BUSINESSWEEK ONLINE : JULY 17, 2000 ISSUE
COVER STORY

Taking It with You Abroad
How to minimize currency, insurance, and tax hassles

Family ties are what led Frank Anderson to retire in 1996 to Khorat in northeastern Thailand. The 56-year-old former senior staff adviser to Aramco met his wife, Nit, in Thailand while serving in the Peace Corps three decades ago. Now, they live close to her family--and Frank keeps up with U.S. events via his computer. ''I get up around five in the morning, make coffee, watch the CNN headlines...listen to WOR NYC, and download and send e-mail,'' Anderson says.

Anderson is one of hundreds of thousands of American retirees who have headed overseas. And as the Internet shrinks distances, even more are likely to follow. Just how many have already moved to foreign lands is uncertain: Although all are supposed to file U.S. tax returns each year, even the Internal Revenue Service can't say how many retired Americans reside abroad. The Social Security Administration sends benefits to more than 298,000 retirees overseas, but more have the money deposited in a U.S. account.

Besides family ties, these people are putting down foreign roots for a host of reasons. Some are seeking a more relaxed or exotic life or want to stretch their retirement dollars further. Some had long work experience abroad and prefer expatriate ways. Retired Nabisco executive Darrell Huffman lived and worked in Singapore, Hong Kong, South Africa, and Mexico. He chose New Zealand for retirement because ''I've spent my entire life traveling the world, and you cannot find a better place to retire to.'' At age 65, he operates a 144-acre red-deer farm about 30 miles outside Auckland, the capital, and sells venison as well as the ''velvet soft antler'' used in Oriental preventive medicine. New Zealand's attractions? ''Beautiful country, few people, great lifestyle, and,'' he says, ''it's less expensive.''

Before you head overseas, though, consider the advice of Rosanne Knorr, an American resident of Montrichard, France, who wrote the book The Grown-Up's Guide to Running Away from Home (Ten Speed Press, $11.95). If you're not certain where you want to retire but fancy something a bit more offbeat than Florida, she suggests, search the Internet by country name and ''retirement.'' If you find a place that seems attractive, talk to people in the U.S. who know it. Then move there for a year without committing yourself, so you can experience all the seasons and confirm that this place is for you. Get serious about learning the local language.

That's not always necessary, of course. Social Security statistics suggest that Canada, along with Mexico, is home to the largest number of expatriate American retirees. Britain, Ireland, Australia, New Zealand, and English-speaking Belize are popular, as well.

But your biggest consideration, besides buying a home (page 129) and coming to grips with health-care issues (page 130E10), should be sorting out the financial implications of living outside the U.S. You should decide where to keep your liquid assets, and in which currency; how you will pay local expenses; where to keep your investments; and how to minimize your tax bills.

The Internet has revolutionized options for long-distance money management. Jack and Carol Urner, in their early seventies, both worked on community and economic development in Maseru, Lesotho, and have now retired there. They keep money in a Bank of America account in Florida that they can access locally by ATM in Maseru. They do the rest of their banking online and manage their individual retirement accounts and other investments with their mutual fund, the Pax World Fund, by e-mail.

DUAL CREDIT CARDS. After working as a computer analyst and customer support official for Control Data in the Netherlands, Rosemarie Sweeny, 63, retired in 1992 in Weesp, near Amsterdam. She receives her retirement income in dollars, which is currently a boon to paying her local expenses because the Dutch guilder is weak now. But the dollar can also decline for long periods, making the expatriate life--especially for retirees on fixed incomes--more expensive than they expected.

One way expats can protect themselves against such fluctuations is by maintaining a substantial bank account--say, to cover a year's expenses--in the local currency. Another is to have at least two credit cards, one in dollars and one in the local currency, and pay the dollar charges with a check drawn on a U.S. account. Sweeny keeps a close eye on exchange markets and tries to move dollars into guilders when it's advantageous.

The other big financial challenge that retirees abroad face is minimizing their taxes. Tim Lenneman, president of Relocation Tax Services in Denver, says that before they move, some clients ask him to roll their 401(k) or IRA savings into an overseas retirement account. ''But that can't be done without a tax cost in the U.S.,'' he says. If you're at least 59-and-a-half, you'll have to pay your regular income-tax rate on the full amount you roll over. If you're younger, you'll have to pay that tax plus a 10% penalty.

The real trick, though, is to figure out how to avoid paying taxes on your income and assets twice--once to the foreign country and again to the IRS. ''Even if you move to a country that doesn't tax you,'' says Lenneman, ''you need to file a U.S. return and report your worldwide income.''

The IRS offers two key ways to cut your total tax bill if you retire overseas. If you earn money in the foreign country, the ''foreign earned income exclusion'' lets you exclude from your U.S. tax up to $76,000 of income earned abroad this year. The amount rises to $78,000 next year and $80,000 in 2002.

Uncle Sam's second tax break is the ''foreign tax credit,'' a credit for the amount of foreign income tax you pay. But the U.S. has tax treaties with 61 countries, and just which foreign taxes qualify for the credit can vary from treaty to treaty. You may need a U.S. accountant with international expertise to help check out all the fine points of your chosen country's treaty.

And don't assume you can avoid the foreign tax bite by going in and out of the country several times during a calendar year, warns James Sabol, a certified public accountant for Expatriate Tax Services in Bernardsville, N.J., and Bermuda. ''Many tax treaties used to say you were exempt if you spent less than 183 days in a country in a taxable year,'' he says. ''Now it's in a '12-month period.' So you can't enter a country on Sept. 1 and leave on May 1'' and argue that you spent only four months of both calendar years there.

If you expect to relax after you retire abroad, be sure to check out the tax angles first. Then double-check them.

By ELLEN HOFFMAN

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