Planning a comfortable retirement can be a complex process. That’s especially true for immigrants, who often face legal hurdles that people born in America don’t.
For one, immigrants might not know which retirement benefits they qualify for, says financial planner Steve Branton. But getting an overview of the basics is a solid first step.
We asked Branton to highlight some of the most important things immigrants should know about retirement planning and discuss some of the challenges they might face.
What is the main challenge immigrants face when planning for retirement?
Whether U.S. citizen, resident alien or nonresident alien, the biggest challenge is understanding how your immigration status affects your U.S.-based retirement income sources. That includes Social Security benefits and pensions, as well as other retirement accounts, such as individual retirement accounts and 401(k)s. Additionally, your immigration status affects how your income is taxed.
Can immigrants contribute to and collect Social Security?
Resident aliens, including permanent residents, can contribute to Social Security while working in the U.S., and are generally eligible to receive Social Security.
Nonresident aliens, meanwhile, can pay into Social Security, but their benefits typically terminate if they leave the U.S. for six months or longer. Returning to the U.S. for at least one month should reactivate the benefits.
What are some other common retirement challenges immigrants might face?
There are a handful of issues immigrants planning to retire in the U.S. might run into. Estate planning is more complicated, due to the differences between how property is handled at death for domestic assets and foreign-owned assets.
Compliance reporting is another tricky area, as all foreign-owned accounts exceeding a certain dollar amount must be reported for tax purposes for both U.S. citizens and residents. What’s more, U.S. citizens and residents must report worldwide income, though foreign-earned exclusions and tax credits apply.
Transferring retirement accounts into (or out of) the U.S. is a very complicated process, and may not even be advisable. With a few exceptions, you would be required to essentially liquidate your U.S. retirement account and pay taxes as well as any applicable penalties before being able to transfer the funds to an account in another country. Normally, most retirees prefer to stretch out distributions from their retirement accounts.
Because the same might apply for incoming retirement assets, it may be better to keep retirement accounts in the source country while familiarizing yourself with the rules and tax-related issues for withdrawing that money during retirement.
To make the process easier on yourself, consider working with a knowledgeable cross-border financial planner. He or she should have a firm grasp of both the legal and tax differences between your home country and the U.S., which can take some of the burden off of your shoulders as you prepare for retirement.