As you may know, I started providing paid consultations to blog readers back in Mar 2020 but eventually took a hiatus as my main goal with the blog is to help as many people as possible which just wasn’t happening when all my spare time went to one on one consultations. Even though I took down my “Work with me page”, I still get requests for consultations and think I may have found a way to both help people 1 to 1 but also benefit the wider audience by making the outcomes of the consultation available on the blog, anonymously and with consent of the client of course. I don’t know that I will do this all the time but may take on 1 a month to see how it goes. I have been getting more and more questions from readers who are either moving to or returning to Ireland from other countries and I hope this post gives some insight for those considering the move.
Moving to Ireland from the US
This post is about a family of 5 that moved to Ireland from the US on a critical worker visa. The couple is technically already financially independent as they are in receipt of 2 early retirement pensions but in order to gain citizenship here in Ireland they need to work for 2 years in the career they applied for on their visa. Once they have citizenship, they may look to move towards a more financially independent lifestyle, working on projects that have meaning or interest to them.
Earnings vs Expenses
The income they are earning here in Ireland is fully funding their living expenses here while their pensions are being paid into their US bank account and are growing to a large sum. They are a bit torn about what to do with this extra income. They think their move to Ireland is permanent but aren’t 100% sure yet as they moved over just before the pandemic hit and have not really gotten a true taste of what life will be like here longer term.
Opening US investment accounts
Before coming to Ireland, they opened various US investments accounts, some for their kids and some for themselves as they had read that the tax treatment and ability to invest in these can get more complicated if they were opened from abroad when they were no longer tax resident.
Shipping goods to Ireland
They also looked to ship over some of their belongings in a container and put the rest in storage in the US while they tested the waters and got settled, only to find out later that they only have 1 year from arrival to ship things before customs and VAT would be applied. This resulted in them buying a shed here and shipping another container over. In hindsight it would have been cheaper to ship everything over in 1 large container but in researching a move to a new country, there will always be these types of things that will be missed.
Personally, it took us 9 months of research and planning to get everything ready to move our lives over back in 2014. There are so many things to consider, there’s no way you’ll get everything right. If that’s the only lesson learned then how bad and hopefully by sharing on here, it will save someone else on their move.
Selling their home
They owned a home in the US and tried renting it out for a while but quickly found it was not worth the headache. Even with a local property manager, they still seemed to be getting calls regarding maintenance and routine inspections on the house. The rent covered most of the costs but the minute anything unexpected cropped up it was additional expense that ate into the small amount of income they were clearing. They decided to sell even though they expect they could have made a bigger profit if they’d held on for a few more years.
We talked about the trade off of simplicity vs potential future returns. I very much experienced this internal battle when deciding to sell our property in Canada where the property market is on the up. Ultimately, we both prioritise a simpler life with less stress over the potential to make more money.
Buying a home in Ireland
They are not in any rush to buy a home here in Ireland as they are tied to Dublin for the time being due to work commitments. They quite like where they are but are happy renting and not sure where they will be in a few years time. Also in talking to a mortgage broker they were told the income from their pensions would not be considered in determining what they could borrow and so they would likely need to be cash buyers or would only be eligible for a very small mortgage. Not really feasible in Dublin at the moment.
Financial planning
The couple recently met with a financial planner but felt very much pushed towards traditional managed investment vehicles here in Ireland. They were left feeling this was very much a sales pitch rather than a holistic review of their medium and long-term goals, which led them onto reaching out to me for a consult.
Their main questions were:
Do we:
- Add to US investments
- Save for a house in Ireland
- Start investing in Ireland
- Invest in pension?
Basically, what to do with the money considering they don’t know where they want to be longer term
In talking this through together we came to the below conclusions:
Child benefit
One thing the financial planner mentioned what that he did not see the couple was receiving a child benefit payment for their kids. He did advise that they could apply for this so that is one nugget they did get out of their session. You can apply for this once you can prove you are habitually resident in Ireland. You can read more about this here but essentially it would mean another 140€ tax-free per child per month until they are 18.
Leave Irish money in Ireland and US money in the US
- While they are earning an Irish income here, use that money to fund their living expenses here.
- Leave the money that’s in the US there and invest it there.
Consult a cross border tax specialist
- I mentioned it would be good to get in touch with a cross border tax specialist as even if they have tax efficient/tax efficient investments already in the US, like an IRA or ROTH IRA, the growth of these may NOT be tax free in Ireland essentially removing the benefits of those accounts while adding to the tax filing headache of filing in both countries and claiming back tax credits under the double taxation treaty. These accounts MAY only be taxable for a non-Irish domiciled person on remittance to Ireland (transfer to an Irish bank account, spent here on a US credit card) but I haven’t been able to confirm that one way or the other so best to consult a specialist there.
- Depending on the outcome of that consultation it may determine what best to invest their US dollars in within the US. The ROTH IRA has limitations both in what you can contribute per year and around withdrawal before a certain age. If the growth on these will be taxable in Ireland then it may make more sense to invest in a regular post-tax investment account so that it can be accessed at any time.
- I also mentioned they may want to check out Our Rich Journey on YouTube as they recently retired early to Portugual from the US and may have some insights into investing, withdrawing and filing taxes on investments in the US while tax resident in Europe.
