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Hi,

To start, thanks for this forum!

I am dual nationality American-French, living in France. My husband is French with no green card. I have started thinking about investing for retirement, not sure where we will be living by then (we are considering moving to the US for the remainder of our careers, even if after that we come back to France).

I'm looking for guidance on where to best start investing now given tax treatment both by the US and France. I have a very small Roth IRA. I cannot contribute directly to it anymore, but could open a traditional IRA and contribute through the backdoor method. Is this a good idea or are there considerations which may make it less attractive or complicated?
Assurance vie in France doesn't appear to be a good option because of US tax on the gains. In fact, no French retirement fund seems advantageous.

At 60, I will have both a French retraite and (I think) a small US one through Social Security given 10+ years worked there before moving to France. But together, they will not be enough.

What else might I consider? ETFs? Real Estate in the US? Anything akin to a 401K (here or in the US)?
Are there some obvious options I haven't mentioned?

Thanks so much for any guidance.
 

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This is a classic expat issue - and one, I fear, that there is not a really good answer for. Lots of considerations and you have to decide for yourself what fits best with your circumstances.

From my experience (and others will have different points of view on this):
but could open a traditional IRA and contribute through the backdoor method.
It is getting increasingly difficult to open an IRA (any sort) from overseas. Plus, there is the consideration that you would have to rely on the FTC (Foreign Tax Credit) rather than just excluding your income from US taxation with the FEIE. One potential problem is that, once you have switched away from the FEIE you may need IRS "permission" to switch back if you wanted to do so at any time in the future. Most financial institutions are OK with you just leaving what you have to grow over time - and then it's just a matter of starting to make withdrawals when you turn 59 1/2 or whatever age you choose to do so.
Assurance vie in France doesn't appear to be a good option because of US tax on the gains. In fact, no French retirement fund seems advantageous.
Yup. The US tax code seems to be constructed to force citizens to stick to US based investments and retirement funds. Even those that work almost identically to the US IRA are not considered "qualified" and thus wind up being considered to be PFICs or Foreign Trusts or one of those other "problem" investment vehicles. To avoid US tax problems it is probably safest to stick to US based investments - though lately we've had people report that opening or keeping a US investment account can be problematic while you are resident overseas.
At 60, I will have both a French retraite and (I think) a small US one through Social Security given 10+ years worked there before moving to France. But together, they will not be enough.
This is the part where you may be in for a pleasant surprise. The US SS system will count not only all your years worked in the US, but also your years worked in France (thanks to the US-France Social Security treaty). They won't count your salary from France in the calculation - but having the additional years can be a big advantage.

OK, the French retirement system may well change in coming years, but as of right now, the French will also count your years worked in the US along with your French work history. (Again, years only - not your salary level during those years.) It can very well mean the difference between getting only a "half pension" and getting a full pension (i.e. credit for the full 40+ years needed for a full pension). I was honestly surprised at what I ultimately qualified for - and with the combination of US SS and French pension, the amount (while not overwhelming) is certainly reasonable. Of course, like all expats, there is the ever-present issue of currency exchange rates to deal with.

Ultimately, I was very glad to have left my US IRA and 401K funds where they were - because after 20 years virtually untouched, they had grown rather significantly. The IRAs, 401Ks and similar tax deferred funds are specifically named in the US-France tax treaty as being treated like a national pension plan - so they are taxed only by the US and only when you start to make distributions.
 

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Discussion Starter · #3 ·
Thanks so much Bev.

If I 'could' though contribute to a IRA, would it make sense to do so? I have read that it's possible to make a nondeductible contribution to a traditional IRA and then move it into a Roth (before it has a chance to gain anything which would lead to taxation), year after year. Not sure I would be able to do this from abroad. But I wondered anyway if it's a good idea.

For US and French social security, it indeed looks like I will qualify for both unless there are changes made to the legislation. This is definitely positive. But I'd still like to start investing a bit to increase my income for my retirement years.
 

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The Roth IRAs came into being several years after I left the US - and at the time, you couldn't open a Roth at all if you filed married, filing separately (as I did). I'm told that changed after a while, but basically I know next to nothing about the Roth IRAs. Have heard of those "back door" contributions but again, don't have a clue about how they work.

But be careful - with any IRA, you don't pay taxes on the gains in the fund, but on the amount you withdraw (as if it were regular income). Maybe someone will wander by who has more experience with this sort of thing.
 

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“but as of right now, the French will also count your years worked in the US along with your French work history. (Again, years only - not your salary level during those years.)”

Bev, I have to disagree. At least, this does not apply in my case. I recently (2019-20) completed the process with CNAV of updating my relevé de carrière to account for tertiary education and years worked out of FR. CNAV asked for justification for périodes lacunaires...The years declared as working in US supported by US SS number are blank in my revised CNAV history both for time/trimestres and for revenue. Are we talking of the same thing?
 

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Oh, when they first do your relevé de carrière the years are blank. But you fill those in (and I think I may have sent them a copy of my latest US SS estimate which they were still mailing out at the time) - actually, I think I did fill in a form and indicated the name of the companies I worked for and the dates in the US (and in Germany). The ultimate listing I got back from them simply indicates the quarters worked for each year and in which country. But it all got counted in.

