Investing as a US Expat: What You Can Hold, Where to Hold It, and How to Report It

US citizens abroad face two investment obstacles that don't exist for domestic investors: most foreign-domiciled funds are PFICs with punitive tax treatment, and many US brokerages restrict or close accounts when clients move abroad. Getting both right — compliant holdings in an account that will still be open in five years — requires deliberate planning before and after your move.

The Two Core Problems US Expat Investors Face

Most financial planning guides for expats focus on the tax side: FEIE vs FTC, PFIC penalties, treaty tiebreakers. But the underlying investment problem is more fundamental: as a US citizen abroad, you exist outside the compliance perimeter of both US and foreign financial systems simultaneously.

• US-side problem: Many US brokerages restrict or close accounts when they learn a client has moved abroad. The reason is regulatory — serving clients outside the US typically requires registration in each destination jurisdiction, which most retail brokerages don't have. Some institutions close accounts the moment you update your address. An account you've held for twenty years may not survive your first year abroad.
• Foreign-side problem: Foreign brokerages will happily sell you local mutual funds, unit trusts, and ETFs. But virtually every one of those is a PFIC from the US side — a foreign corporation where income is primarily passive.¹ The §1291 interest charge alone can transform a modestly performing foreign fund into a net loss after US tax. And you still owe the full reporting obligations.

The solution is narrow but workable: hold US-listed securities, in a US brokerage account that actually accepts non-resident clients.

The PFIC Trap — What You Cannot Buy

Under IRC §1297, a foreign corporation is a PFIC if 75% or more of its gross income is passive income, or 50% or more of its average assets produce passive income.¹ Because virtually every foreign mutual fund, ETF, and unit trust derives its income entirely from passive investments — dividends, interest, capital gains — nearly all foreign investment funds qualify as PFICs under at least one test.

Which US Brokerages Accept Non-Resident Clients (2026)

Brokerage policies vary by institution and by your destination country. The general landscape in 2026:

Important caveat: Brokerage non-resident policies vary by your destination country, account type, and account size. A broker that accepts clients in Germany may restrict clients in Singapore or Hong Kong. Confirm the specific policy for your destination before updating your address — and before closing any existing account.

Pre-Move Investment Transition Checklist

The best time to reorganize your portfolio for life abroad is before your address changes in a brokerage's records — not after. A general sequence:

1. Open your post-move US brokerage account 2–3 months before departure. Schwab International or Interactive Brokers is the typical choice. Fund it with a small amount to confirm the account operates correctly with your destination country on file.
2. Liquidate any foreign-domiciled funds before you establish foreign residency. If you currently hold PFIC-status securities — for example, Irish-domiciled ETFs from a previous period abroad — selling before you become a foreign resident allows you to book gains at US LTCG rates (0%/15%/20%) rather than the §1291 excess distribution regime (ordinary income + 7% compound interest from date of purchase).
3. Convert mutual fund share classes to equivalent ETFs. US-domiciled ETFs (VXUS, VTI, BND) give the same exposure as mutual funds and transfer freely to any brokerage. Many brokerages restrict new mutual fund purchases for non-US residents but allow ETF trading.
4. Transfer assets before updating your address. If your current broker will restrict or close your account when you change your address, initiate a transfer to the new brokerage while both accounts are still open and fully functional.
5. Document your cost basis. When moving positions between brokerages, the receiving institution may not receive cost basis information. Track original purchase dates and prices — you'll need them for US tax reporting when you eventually sell.

Tax Treatment of Investment Income for US Expats (2026)

Long-Term Capital Gains

Long-term capital gains (LTCG) on assets held more than one year are taxed at preferential rates. For 2026:³

The FEIE opportunity: expats who use the Foreign Earned Income Exclusion can end up with near-zero taxable income, making some or all of their realized capital gains taxable at 0%. This is a meaningful planning lever — selling appreciated positions in years when FEIE suppresses your taxable income. Realize gains in zero-bracket years; defer losses to years with higher taxable income. The Roth conversion guide walks through an adjacent version of this logic.

