bank account in foreign account after retirement

[ri-solano]

how will opening a bank account in a different country to start saving for when retirement comes and i move to that country will affect my taxes currently. I believe that as long as the account does not exceed 10k anytime during the year, i don;t have to disclose it or the IRA or fill out the FBAR form but what would happen in term to taxes if the account exceeds the 10K during the year and then I file the FBAR report, what gets taxed, the balance on the accounts or the proceeds from the deposits which are made after tax (coming from my salary)?

[K M W]

Hi, ri-solano!  Your question actually needs to be divided into two parts:  1. what amounts are taxable on your U.S tax return, and 2. Reporting requirements  on your U.S. tax return and/or on a FBAR report.

First, as a U.S. citizen you report your world wide income on Form 1040. So if the accounts you have in a foreign country are generating income, you must report that income on your tax return.  The fact that you are depositing money into a foreign bank account does not trigger income tax reporting, but if that account is earning income (for example, earning interest or dividends), then that income must be reported on the tax return.

If you do have income generated from a foreign country, you may be able to claim the Foreign Tax Credit on your return, to offset the income being double taxed (i.e. if you had to pay taxes in the foreign country, and also reported the income and paid taxes on the U.S. tax return).

As for reporting requirements, generally speaking there are two different reporting requirements: one is the FBAR, which requires reporting if the aggregate value of financial accounts exceeds $10,000 at any time during the calendar year. This is a cumulative balance, meaning if you have 2 accounts with a combined account balance greater than $10,000 at any one time, both accounts would have to be reported. The FBAR is not filed with a federal tax return - rather it is filed electronically through FinCENs BSA E-Filing system.

The other reporting requirement that may apply is Form 8938, Statement of Specified Foreign Financial Assets.  The reporting threshold (total value of assets) varies, as shown here:

• Specified individuals living in the US: Unmarried individual (or married filing separately): Total value of assets was more than $50,000 on the last day of the tax year, or more than $75,000 at any time during the year.

• Specified individuals living in the US: Married individual filing jointly: Total value of assets was more than $100,000 on the last day of the tax year, or more than $150,000 at any time during the year.

• Specified individuals living outside the US: Unmarried individual (or married filing separately): Total value of assets was more than $200,000 on the last day of the tax year, or more than $300,000 at any time during the year.

• Specified individuals living outside the US: Married individual filing jointly: Total value of assets was more than $400,000 on the last day of the tax year, or more than $600,000 at any time during the year

Form 8938 is filed with your income tax return.

For a comparison of Form 8938 and FBAR reporting requirements, see this handy chart from the IRS website: 8938 vs FBAR Requirements 

[ri-solano]

Thank you K M W for your reply. A  follow up question. i copied below an excerpt of your explanation. my question is,  what is considered financial assets? as an example, let's say i buy a house, is this a financial asset? OR let's say i have certificates of deposit which at the end of the year amounted to $55,000 then do i need to report this on Form 8938 if the $55,000 was after tax cash or do i report on Form 8938 only the interest earned on those $55,000?

The other reporting requirement that may apply is Form 8938, Statement of Specified Foreign Financial Assets.  The reporting threshold (total value of assets) varies, as shown here:

• Specified individuals living in the US: Unmarried individual (or married filing separately): Total value of assets was more than $50,000 on the last day of the tax year, or more than $75,000 at any time during the year.

[ri-solano]

hi KMW, could you please help me answering my reply earlier regarding financial assets? Thank you!

[BonnieI]

Hi @ri-solano Thank you for joining us for our TurboTax Live Event on Retirement yesterday. 

@K M W has provided valuable resources regarding filing Fbar and Form 8938. 

To answer your question regarding what are other foreign financial assets required to be reported on Form 8938 please see link from IRS provided, you would have to report the asset value on Form 8938 not the earnings.   As @K M W  has replied  Form 8938, needs to be filed with the federal tax return if the total foreign financial assets value exceeds $50,000 for single filers or $100,000 for MFJ filers on the last day of the tax year, or $75,000 for single and $150,000 for MJF at any time during the year. There are different filing thresholds for US citizens living outside the US.  

IRS Basic Question and Answers on Form 8938

https://www.irs.gov/businesses/corporations/basic-questions-and-answers-on-form-8938

We hope the additional resources are helpful and answer your question.  Please reach out if you have additional concerns.

Thanks for using TTLive!

Bonnie, TTLive, QRT, Tax Expert

[BonnieI]

@ri-solano Please reach out if you have additional questions, thank you.