4 Financial Challenges US Nationals Face, and How to Deal with Them

Written by Lloyd Danon

For most people, starting a new life in a new country as an expat is exciting, with new friends and many new experiences. As a bonus, living abroad opens up many new tax-efficient expat investment options that make it possible to invest your now higher expat income and grow your money tax-free.

For US nationals, however, the experience soon starts to feel gloomy as soon as they leave the US and realize that their financial opportunities diminish as quickly as they step foot abroad. It often leaves American citizens feeling like they are the only ones left out of the party.

But not all is lost, as there are still opportunities for an American living in Japan to be able to invest their wealth and manage their money from abroad. In this article, we will first look at some challenges US nationals face with their finances when living abroad and then discuss ways to make it work.

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4 Problems US nationals Face living in Japan

  1. Having to tax report twice. Living in a country outside the US? Guess what? You still have to tax file every year in the US, even if you are already tax filing in Japan. The US is one of the only countries in the world that puts its citizens through this hassle. Most expats only need to worry about filing taxes in the country where they are tax residents, while US nationals have to file twice. Japan has a double taxation treaty with the US, so you won’t have to pay taxes twice. However, you will be doubling the cost of tax filing if you are using accountants.  It also means that you won’t be able to enjoy the tax benefits other expats will.
  2. Limited Access to US Banking, Expat Investment Options, and Insurance solutions. Once you are residing abroad, US companies will generally not want to deal with you as they can only really work with US residents.  If you are an American living in Japan, opening investment accounts, bank accounts, or taking life insurance back home is very difficult once you are outside the US. If you already have a US-based brokerage account while living in Japan, you can still have problems keeping it. Many US nationals have used their relatives’ addresses back home to keep these accounts open, but US firms are becoming stricter. We have seen a number of clients with US brokerage accounts they’ve held for decades being told that they have 30 or 60 days to close them and move their money somewhere else once their Japanese residence status is discovered. Maintaining a brokerage account for US expats can be challenging when abroad if you don’t have the right help.
  3. Limited Access to International Banking and Investing for US Expats. Ok, so if the companies back home don’t want to deal with you, perhaps you can use international firms to bank and invest, right? Tough luck. Due to FACTA, which forces international financial institutions to report to the US directly on any US citizens they have as clients, many international companies simply choose not to accept US nationals as clients due to these onerous reporting requirements.
  4. Inheritance Taxes in Japan. Inheritance taxes in the US are generally not considered to be a massive worry for most US nationals living in the US and can be managed through a number of structured solutions. However, if you have been living in Japan for a long time, your inheritance will be taxed in Japan at Japanese rates. As we’ve covered in an article on this topic, Japan’s inheritance tax is among the highest in the world. This is not a US citizen-specific issue, but it is important to remember nonetheless, especially if you expect to receive an inheritance or pass on a significant estate to your family.

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How Can US Nationals Deal with These Issues?

Expat Investing in Japan as a US national

Although it may be more complicated to invest for US citizens than other expats, solutions are still available. Opening and maintaining a US-based investment account with a Japanese address is still possible, particularly if you do it with the help of a licensed financial advisory like Argentum.

If you already have existing US 401K, IRAs, or brokerage accounts but are worried about having them closed due to your Japanese residence, we can also help with this. Please keep in mind there are minimums for assets under management for these services.

For those who prefer to invest their money through international investment accounts, there are still options, although limited, to do this.  The minimums investment amounts are low enough that anyone can open these kinds of accounts.

Higher net worth clients can also consider a US qualifying international pension trust, which has tax benefits. However, minimums are significant, investors should be looking to invest upwards of 400,000 USD to make it worthwhile.

If you have a spouse who is not a US tax person (non-US national and does not hold a green card), there might be additional options available on a case-by-case basis, and this would need to be discussed directly with one of our advisors.

To learn more about investment opportunities available to you as a US national, we highly recommend you speak to an advisor who can help you determine which solutions would be best for your particular needs.   Please get in touch with Argentum for a free consultation.

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How to Get Life Insurance as a US National

As mentioned earlier, once you reside outside the US, you will lose access to US insurance plans. If you have a plan already, you may be able to keep it (please check with your insurance plan), but you will not be able to take out new cover with a US insurer as a non-resident.

For most people, the easiest solution to this problem is international life cover. Catering to the expat community, international insurers provide portable plans in English explicitly designed for expats.

Japanese insurance is also an option but may not be suitable for many, especially if you are not fluent in Japanese or plan to move away from Japan.  In addition, Japanese insurance companies are not keen to have non-Japanese clients; traditionally, the amount of cover is low, and the cost of cover is high, so it is unattractive to most expats.

For high-net-worth clients with life insurance coverage needs of 3M USD or more and assets in excess of USD 2M, US insurance options will be available.  Still, you will need to take a trip to the US to complete the application and medical examinations.

Please get in touch with us to learn more about the life insurance options available to you and advise on which solution will suit your needs best. We can also help you assess how much cover you may need.

Also, if you are interested in this topic, please read our article: 6 Things to Consider When Looking for Life Insurance as a Foreigner in Japan.

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Tax Reporting and Inheritance Tax Planning

For most people, tax reporting in the US will be a straightforward, albeit annoying, affair. However, we recommend that if you need to use the services of an accountant, you use an accountant who understands both Japanese and US reporting requirements. Only using a US or Japanese accountant can cause headaches for clients, particularly if you are a US Nationals and have reporting requirements in both jurisdictions.

Regarding the Japanese inheritance tax problem, for most expats in Japan, the simplest solution is to establish a life insurance policy to cover the tax burden your loved ones would have to pay if you pass away.

For high-net-worth individuals, the planning for dealing with inheritance tax can be more complex.   Solutions to reduce inheritance taxes in Japan and the US are available, but these are for clients expecting inheritances of at least USD 1,000,000 or more. Moreover, these solutions are highly customized and depend on the client’s circumstances, and would require expert tax and legal advice.

Whether you are looking to pass on your wealth to the next generation or are expecting a significant inheritance, it is essential that planning takes place before the event.   Please get in touch with us for a free consultation. You can also read our article on this specific topic: Japan Inheritance Tax and Its Effects on Expatriates.

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Being a US expat is not easy, and it can be challenging to find the right financial advice that works for both the US and Japan simultaneously.

But it does not need to be as complicated as it seems. Talking to an experienced financial advisor can alleviate a lot of the confusion and make it easier for you to take action and understand the options and direction you should take.

If you are worried about financial planning as a US citizen living in Japan, contact us for a free initial consultation.

Argentum is Japan’s premier licensed financial planning firm serving the expat community. We provide advice on portable investment solutions for the mobile workforce. We’d be happy to get you started towards a brighter financial future.

Argentum Wealth does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

Argentum Wealth Management is licensed through the Japanese Financial Services Authority to give financial advice. The FSA strongly recommends that you only receive financial advice and services from a locally licensed and regulated firm.

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