Retire In The US from India: A Complete Guide – In this post, I discuss how to help green-card-holding clients manage their wealth, optimize their US tax status, and avoid mishaps as they join their children in the US.
Living/Invested In India – Retiring In The US
Mr. and Mrs. Rao are in their early- to mid-seventies. They recently moved from India to the US to be with their kids and retire here.
Their son (let’s call him Mr. P) barely has a footprint in his home country.
He moved to the US in his early twenties to attend college and has resided here ever since. His parents sacrificed a lot for him, with the unspoken understanding that he’d support them in their retirement.
Mr. P, a long-time US citizen, has never faced the specific cross-border issues his parents will have to deal with.
Over the years, Mr. and Mrs. Rao have spent very short stints in the US on visitor visas. But they’ve finally decided to relocate permanently now that their green cards have been approved.
Overseas Assets
The Raos have retirement assets, bank accounts, business interests, and property back in India. They mainly plan to live on their Indian pensions, supplemented by support from their son, for example, housing.
The couple is currently living with their son and his family in their big family home. Mr. P added an in-law apartment to the home when he and his family decided to have his parents move in with them.
Needed: Multigenerational Education
Mr. and Mrs. Rao need to consider several factors to retire successfully in the US, and Mr. P will need to get up to speed on these issues to help his parents.
In a few years, we’ll probably start dealing with long-term care, but the following is key to getting started.
The Raos and Mr. P will need a lot of education and grace for each other as they approach this completely new situation. Here are some things to consider:
Immigration Status and The Tax Implications
As green-card holders, the Raos immediately become subject to worldwide taxation and overseas asset reporting;
India will want to tax their Indian pensions, and the US will too.
The US/India Tax Treaty will determine exactly how they are taxed. The most problematic part is the Savings Clause. It typically “saves,” or preserves, each country’s right to tax its own citizens as if the treaty didn’t exist.
Individuals moving to the US from India also need to understand the tax rules for Indian accounts like dematerialized accounts (demats), which hold securities in electronic form; passive foreign investment companies (PFICs); and provident funds, a type of savings and retirement fund in India.
More info on Indian Accounts: DEMATS, PFICs & Provident Funds: What Indians Moving To America Need To Know.
Cross-Border CPAs And Indian Tax/Fiscal Year
A cross-border CPA can help immigrants and their families understand what needs to be taxed where, by examining every account in detail. The CPA will need to work with an India-based CPA to coordinate the taxation and the timing.
A cross-border planner can help with some of the nuances.
India’s fiscal year goes from April 1st to March 31st of the following year. So, retirees need to carefully coordinate when money comes out of their pensions and Indian investment accounts.
They’ll also need to report their Indian bank accounts if the combined account balances cross the $10,000 magic number. This filing, commonly known as the foreign bank account report (FBAR), is completed via FinCEN Form 114.
Depending on their asset mix, immigrants from India may also need to file other international forms regularly, such as Form 8938, Form 5471, Form 3520-A, and Form 8621.
Advisors and/or CPAs will need to explain all this information carefully and patiently so clients don’t feel completely overwhelmed. The Raos are only five or six months into the journey, so they still have time to learn.
Getting Money To The US
The Raos also need a way to move money to their newly opened US bank accounts. Their options include bank-to-bank transfers and services like Wise and Xoom.
Because of currency fluctuations, they should plan to have the money they’ll spend in the currency they’ll spend it in.
In this case, they saved and invested in Indian Rupees and are spending in US dollars. This creates an issue that needs careful management – currency exchange risk.
One option is to use a multi-currency bank like Wise, or bring more of their money into the US now instead of waiting until they need it.
But if a client is liquidating assets, consider taxation seriously. For US federal tax purposes, an investment generally becomes long-term if an investor holds it for more than one year before selling it.
In India, a long-term hold could be one or two years, depending on the asset type.
Planning For Every Absence
As green-card holders, the Raos are now “permanent residents” of the US, so they need to plan any long-term absence carefully.
For example, any absence of 6 to 12 months can raise uncomfortable questions at the border, but an absence of more than one year can be considered abandonment of their status, meaning they can be denied entry back into the US.
“Abandonment of status does not eliminate a green-card holder’s US filing obligations unless they officially give up the card at a US consulate by completing Form 1-407 and physically handing in the green card.”
However, abandonment of status does not eliminate a green-card holder’s US filing obligations unless they officially give up the card at a US consulate by completing Form 1-407 and physically handing in the green card.
If a green card holder is likely to be outside the US for longer than the period above, they should request special legal permission by completing the necessary forms.
They’ll need an immigration attorney.
Estate Planning
As US tax residents, the Raos can take advantage of the $15 million federal estate-tax exemption. This means their estates will owe taxes only if they exceed $15 million (adjusted for inflation) per person.
However, the tricky part is that estate taxes apply to all worldwide assets.
