds because of the IRS’s PFIC tax rules. As a last option, you can invest in individual securities, but we at Harrison Brook have access to a large range of diversified portfolios of US ETFs for our clients.
How about French retirement accounts?
As mentioned above, most French investment accounts – retirement or not – only allow European funds, which are not PFIC compliant. One possible option however is a plan d’épargne en actions (PEA) account, which would allow you to invest up to €250,000 in single European stocks, and grow tax-free if kept for a minimum of 5 years. (However, you still need to pay social charges on capital gains – approx. 17%) After that you can open a compte titres (securities account), where you can invest in a much larger range of securities (for instance, international stocks and bonds) but the tax reporting requirements can be complicated.
It’s also important to remember that, in case of bank default, French investment accounts are only guaranteed up to €70,000 euros by the state, compared to the US where investments in securities are covered by the SIPC up to $500,000.
Should I keep my US advisor?
A past remedy to ease cross-border finances was to keep your US accounts with a US advisor by using a family member’s US address. However, if a broker or bank finds out you are a non-US resident, they can quickly freeze your accounts, shut down your online banking access, or even simply close your accounts altogether. Whether you’re living overseas, or even going back to the US later in life, your investment accounts with Harrison Brook are safe and secure with a custodian and a cross-border financial advisor who will be able to service you no matter where you live.
Harrison Brook – your local, France-based financial solution
The right cross-border financial advisor can be a key player in your journey overseas. At Harrison Brook, we are proud to provide a high level of financial services to our clients all over France. Having a local advisor is an easier way to build the trust and lifelong relationship with someone who can manage your finances with confidence. Don’t hesitate to book a meeting with one of our cross-border financial advisors today.
