Expat IRAs: How to Prevent Brokerage Account Closures
Learn why US brokers restrict IRA accounts for expats and how to protect your retirement savings while living abroad.
IRA Brokerage Accounts For US Expats
Individual Retirement Accounts (IRAs) are the cornerstone of their retirement planning for most US citizens and residents, providing tax advantages, investment flexibility, and long-term growth opportunities.
But what happens if you decide to move abroad? More and more US citizens are choosing to live, work and even retire overseas, and whilst the expat life promises excitement and adventure, it also brings a unique set of financial challenges. One of these is the risk of US brokerage firms closing IRA or investment accounts once they learn the account holder is no longer living in the States.
Our guide explores why brokerage account closures happen, what you can do if your IRA is impacted, and most importantly, how to prevent closures in the first place.
IRA Complications for Expats
Both traditional and Roth IRAs are designed under US tax law for American taxpayers. When used in the USA, they come with tax advantages: contributions may be deductible, tax-deferred investment, and qualified withdrawals can be tax-free (in the case of Roth IRAs). However, the rules governing IRAs may change once you move abroad.
Here are some key complications:
Tax treatment in your new country of residence: While the US has tax treaties with many countries, not all foreign tax authorities recognize the tax-advantaged status of IRAs. This can lead to double taxation or unexpected reporting obligations.
Using Foreign earned income exclusions (FEIE): If you exclude your income using the FEIE, you may be prevented from making new IRA contributions.
Changes in residency: Many US financial institutions and brokerage firms will not provide services to clients who have an overseas address, due to compliance and regulatory concerns. In fact, most sudden account closures are due to brokerage residency rules.
Why US Brokerages Close Expat Accounts
If you are a US citizen living abroad, you may receive a notice or letter from your brokerage firm telling you that your IRA or general investment account will be closed. The reasons for this include:
Regulatory compliance: Financial institutions must follow strict rules and regulations, including those under the Foreign Account Tax Compliance Act (FATCA). Providing services to non-resident clients can lead to compliance risks and reporting burdens.
Licensing restrictions: Many US brokerages may not be licensed to provide investment services in any other jurisdictions, and by continuing to serve expat clients, they risk penalties from overseas regulators.
Risk and cost management: Many firms simply choose to avoid the additional risks and costs associated with expat accounts.
Reporting complexity: With different tax regimes and reporting requirements, maintaining accounts for overseas clients often becomes more hassle than it’s worth for traditional US brokers.
As a result, many US expats may suddenly find themselves having to move their savings on short notice, or worse, locked out of their retirement accounts.
Expat IRA Account Closures: What Are Your Options?
If your US brokerage decides to terminate your account, there will typically be a few options available to you, and routes of action you can take. However, some of these have irreversible consequences and should not be taken without proper consideration and planning. Working with an expat financial advisor is essential to ensure you are fully aware of any risks and that you make the right choice for your circumstances.
Forced liquidation: Your brokerage may require you to sell all your IRA investments and either take a distribution or rollover funds elsewhere. Be aware that taking a distribution can result in heavy tax penalties if you’re under age 59½.
Rollover to another US custodian: You may be given the opportunity to roll your IRA into another US-based provider which accepts expat clients. This is usually the best option for most US expats.
Rollover to a qualified plan: In some cases, rolling funds from an IRA back into a 401(k) or another similar employer plan may be an option, but this is less commonly available to expats living abroad.
What to Do If Your IRA Has Already Been Closed Or Liquidated?
If you have already received a closure notice or your IRA has been liquidated by your brokerage, it's important to remember that your retirement funds are not lost, and to take the following steps:
Contact the brokerage immediately. Request written details on why your account was closed, the timeline for liquidation, and your options for moving the funds.
Consult a cross-border advisor. Before making any moves, seek advice on how the rollover will be treated under both US and foreign tax law.
Avoid taking a direct distribution. Unless you need the money immediately, taking the funds as cash can create unnecessary tax bills and early withdrawal penalties. A trustee-to-trustee transfer to another custodian is typically the preferred option.
Find an expat-friendly custodian. Some firms are equipped to serve Americans abroad. An expat-specialist advisor can recommend suitable institutions that accept rollovers.
Be aware of deadlines. You typically have 60 days from receiving IRA funds to complete a rollover without triggering taxes. Act quickly to avoid missing this window.
Keep thorough records. Retain all correspondence, rollover confirmations, and account statements in case of IRS queries.
How to Prevent Your IRA from Being Closed
Fortunately, there are proactive steps you can take to keep your IRA safe even while you are living overseas. The first is to choose the right custodian. Not all U.S. brokerage firms treat expats in the same way; some may shut down your account as soon as you update your address, while others have built infrastructure specifically to accommodate Americans abroad. Ensuring your IRA is held with a custodian which supports international clients can give you security and peace of mind.
As an expat, working with a specialised cross-border advisor is invaluable. Expat financial advisors understand the complex web of tax treaties, compliance rules, and investment considerations that come with living across borders, and they can help you remain both tax-efficient and compliant.
Additionally, it is important to keep your contact information up to date. Whilst it may be tempting to keep a US address on file to avoid complications, failing to report your real residence can create bigger compliance problems later on.
Overall, it is much better to be transparent and choose a broker that provides services to expats. For those who want more flexibility, a self-directed IRA can be worth exploring, as certain custodians allow a wider range of investments that may suit international clients.
Finally, if you’re planning to live abroad long-term, it’s often sensible to complement your IRA with international retirement solutions. Some global platforms may even allow you to consolidate US retirement funds, providing greater stability and ensuring you remain compliant wherever life takes you.
Tax Considerations for Expats with IRAs
Even if your IRA account stays open, tax issues are a critical part of the picture. US tax rules will still apply, and as a US-connected person, you will typically need to continue reporting and paying taxes on IRA distributions, no matter where you live.
Note that whilst some countries like the UK recognise IRAs under tax treaties, others treat them simply as investment accounts, potentially taxing growth annually. Both the tax treatment of your IRA, and your reporting requirements may vary greatly, depending on your new country of residence. Working with a specialist expat tax advisor can ensure that you don’t fall foul of either US or foreign tax authorities.
Top Tips
If you are still in the planning stages of relocating overseas, now is the time to review your retirement accounts. Our top tips for before you move include:
Consolidate your retirement accounts to minimise the number of custodians you need to manage.
Find an expat-friendly brokerage before updating your address.
Seek advice from a cross-border expat advisor to avoid any costly mistakes.
To learn how we can support you in protecting your wealth, speak to one of our specialised advisors today.