India does not currently impose an estate or inheritance tax. However, depending on the size and nature of the assets, it is important to consider the collective assets held in both countries and structure them carefully to account for potential US tax implications.
The Raos should complete their estate planning as soon as possible. This includes selecting financial and medical powers of attorney, appointing executors, and thinking about what they’d like to happen after their deaths.
They have expressed interest in passing some of their wealth directly to their grandkids, a few of whom don’t live in the US.
PS: Mr. P will eventually have to address the property he inherits in India when his parents die, but that’s a post for another day.
Estate planning is state-specific, so we need to keep that in mind. Given their asset level, we’ll also need an international estate attorney.
The couple may need two wills (US and India).
Something else to keep in mind. Unlimited marital giving is not available between green-card holders. Therefore, the couple should consider the potential benefits of US citizenship as part of their long-term estate planning, or explore advanced-planning strategies to address these limitations.
Social Security
To qualify for Social Security benefits, individuals must earn 40 credits through 10 years of work history in the US.
Because the Raos never worked in the US, they can’t claim Social Security benefits. Instead, they must rely on their income and the help their son will provide.
Health Insurance / Medicare
Mr. P. needs to help his parents acquire health insurance right away.
He cannot add them to his plan, but he can get them insurance through the Health Insurance Marketplace.
He should be able to get them insurance right away, even if their timing falls outside the normal enrollment window, because moving to the US is a life-changing event that qualifies for a special enrollment period.
After five years, the Raos will be eligible for Medicare. The five-year period starts on the day they arrive in the country as green-card holders.
Their prior visits to the US don’t count toward eligibility. At the five-year mark, the Raos can enroll in Medicare Part A, Part B, and possibly Part D, depending on their situation.
Because they receive pension and investment income from sources in India, they are not eligible for Medicaid.
Cultural Considerations / Expat Grief
After about six months in the US, the newness of the Raos’ situation is starting to wear off.
They know they can technically go back, but they already said goodbye to their old lives and sold some of their property because they truly believed this was a one-way ticket.
They want to make it work.
Mr. P and his spouse have gone back to work; the grandkids are busy with their activities.
Back home, the Raos were very active in their local community, and they miss it a lot.
Mr. Rao especially feels like he’s lost a lot of freedom to do things for himself. He hasn’t felt confident enough to start driving around, but he hopes to get there soon.
He has an international driver’s license, but he’ll need to get a state license. Mrs. Rao misses hanging out with her relatives and friends.
The couple feels like they have lost aspects of their identity and miss home terribly.
This is the classic example of expat grief. This comes and goes, and no one knows how long it will last or what will trigger it.
I personally know about expat grief: I’ve lived in the US for over 20 years, and it still hits me every now and again.
In the Raos’ case, the whole family will need to name this grief, engage with it, and start helping Mr. and Mrs. Rao build a community.
The family can introduce the couple to new friends and activities, and help them build and maintain familiar home traditions.
The Raos need to plan what they want their retirement to look like, beyond spending time with the kids. They need to visualize “a perfect day in retirement” and start working towards that vision.
With the above and the team I have described, I’m confident we can help them Retire In The US from India successfully.
FAQs On Financial Considerations Of Retiring In The US From India
1: How will the IRS treat their Indian assets?
Once they become US tax residents, they’ll have to report their assets on their taxes and comply with all required international forms.
One of the biggest issues is if some of their mutual funds are considered PFICs. This ideally should be addressed before they become US tax residents
2: They are here on green cards; should they become US citizens?
This decision requires careful consideration and a full understanding; India does not allow dual citizenship, but if they choose to return, they’ll be treated as OCI (Overseas Citizens of India). Citizenship may make travel easier, and it may also allow them to access unlimited marital property, but it’s a one-way ticket.
3: Exactly when does their tax residency start, and what does that mean?
Their tax residency starts the day they arrive in the US, putting their worldwide assets under IRS purview. This extends to estate taxes.
4: Since all their retirement accounts are in India, how will they get money to the US?
They should plan to have the money they need in US dollars, “match use to currency,” so they can do this in different ways. They can use wire transfers between banks, transfer services like Wise, and more. But before liquidating anything, they need to keep tax considerations in mind.
5: What about medical insurance?
This needs to be resolved ASAP, as medical expenses are one of the top causes of bankruptcy. They cannot be added to Mr. P.’s plan. But they can get insurance on the insurance exchange. They may also be able to get other forms of private/group insurance.
They’ll never get Medicare, but after 5 years, they can get Medicaid.
How Elgon Financial Advisors Can Help You Make The Most Of Your Retirement In The US From India
Overseas assets, poor planning, and a lack of awareness can easily undermine your well-planned US retirement strategy from India.
Together, we’ll figure out the tax minefields you are likely to encounter in the US, coordinate with your overseas advisors and CPAs, and create a cohesive plan for your assets and your new life in the US.
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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for the purchase or sale of any security, investment advisory services, or legal advice. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Jane Mepham and all rights are reserved. Read the full disclaimer here.
