[kirikara]

Hi
I know my question is difficult because taxes evolve over the years, but here it is:
we are a professional couple in our late twenties and I am struggling to take any decision regarding retirement savings, so much so that I have been delaying it and keeping our savings into a simple savings account.
Currently living in the US, by the end of the year we will be both dual citizen of each other's country (US/France)

I think we will be retiring in france or be back to france before that.
I am trying to find out what is the best way to plan retirement in this case.
Are the IRA which offer immediate tax breaks the best plan?
With the foreign tax credit, would the whole 10% penalty for early withdrawal be meaningless because I already might be paying way more taxes in France than owed in the US anyway? Or is it ALWAYS taken out of your distribution upfront no matter what?
Will i be taxed by both government when taking money out of an IRA?

If i do a Roth IRA, will I be then taxed by the french government when I take distribution and am fiscally a french resident (even though I already paid taxes)?

I am sure I am not the only one having this issue but I am sure having a very tough time finding info.
As an FYI, we are not rolling in money, we are in a lower tax bracket, our company does not match anything so no advantage to 401K or else, and I am able to take advantage of any self employed options too, if anything is good.

oh am I also wondering which benefit i will be able to get? will we be eligible for us benefit like social security if living in the US and then french benefit if living i france? I did read that the french government recognizes my work years abroad but I am not sure in what limit.

Help?

 

[NickZ]

There is a tax treaty between the two countries that's your first source of info. So surf over to the IRS website and check things out.

Don't assume French taxes are higher then US. On investment income Italian taxes are overall lower then US taxes. I don't think French are much different. You also need to factor in any difference in deductions plus the total tax take. No point saving on income tax but paying more in property etc taxes.

Your bigger issue IMHO is going to be currency hedging. Over time you'll want to move your income into Euro sources at least in part.

Damn 20s and retirement planning. You'll have plenty of time to get it figured out.

 

[Bevdeforges]

Bravo for you that you're thinking about retirement this early! OTOH, like you say, things can change a whole bunch by the time you're ready to benefit from all this early planning.

On the IRA, no you won't be taxed twice. Thanks to the tax treaties (income tax and social security), you pay one set of taxes on retirement earnings. It depends a bit on exactly how and when you take the money out of the accounts. But if you take the money out early, you will get hit with the 10% penalty up front - and I'm not certain how (or if) that is recognized in the French tax system.

Be careful with the Roth IRA. It's a strange beast from the French point of view - not certain how it is considered and you do run the risk of double taxation, depending how the French "see" the plan.

What might be possible (depending on the French tax laws at the time you change residence) is to declare the IRA's as "foreign life insurance contracts." That's what I've done with mine - however the current French tax law has some definitions of "life insurance contracts" that depend on the date your IRA was established and how long you continued to pay into it that could affect your ability to use this route. You kind of have to see when you get here.

On social security, you get the one you paid into. If you literally retire from the US to France, you'll get your US social security only. They only count your years worked elsewhere (US or wherever) if you have paid for a certain time into the French system and need additional years to qualify to receive a pension at all. The amount of any French pension is still determined by only the years you worked in France. Be careful, too, because your citizenship doesn't get you any health care benefits. If you work your entire career in the US and then retire to France, you'll need private insurance for health care coverage unless your retirement benefits are so poor as to qualify you for poverty benefits.
Cheers,
Bev

 

[kirikara]

ok thanks to both of you. I have actually read the tax treaty a while ago but could not understand exactly what that meant for me. So I think I will stick with an IRA for now maybe a 401K if I ever get to the point where we can do both. But I will take the tax break now rather than later since I have a lot of time for it to grow tax free and dont know where I will be int he future.
bev, any chance you know where I can look for the retirment thing. We are considering moving to france at some point. I have worked there a tiny bit when I was studying, and I would definitely want to find out at what point I am basically giving up on french retirement.
That might help my decision to stay or leave the US too.(a decision which has been very much ongoing for us..)

 

[Bevdeforges]

bev, any chance you know where I can look for the retirment thing. We are considering moving to france at some point. I have worked there a tiny bit when I was studying, and I would definitely want to find out at what point I am basically giving up on french retirement.
That might help my decision to stay or leave the US too.(a decision which has been very much ongoing for us..)

It sounds to me as if what you're looking for is information about the French retirement system, rather than the US system. For that, you'd have to check the various French government websites. Start with Service-public.fr and try the rubrique on the left side of the page for "Je prépare ma retraite" - things over here have been changing alot lately, so it may be tricky to find specifics, but usually they have all the links you need on the Service Public site.

I've got credits in both the US and French systems. I can tell you that you only need 10 years of work credits to qualify for US social security benefits on retirement. You need 40 years (probably soon to be 41 or 42) to qualify for a "full" pension in France. I've been working now for 10 or 12 years here, but at a pretty nominal salary (just a bit above the SMIC) so even if I work to age 65, the amount I'll get from the French pension system is pretty nominal. (Just had the pension review done last year.) Frankly, I'm not here for the pension, so it's not a big deal - but being eligible for any sort of pension here makes all the difference when it comes to being eligible for the health part of the sécu on retirement.
Cheers,
Bev

 

[frenchie]

Hi everyone,

I am currently in the same process. You are going to have to try to decipher the US/French Treaty regarding the taxability.

There is a really good guide for "retour en France" for the french citizens:Maison des Franais de l'Etranger - Site institutionnel de l'expatriation Top right side under "guide a telecharger"

This site has a lot of good info. They also have once a year, people from the centre des impots giving tax advices. It might be worth a shot if you are up at 9am (french time). :ranger:

Good luck! I haven't had much luck besides founding that we can't be taxed by both countries. What a relief! lol :clap2:

 

[trevorwhite]

IRA as foreign life insurance

What might be possible (depending on the French tax laws at the time you change residence) is to declare the IRA's as "foreign life insurance contracts." That's what I've done with mine - however the current French tax law has some definitions of "life insurance contracts" that depend on the date your IRA was established and how long you continued to pay into it that could affect your ability to use this route. You kind of have to see when you get here.

Can you explain about making an IRA a foreign life insurance contract and when one has to do this (before or after arriving in France)? Or can you point me to where I could get this info?

Trevor

 

[Bevdeforges]

Can you explain about making an IRA a foreign life insurance contract and when one has to do this (before or after arriving in France)? Or can you point me to where I could get this info?

Trevor

This information isn't really readily available - it's more or less an interpretation of the tax rules here. You don't actually have to "do" anything except declare your IRA on your French tax return as a "foreign life insurance contract."

Read the definition of life insurance contract in the income tax instructions and see if your IRA fits the definition. If it does, include it on your list of foreign life insurance contracts and you've at least disclosed it properly and thus you should be able to treat it as life insurance when you start drawing on it. (At the time I did this, there was some provision about it having to run for at least 15 years before paying out at "retirement age" - stuff like that.)
Cheers,
Bev