Some Americans move to France for a year or two to study, work, or just spend a year abroad, and the financial aspects of that can be complicated enough. But for those who plan to stay in France, a whole new set of financial questions arises. What are our options for long-term savings here? If we can’t use the 401k and IRA plans that we are used to in the U.S., what should we be doing to save for retirement? In this article, we take a look at three of the best options for saving toward retirement in France.
Let’s start with what you can’t do as a U.S. citizen or green card holder living in France. Unless you are reporting some income as earned in the U.S., you won’t be able to add to American retirement plans. We also generally warn Americans and green card holders to avoid anything that the IRS might label a passive foreign investment company (PFIC ). This can include any number of “pooled” foreign funds, which might include foreign mutual funds and will certainly include the popular French assurance vie.
Tax-free savings for Americans living in France
So, what can you do? Well, let’s start with the simplest financial product: the Livret A (literally, “booklet A”). To Americans, this will look like a simple savings account. You open it at your bank, and you receive interest on the balance at the end of each year at a rate fixed by the government. What makes the French version unique is that the interest you receive is exempt from French income taxes and social charges. At the time of writing, the maximum you can put into a Livret A account is 22,950 EUR, though you can exceed this amount when interest is added.
French banks offer several other versions of the Livret A: to help you save for a home, for younger savers, to contribute to solidarity programs, etc. You can find more information (with an English translation) on this French government page.
Roth IRA substitute
If you were a fan of your Roth IRA account in the U.S., you will be happy to hear that there is something very like it here in France. As with the U.S. Roth IRA, this is an investment account that allows you to grow your savings without paying capital gains tax. The Plan d’épargne en actions (PEA) is not technically a retirement account. You do not have to have earned income to start or add to it. And you do not have to wait until retirement age to withdraw money. Like the U.S. Roth, though, you do have to leave your money in the account for at least five years in order to realize the tax benefits.
To make the PEA work for you as an American citizen or green card holder, avoid any “managed fund” or insurance (assurance) options within the account. In other words, buy simple bonds and stocks shares only. The PEA and the related PEA-PME and PEA jeune only allow you to hold European stocks and bonds. And you have a maximum deposit limit per household. Assuming you wait five years before taking money out, your PEA account is exempt from French income taxes when you make a withdrawal, but you will owe social charges of 17.2% on your investment gains.
Traditional retirement plan
The French Plan d’épargne retraite (PER) is a new plan meant to replace some of the traditional retirement saving options. Most people will encounter these through their HR department at work. But the PER is meant to be used by self-employed workers or unemployed people, as well.
You can contribute to a PER without taking deductions and be exempt from both income taxes and social charges on the money when you take it out.
But if you are looking for a tax deduction right now, the PER also allows you to deduct your contributions, up to annual limits, from income taxes for the current year. When you take money out in retirement, you will pay income tax but not social charges. You will owe a flat rate of 30% (income tax and social charges combined) on only the portion of your withdrawal that came from investment gains.
All three of these options work even if you eventually leave France. But to understand how your withdrawals will be taxed in the U.S., we recommend contacting a professional.
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