US Expat Financial Planning Guide

An honest framework for the decisions at hand. Not tax or investment advice — your specifics matter.

The foundation: US citizen taxation is worldwide

• Unlike virtually every other country, the US taxes citizens on worldwide income regardless of where they live.
• Filing requirements apply whether you owe tax or not: Form 1040, FBAR (FinCEN 114), Form 8938 (FATCA), and depending on entities, Forms 5471, 8865, 3520.
• Renouncing citizenship is the only permanent way out — and has its own exit-tax implications for covered expatriates.
• Plan for worldwide taxation. Treaty provisions help; don't eliminate.

FEIE vs FTC — the core decision

• Foreign Earned Income Exclusion (FEIE) — IRC § 911: excludes up to $132,900 per person in 2026 of foreign earned income from US tax if you pass the bona-fide-residence or physical-presence test.¹ Does not apply to passive income (interest, dividends, capital gains).
• Foreign Tax Credit (FTC) — IRC § 901: dollar-for-dollar credit against US tax for foreign income tax paid. Applies to all income types. Excess credits carry back 1 year or forward 10 years.²
• FEIE is simpler but limited. FTC is more flexible and works for high-foreign-tax jurisdictions (where it can fully offset US tax) but requires careful income-sourcing allocation.
• Electing FEIE then revoking it requires 5 years (with IRS consent to re-elect earlier) per Treas. Reg. § 1.911-7(b). Don't elect FEIE lightly.

The PFIC trap

• Passive Foreign Investment Companies (PFICs) under IRC §§ 1291–1298: most foreign mutual funds, ETFs, and many investment vehicles qualify as PFICs for US tax purposes.³
• Default PFIC taxation (§ 1291 "excess distribution" regime) is punitive: excess distributions and gain on sale taxed at the highest ordinary rate + interest charge on the deferral, no LTCG treatment, no step-up at death for PFIC gain.
• Elections: QEF (Qualified Electing Fund) election under § 1295 requires a PFIC Annual Information Statement (rarely provided by non-US funds). Mark-to-market election under § 1296 works for publicly-traded PFICs.
• Practical rule: US expats should NOT hold foreign mutual funds or most foreign ETFs. Hold individual stocks, select Irish-domiciled UCITS (consult specialist), or keep investments in US-custodied accounts.
• Form 8621 filing required annually for each PFIC holding.

Retirement accounts abroad

• US 401(k) and IRA: continue to work while abroad. Can't contribute without US-source earned income (unless you have US W-2 or foreign income not excluded via FEIE).
• UK SIPP / ISA: SIPP is tax-deferred under US-UK treaty. ISA is NOT tax-advantaged from US perspective — treated like a taxable account.
• Foreign employer pension: varies wildly by treaty. Some defer, some are currently-taxed. Treaty analysis required.
• Strategy: keep contributing to US retirement accounts when possible; avoid foreign-fund exposure in tax-advantaged wrappers.

Non-US spouse — the estate planning complication

• Unlimited marital deduction (IRC § 2056) doesn't apply between US citizen and non-citizen spouse at first death. Tax-free transfer requires a Qualified Domestic Trust (QDOT) under IRC § 2056A.⁴
• Annual gift exclusion to a non-US-citizen spouse: $194,000 in 2026 (up from $190,000 in 2025) vs unlimited between US-citizen spouses.⁵
• Planning: second-citizenship acquisition by non-citizen spouse before decedent's death, QDOT setup before death, life insurance structured in irrevocable trust to pay QDOT distribution tax.

State residency traps

• Moving abroad doesn't automatically end state residency. California and New York are famously sticky.
• Establish clear 'domicile abroad' via: permanent residence, driver's license, voter registration, bank accounts, employment, significant time spent abroad.
• Sell/rent out US primary residence; minimize days in high-tax state; establish new domicile before departure.
• Five years of audit risk after leaving high-tax states — don't cut corners.

Finding a specialist

• The advisor combinations that work: (a) US-licensed fee-only advisor who specializes in expats, (b) US CPA with expat experience, (c) local tax advisor in country of residence.
• Many US advisors legally can't keep you as a client once you're non-resident due to state registration. Specialist expat advisors maintain broad registration.
• Avoid: advisors pushing foreign products (often PFICs), advisors not familiar with FATCA/FBAR obligations, advisors who 'can still work with you' but who clearly haven't handled expats before.

Sources

1. IRC § 911 — Citizens or Residents Living Abroad. 2026 FEIE $132,900 per IRS Rev. Proc. 2025-67.
2. IRC § 901 — Foreign Tax Credit; § 904 — FTC Limitation; § 904(c) FTC carryback/carryforward rules.
3. IRC §§ 1291-1298 — Passive Foreign Investment Companies (PFIC). Form 8621 filing requirement.
4. IRC § 2056A — Qualified Domestic Trust (QDOT).
5. IRS — 2026 Inflation Adjustments (non-citizen spouse annual exclusion: $194,000).
6. FinCEN — FBAR (FinCEN Form 114). Filing required for $10K+ aggregate foreign financial accounts.
7. IRS — FATCA (Form 8938). Individual reporting thresholds for specified foreign financial assets.

US expat taxation is among the most complex areas of personal tax. FEIE, FTC, and PFIC rules require specialist preparation — generic US advisors and generic foreign advisors both frequently err. Verified against IRC and IRS 2026 publications.