- They may not be able to contribute to the ROTH IRA once no longer tax resident. I know for the Canadian equivalent, the TFSA, once you are no longer a tax resident you stop gaining contribution room and you can no longer contribute to the TFSA (outside of reinvestment of dividends of existing funds). If you do contribute more, you may be liable for interest and penalties. This may also be the case for the ROTH IRA.
- Even if they can max out their annual contribution room in the IRA, it would be good to invest outside of that as they will have easier access to that money should they want to use it for a house in Ireland eventually, so that should form part of their decision/strategy.
- As US citizens they will need to file and pay taxes in the US regardless of their tax residency so having investments in one country over another will not simplify their tax requirements so that somewhat removes the consideration for having all investments in one country or the other for simplicity’s sake. While US citizens can revoke their US citizenship to get out of filing US taxes every year, this is not an option for this couple as it would cancel out their pensions and benefits.
Pension loophole
- The couple did consider contributing to the company pension for the job here in Ireland. They took a look at the forms required to sign up and postponed putting it into place. As mentioned, the person earning the income only plans to be in their current job for 2-3 years. I did come across a potential loophole that may be worth looking into.
- If you contribute to a company pension in Ireland but leave before the 2nd anniversary you will be presented with various options. You can leave the money invested, transfer to a buy out bond or have the money paid back out to you, although this payout will incur income tax. If you are in the higher income tax band while you are contributing to the pension, you will have reduced your taxable income by 40% but apparently, when you receive a payout, you are only charged the 20% tax rate. This needs to be confirmed but there is a possibility here to make a 20% return/ year on the 2-year investment into the pension. Of course, it’s important also to be aware of what the pension is invested in and what the fees are as these can quickly erode any tax savings and tax-free growth you may have made. Also as this investment strategy is a short term one, the risk rating of the underlying investments should also be taken into account. Worst case scenario, if after 2 years the market has tanked and they are at a loss, they can choose to leave the funds invested and allow time for them to recover. That said, the money would then be locked into that pension until age 50 at the earliest, so that needs to be taken into account into their strategy.
Saving for a house in Ireland
- My input here was that as they don’t know how long they’ll be here or where in Ireland they may end up, this seems less sound from a monetary perspective for the time being as the cost of buying and selling a home alone usually mean that you may not break even if you plan to own a home for less than 5 years. There is also the risk of a loss of property value in that time frame which could leave them worse off. That said, owning a home is not just a financial decision.
- For us, part of the decision was based on security and the ability to customize a home to our preference. We have friends who were kicked out of their homes as the owner wanted to sell. For one family, as rents had increased in the area, it resulted in them having to move further outside the city and uproot their kids. The house they moved to out of the city also got put up for sale a few years later though luckily at that point they were able to buy that home from their landlord and stay put. This lack of security was a big driver in our decision to buy.
- All that said, the couple is happy renting for the time being and enjoy the flexibility that comes with it. By building up their US income they will have the option to buy in the future should they wish.
Upon retirement
- Once the couple receive citizenship and no longer need to work to satisfy their work visa, the income from their pension and passive income from their other investments in the US can start to be withdrawn as needed and transferred to Ireland to cover their living expenses. As they need to pay taxes in the US regardless of where their investments are it makes sense for them to leave those investments there and withdraw/transfer to Ireland only as needed.
- We talked about withdrawal strategies and I mentioned that some people withdraw and transfer the money they’ll need to live for the next 12 months in one lump sum to give them some comfort around currency fluctuations and market performance throughout the year while others withdraw/transfer a month or so at a time. That will be down to them to decide what works best for them at the time. I did mention the site monito.com to find the best currency exchange rates and to be aware that while the flat fees can seem reasonable they should also check the exchange rate offered against the live rate as banks and currency exchange companies often add the majority of their cut into the exchange rate rather than the flat fee. A difference of 0.01 in an exchange rate essentially means a 1% fee of your entire transfer.
- The income from their pensions are a defined benefit and so are not subject to underlying investment fluctuations so they do not need to worry about a safe withdrawal rate for those.
Estate planning
- As the income they receive from their pensions more than cover their living expenses here, they don’t have to worry too much about access to their ROTH IRA’s or complicated withdrawal strategies to access those funds before the traditional retirement age. Instead, they will need to focus on estate planning to ensure the tax-efficient treatment of their estate to leave to their kids. There are ways to structure your investments to ensure more goes to your kids and fewer taxes are paid though they will need to consult a specialist in this area to see how best to structure their investments for these in the US.
Final thoughts
Ultimately, I ended with that they are already technically financially independent and no matter what they do with their money in terms of investment strategy, they are still growing their net worth and financial security and freedom. They can always change tack a few years down the road and consolidate investments for ease of maintenance and tax filings etc if that becomes more important to them at that time but to take comfort in the security they’ve already built for themselves.
It was an absolute pleasure talking with such a like-minded person. We were both so enthusiastic about this topic, which is rare to find. Most people I talk to about money get blurry eyed and quickly change the topic. I wish them all the very best on their next chapter and hope they get to enjoy Ireland in it’s proper form once restrictions lift in the coming months.