‘Two things are sure in life, death and taxes’. We all know the saying, however, a growing number of Americans retiring in Thailand have found a magical solution, and no, we are not talking about immortality.
Americans expats are some of the most tax savvi people in the world, ask almost any professional American and they will have their 15’/16’/17’ returns on file and know their 1040’s from their FBARS, they also know they have $103,900 of foreign earned income exclusion, so when they are told that if you retire in Thailand you have a 0% tax band, they are almost always dubious. However when they are told that they are most likely owed a tax refund from the IRS already, they tend to warm up a little.
401k IRA expats retirement in Thailand – The Foundations
When you leave America you don’t cease to be American, you may still enjoy a Budweiser while watching the grid iron or grilling a huge steak with the family on a Sunday, however when you are outside of the US for more than 6 months in a tax year you become a bona-fide non resident for tax purposes, this unlocks a lot of doors.
For those Americans with a 401k IRA expats retirement who choose to call the exotic paradise of Thailand their home, they are entitled to use the tax treaties between the US and Thailand to claim a special series of taxation rules set out by the IRS
Your current position:
For your whole working life you pay income tax and if you’re one of the lucky ones who is able to retire before the age of 59 ½ then you’ll also be aware that the IRS has a 10% withholding tax on your IRA/401k distributions as well.
“This article is for those of you who are withdrawing from a 401, IRA or brokerage account to fund your retirement and paying income tax or capital gains tax every year to do so.“
Each year in retirement you will pay income tax on the distributions you take from your 401k/IRA along with supplementary income from things such as social security or rental income. Depending on how much you are taking from your accounts will determine the amount of tax you’re currently paying.
Example: If your filing status is single and you’re spending $50,000 a year in retirement your tax bracket will be 25% and you’ll probably be giving up to 16% or $8,238 of your income as tax to the IRS. This can have a massive impact on your retirement over a 20+ year period adding up to a whopping $164,760 of tax. This figure has an even heavier compounding loss when markets are negative and you’re having to close red positions in your policy to fund retirement income, the IRS doesn’t care if your retirement is ‘in the red’, they will still want their slice of the pie.
As previously stated, American expats are a financially astute breed, usually very competent at tax, and the smartest of the smart always have a CPA look over their filings for them. While you may have a “great tax agent back home” there is a select few US tax experts who choose to specialise in US Expat specific taxation, which is a totally different ball game. Expats have a different profile, filing requirements and access to tax treaties between countries in which they are residence.
Unfortunately very few US tax agents specialise in expatriate specific filings and it’s even common to have guys at H&R block, PwC, Ernst and Young and KPMG shrug their shoulders as they haven’t spent the hundreds of hours combing over the thousand plus page long tax treaties which differ for every country, they need to take a shot gun approach, not a sniper rifle.
“This expert has spent a 22+ year career specialising in comprehending and understanding these extensive treaties, and he’s even doing a PHD on the topic.”
Luckily though, there is one agency who is crazy enough to spend the time combing through the treaties and one specific tax agent who holds a Masters in International Tax and Financial Service Law. This expert has spent a 20+ year career specialising in comprehending and understanding these extensive treaties, and he’s even doing a PHD on the topic.
James and Thomas:
Thomas Carden and James Martin are American International Tax Advisers (AIT). Their firm have helped dozens of US expats living in Thailand not only get a REFUND on their income tax they have paid, but also to structure it so that they are 100% tax free moving forward.
Here is what some people have to say about AIT, Thomas Carden and James Martin his practice manager here in Thailand:
Want to know more?:
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Ryan Cullinan: +66 955 487 022
Compare Return is not employed by AI Tax Advisers and we have not been paid at all for this article, they simply fit the Compare Return business model of “bringing industry experts to the expat community”. We fully support the work they do and have had a great track record in Thailand.
*This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice I do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.*