Net Investment Income Tax (NIIT)

The 3.8% NIIT under IRC §1411 applies to net investment income for taxpayers with modified AGI (MAGI) exceeding $200,000 (single/MFS) or $250,000 (MFJ).⁴ These thresholds are not inflation-indexed and have not changed since 2013.

The FEIE trap within the NIIT: the §911 exclusion reduces your AGI on the main 1040 — but for NIIT purposes, §1411(d)(3) adds the §911 exclusion back into MAGI. An expat with $300,000 of foreign earned income who excludes $132,900 under FEIE will have AGI of roughly $167,000 — but MAGI for NIIT purposes is approximately $300,000, which clears the $200,000 threshold and subjects investment income to the 3.8% surcharge. High-income FEIE users often face the NIIT even when their regular income tax is near zero.

Dividends and Foreign Withholding

Qualified dividends from US corporations and certain foreign corporations covered by US tax treaties are taxed at LTCG rates. Ordinary dividends (REIT distributions, most foreign corporations without treaty coverage) are taxed at ordinary income rates.

Foreign withholding taxes on dividends generate a Foreign Tax Credit in the passive income basket (Form 1116). High-withholding countries (Germany 26.375%, France 30%) create FTC that can reduce your US tax on investment income. Zero-tax jurisdictions (UAE, Cayman, Bermuda) produce no FTC offset on investment returns — you pay the full US rate with no foreign credit.

FBAR and Form 8938 Reporting for Investment Accounts

FBAR (FinCEN Form 114)

Any US person with a financial interest in or signature authority over foreign financial accounts with an aggregate value exceeding $10,000 at any point during the calendar year must file an FBAR with FinCEN by April 15 (automatic extension to October 15).⁵

Foreign brokerage accounts, foreign bank accounts, and most foreign financial accounts count. A US brokerage account (Schwab International, Interactive Brokers) with a US-domiciled structure is a domestic account — it does not go on the FBAR. Only accounts held at foreign financial institutions trigger the filing.

Form 8938 (FATCA Reporting)

US taxpayers residing abroad report specified foreign financial assets on Form 8938 (filed with Form 1040) when values exceed these 2026 thresholds:⁶

Form 8938 and the FBAR are two separate filings with different thresholds, different agencies (IRS vs FinCEN), and different scope. There is no deduplication — an account that appears on both must be reported on both. A US brokerage account is neither; only foreign accounts and foreign financial assets trigger these forms.

Asset Location Across Multiple Jurisdictions

Standard domestic asset location advice — tax-inefficient assets in tax-deferred accounts, tax-efficient assets in taxable — applies with important modifications for expats:

• IRA and 401(k) contributions may be unavailable under full FEIE. IRC §219(f)(1) requires that IRA contributions come from compensation not excluded under §911.⁷ If you fully exclude your foreign earned income under FEIE and have no other earned income, you cannot contribute to a traditional IRA, Roth IRA, or 401(k) for that year. The partial FEIE strategy — excluding less than the full $132,900 — preserves IRA contribution access at the cost of additional regular income tax on the non-excluded amount.
• Roth conversions work even with full FEIE. Unlike new contributions, Roth conversions don't require earned income. Expats with near-zero taxable income due to FEIE can convert traditional IRA or 401(k) balances to Roth at minimal tax cost — sometimes at 0% on the first tranche. This window closes when you repatriate to a high-income year.
• Keep taxable accounts PFIC-free. The PFIC trap is most dangerous in taxable brokerage accounts. §1291 excess distributions (ordinary income + 7% annual interest on the underpayment) can exceed the original gain. Holding only US-listed ETFs and individual stocks in taxable accounts eliminates this exposure entirely.
• State taxes follow you if domicile isn't severed. California, New York, and other high-tax states can tax investment income of former residents who haven't severed their legal domicile. Realized capital gains from a taxable account — even while you're physically living abroad — may be subject to California's 13.3% top rate if you remain a California domiciliary. Severing state domicile before leaving is a separate planning step from the federal analysis.