I think these days you have to request your US SS estimate online, but it should indicate all the years/quarters where they have contributions from you. For a while they were sending those out annually after your first request for one.
 

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Oh no... but thanks for this alert !! ...I am about to have a major panic. This made me double-check my RdCarriere on service.info-retraite.fr despite having provided details to CNAV to recognise missing years and to know if it was worth buying trimestres: the non-French years (UK, US, BE) are blank despite having declared them by providing relevant SS numbers. I thought (probably wrong) there was communication between the relevant SS departments, eg FR-UK, FR-US. I do see there's an option to correct the career history on info-retraite, but "Important : veuillez joindre vos bulletins de salaire séparément et ne pas les regrouper en un seul document." How administratively inefficient can you get? Or is it just to make it difficult? That's about 15 years x 12 bulletins de salaire as separate files... now I understand why in other posts, members of this forum suggest there's no real advantage in grouping state pension history - you just have to administer each separately, transfer funds and suffer bank charges and exchange rates.
Sorry - slightly off-subject from OP. But I'm flummoxed - thought I had finally got things sorted after 2-3 years preparation (and have made decisons based on it).
 

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It may have changed, but when they did my estimate quite a few years back, after I had sent them back the information (with no salary bulletins for my US or German years - I've moved too many time to have any of that stuff at hand) they apparently contacted both the US SS Administration and the German Rentenversicherung because I had letters from both agencies - saying, in effect, that it was too early for me to apply for my benefits.

They entered the work history information - though only the fact that I had worked in the Etats-Unis and Allemagne for the years I had indicated. Nothing about the employer or salary. But they apparently had verified my status with the appropriate agencies. It took a while for them to get back to me with their estimate of my benefits - but as far as I can tell, it was based on the total # of years worked, though exclusively on my French earnings (which were just a hair above the SMIC).

But you'll still have to administer each pension separately, transfer funds, etc. (Except that the US Consulate's Federal Benefits Unit will handle direct deposit of your US SS here in France for you.)
 

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kim78 -- First, I know nothing about French SS, but since you have 10 years (assuming 40 "good" quarters) of work history in the U.S., you'll qualify for U.S. SS. The U.S. would only use your French work history to "bump you up," to the required 40 quarters. The fact remains that U.S. SS retirement is based on your highest 35 years of income. If you worked more than 35 years, your lowest earning years will be dropped from the calculation and if you worked less than 35 years in the U.S. (whether you worked in France, or not,) any years less than 35 will be zeros in your SS calculation. You'll also be subject to the WEP EN-05-10045 - Windfall Elimination Provision - January 2021 (ssa.gov) which may reduce your SS benefit, if you have less than 30 years U.S. work history. On the positive side, all your "old" work income will be indexed for inflation (except income from age 60 on, which is not indexed.) As I'm sure you know, the U.S. Social Security Trust Fund will be exhausted in 2034 (possibly 2032, due to COVID.) As things are currently, you'll still get about 70% of your earned benefit. Fortunately, there is finally a move afoot, in Congress, to bolster the fund. There is also a move to boost SS to a minimum number (a % over the poverty level,) so your calculated earnings might be higher. Of course, we don't know what the future will bring, but "Seniors" are the largest, consistent, voting block, for both parties.

As far as investments, as you surmised, and Bev confirmed, the U.S. doesn't like foreign group investments (PFICs.) So with that said, any direct stock or real estate investments (in France or the U.S.) would be fine (as long as it's not in some kind of tax deferral wrapper.) Capital gains is the wild card, with taxes potentially raising in the U.S. and probably any other "broke" Western country.

The idea to invest in a Roth (by utilizing the "back-door" or "mega back-door" strategies) is a good one. As you probably know you can only contribute to IRAs (Roth or not) or 401Ks (Roth or not,) with U.S. recognized "earned income." This means taxes in the US. With that said, there is a cottage industry, in the U.S., advising folks to do "Roth Conversion Ladders," to get their retirement funds into a Roth, before the current administration is able to raise income taxes. Since you are over 50, you can still contribute $7,000.00 to an IRA for 2020, before, 17 May 2021. And of course you can also make another $7,000.00 contribution, for 2021, anytime before 15 April 2022. As Bev said, France won't tax your IRAs, so you can have untaxed "growth," for income you've converted to a Roth.

As for a other options, you might consider forming a U.S. corporation (perhaps in WY,) that would sponsor a self-directed Solo 401K (with Roth capabilities,) and sock as much into it as you can, until you ultimately retire. You can contribute up to $64,500 for 2021. If you have more income, you'd like to shelter, you could also consider a defined benefit pension plan. Once you've built up enough capital, you might consider investing in real estate, within the 401K (or a self-directed Roth IRA.) Of course, if you and your husband move to the States, you can double your total contributions, each year and as Bev said, you won't be taxed on your U.S. retirement plans (IRA & 401Ks) in France, when you move back. Additionally, if all your U.S. income is SS and Roth distributions, you won't owe any income tax in the U.S. (you'll be under the "standard deduction,") when you retire.

Another option would be to fund a U.S., mutually owned, whole-life or universal life insurance plan. As long as you stay under the MEC (modified endowment contract,) limits -- the distributions aren't taxed and you can take "loans" to support your retirement. Cheers, 255
 
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