Sanderling Expats

Using your American retirement accounts to grow old in France

One of the most intimidating financial questions for Americans moving to France is the long-term effect on our retirements. While our neighbors here in Europe debate pension reforms, we have mostly resigned ourselves to the fact that we will be living on whatever we managed personally to save. The American maze of qualified retirement accounts —  401k’s, 403b’s, IRA’s, SEP’s and more – are confusing enough in the U.S. Do they still work if you live in France? And how much tax will you owe when you start to use them?

When it comes to American retirement accounts in France, I have nothing but good news for you. Let’s start with how those retirement accounts are meant work.

American Qualified Retirement Accounts

The IRS recognizes two basic types of qualified retirement accounts to compliment your  rather meager social security benefits – tax-deferred accounts and tax-free accounts. That first group includes everything from IRA’s or SEP IRA’s that you set up personally to the 401k’s and 403b plans you might be offered by an employer. These are tax-deferred because the IRS let you put off paying any income tax on the amount you contributed until you take the money out in retirement. The tax-free group — made up primarily of Roths — are tax-free because you paid the income tax already and won’t pay any tax when you take the money out.

Can you continue to contribute to your plans from France?

Yes! Well, maybe. You can continue to contribute to a U.S. retirement account as long as you have U.S.-based earned income. So, if you are in France as a seconded worker with your U.S. employer, you can still use your employer retirement account. If you have freelancing work that you ocassionally return to the U.S. to do, that too is U.S.- based income, and you can use it to make contributions to an IRA. The U.S. – France Tax Treaty (Article 18, if you are feeling studious) promises that France will recognize your contributions in the same way it recognizes a French workers’ contribution to the French pension.

On the other hand, if you are now only working full-time from France and not as a seconded worker (even if your clients are in the U.S.), you now have France-based income. And neither government will recognize your IRA or 401k contributions.

How big are the taxes when I take out my money?

More good news! That same section of the U.S. – France Tax Treaty that recognizes your American retirement accounts also says that France is not going to tax your withdrawals.

You read that correctly. Americans seem to have created a myth around paying monstrous and inexplicable French taxes on their retirement income. But in fact, France asks only that you report how much you withdrew so that they identify your household’s income. You will report in France, but you won’t be taxed on those distributions. Instead, you will pay taxes on your distributions to the U.S. government in the same manner that you would have had you never moved to France. And you will do that while living in a place that provides you the opportunity spend your golden years sipping cafés on a terrace.

What about my social security?

I’m glad you asked. Your social security is also a form of pension under Article 18 of the Treaty. Which means that your social security check will arrive in your account monthly with the U.S. taxes deducted but no French tax liability.

Amy Witherbee is an advisor with Sanderling Expat Advisors.