529 Plans for Expat Families

529 plan assets can fund qualified education expenses at foreign universities — but only at institutions participating in federal student aid programs under Title IV. A subset of foreign universities qualifies; most do not. The Department of Education's Federal School Code Search tool lists eligible institutions by country. Verify eligibility before relying on a 529 plan for foreign tuition.

Investment note: 529 plans hold US-domiciled mutual funds and are managed by US state agencies — they are not PFICs and do not trigger FBAR or Form 3520 reporting obligations.

Questions to Ask When Evaluating an Expat Financial Advisor

• Do you audit client portfolios for PFIC-status holdings and help restructure before or after a move?
• Which custodians do you use for clients who reside abroad? Can accounts remain with a US-based custodian?
• How do you handle the FTC passive-basket optimization for clients with foreign dividend withholding?
• Do you coordinate with an expat tax specialist or CPA for the annual reporting requirements (FBAR, 8938, 8621)?
• What does your fee structure look like for clients who move between countries during the advisory relationship?

Sources

1. IRS Form 8621 Instructions — PFIC Definition and Annual Reporting. A foreign corporation is a PFIC under IRC §1297 if 75%+ of gross income is passive income OR 50%+ of average assets produce passive income. US-registered investment companies (mutual funds, ETFs registered under the Investment Company Act of 1940) are US domestic corporations and are explicitly excluded from PFIC status. Form 8621 must be filed annually for each PFIC held in a taxable account, and for certain tax-deferred accounts if a QEF or MTM election is made.
2. Charles Schwab International — Investing Solutions for US Expats. Schwab's international account program for US citizens residing abroad; designed to maintain investment access for US citizens with foreign addresses; serves clients in most countries.
3. IRS Rev. Proc. 2025-32 — 2026 Tax Inflation Adjustments. 2026 capital gains rate thresholds: 0% rate applies to taxable income up to $49,450 (single/MFS) and $98,900 (MFJ); 20% rate applies above $545,501 (single/MFS) and $613,701 (MFJ). 15% rate applies to taxable income between those thresholds.
4. IRS — Net Investment Income Tax Q&A. 3.8% NIIT under IRC §1411 applies to net investment income for taxpayers with MAGI exceeding $200,000 (single/MFS) or $250,000 (MFJ). Thresholds are not inflation-indexed. For taxpayers using §911 (FEIE), §1411(d)(3) adds back the §911 exclusion when computing MAGI for NIIT purposes — meaning high-income FEIE users may owe NIIT on investment income even when regular income tax is near zero.
5. FinCEN Form 114 Filing Instructions. FBAR required under 31 U.S.C. § 5314 for US persons with a financial interest in or signature authority over foreign financial accounts where the aggregate maximum value exceeds $10,000 at any point during the calendar year. Filed electronically with FinCEN by April 15; automatic extension to October 15. Failure to file: non-willful up to $16,536/year per account; willful up to $165,353 or 50% of account balance (2026 inflation-adjusted amounts).
6. IRS — Form 8938 (FATCA) Basic Questions and Answers. IRC §6038D + Treas. Reg. §1.6038D-2T. Reporting thresholds for US taxpayers residing abroad: $200K year-end / $300K at any time (single/MFS); $400K year-end / $600K at any time (MFJ). Filed with Form 1040 rather than separately. FBAR and Form 8938 are separate filings with overlapping but distinct coverage.
7. IRS Publication 54 — Tax Guide for US Citizens and Resident Aliens Abroad. IRC §219(f)(1): compensation for IRA contribution purposes is reduced by the §911 exclusion. Full FEIE exclusion eliminates IRA-eligible earned income entirely. Partial FEIE strategy can preserve IRA contribution access up to the annual limit ($7,500 under 50 / $8,500 age 50+ / $11,250 super-catch-up ages 60–63 in 2026) by excluding less than the full FEIE amount.

PFIC rules, FBAR thresholds, and 2026 capital gains rates verified as of June 2026. Brokerage non-resident account policies are subject to change and vary by destination country — verify directly with each institution before moving. NIIT thresholds are set by statute and not inflation-adjusted. This content is for informational purposes only and does not constitute tax, legal, or investment advice.