Tax Implications

May 18, 2011:

"Kathleen, I recently purchased your Live and Invest in France Kit and was disappointed by the lack of information concerning transfer of retirement funds from the United States to France. In particular, is there a mechanism for transferring IRA funds (and in particular Roth IRA funds) to France in such a way as to minimize the U.S. tax liability?"

--Jim N., United States

I'm not sure I follow the question.

If you're wondering about transferring your IRA to France for investment purposes, that's fairly straightforward. You set up a self-directed IRA (preferably what we refer to as a "checkbook IRA"). Our preferred resource for accomplishing this is U.S. tax attorney Chris Rusch (who you can get in touch with here).

If you're asking about transferring your IRA funds to provide funds for you to live off in France (that is, if you're thinking of taking a distribution from your IRA), again, that's a straightforward matter. You'd simply have your IRA wire the funds to your French bank account. The tax treaty between the United States and France (http://www.irs.gov/pub/irs-trty/france.pdf) would, to the best of my knowledge, eliminate any tax due in France on your IRA distributions, because they would be taxable in the United States.

Distributions of a Roth IRA are not taxable in the United States and therefore might be taxable in France (certainly distributions after you establish residency might be). I'm not a French tax expert and can't say with certainty what the tax implications would be in France for Roth distributions, but one of the legal/tax experts referenced in your "Live and Invest in France" manual should be able to help answer that question.

That said, one strategy might be to distribute all your Roth IRA funds before taking up residency in France. This could create a possible new tax issue on the growth of those funds after distribution. Without understanding your overall financial situation, it's impossible to say which strategy would be most prudent.

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