A U.S. tax crackdown is coming for foreign retirement plans. The U.S. has been pushing banks and individuals to report overseas assets, making it tougher to hide money abroad with new rules and penalties rolling out under the 2010 Foreign Account Tax Compliance Act, known as FATCA. The next wave of scrutiny will cover retirement accounts, Bloomberg BNA reported.
Some retirees are happy to grow old in place and in their family homes. Other retirees, however, seek to a change of scenery, exotic climates, and living out their days in foreign countries. Unfortunately, a "foreign" retirement may attract troubling scrutiny from the IRS, and its vice grips are certain to dig deeper with the implementation of FATCA.
According to a recent Bloomberg article titled "Foreign Retirement Plans Seen Scrutinized in U.S. Effort: Taxes," FATCA, or the Foreign Account Tax Compliance Act, is a 2010 law set to crack down on foreign accounts held either intentionally or otherwise to elude U.S. taxation.
While it has been a surprisingly effective initiative, FATCA also has caused some unintentional headaches for some unintentional targets. Banking in various parts of the world has already felt some sting. Foreign banks (notably Swiss banks) have been bogged down with FATCA regulations and some have taken it out on Americans abroad.
If you have been thinking of retiring to foreign shores for some time, then you might be familiar with FATCA. However, as the Bloomberg article notes, the scrutiny attending FATCA is about to reach out into retirement accounts.
Retirement accounts are, generally, designed to be exempt. Nevertheless, the problem is intervening international laws, government-to-government agreements, and ensuring that your foreign retirement does not fall within the sights of FATCA. Instead, you need to ensure that your retirement finds its rightful exemption.
This is a developing issue. If you are or may be affected, then it is essential that you stay informed.