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WEBINAR: Moving to Portugal as an American

WEBINAR: Moving to Portugal as an American

Let’s dive into financial life in Portugal as an American.

When people reach out to our team of US expat financial advisors, there’s a good chance they’re either living or planning a move to a certain place – Portugal. And it’s not just something we’ve seen. It’s something the Wall Street Journal & LA Times have written about, too.

So as Portugal continues to grow in its popularity for Americans moving abroad, we’re focusing in on the key components of such a move from a finance & investing lens. After all, those areas will impact your experience in Portugal, whether it’s two years or for the duration of your retirement.

Our team of advisors – Stan Farmer, CFP®, J.D; Syl Michelin, CFA; and Keith Poniewaz, Ph.D. – present and then answer questions in the second portion of the webinar. Questions before or after watching the webinar? Send us an email at [email protected].

You can watch the full replay below or on Walkner Condon Financial Advisors’ YouTube channel.

If you have any questions, we’d encourage you to submit them ahead of time using the button below.

DISCLOSURES
Walkner Condon Financial Advisors is a registered investment advisor with the SEC and the opinions expressed by Walkner Condon Financial Advisors and its advisors in this webinar are their own. Registration with the SEC does not imply a certain level of skill or training. All statements and opinions expressed are based upon information considered reliable although it should not be relied upon as such. Any statements or opinions are subject to change without notice. Information presented in this webinar is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Information in this webinar does not take into account your specific situation or objectives and is not intended as recommendations appropriate for any individual. Viewers are encouraged to seek advice from a qualified tax, legal, or investment advisor to determine whether any information presented may be suitable for their specific situation. Past performance is not indicative of future performance.

What are the Limits for My Investing and Spending Accounts?

What are the Limits for My Investing and Spending Accounts?

As we turn the page to the second quarter of 2022, it’s a good time to familiarize yourself with the changes to the more popular savings vehicles. It is imperative to understand the basics of these accounts to avoid mistakes, as the penalties can be quite onerous. This is not an exhaustive list, but it is a good place to start. 

The list is broken up into the appropriate categories of employer-sponsored plans, personal retirement plans, healthcare and spending accounts, and educational accounts.   

Employer-Sponsored Plans

401(k), 403(b), and most 457 plans have a new maximum employee contribution limit of $20,500, up from $19,500 in 2021. The overall maximum annual additions into defined contribution plans (which include 401(k) and 403(b) plans) increased from $58,000 to $61,000. 

Individuals aged 50 and older are allowed an additional $6,500 of contributions. Note that the “age 50 catch-up” amount did not increase from 2021 to 2022.

Personal Retirement Plans

IRA and Roth IRA contribution limits are unchanged at $6,000 for people under the age of 50 and $7,000 for individuals 50 years old and older. 

The traditional and Roth IRA income phase-out ranges are also increasing. 

Healthcare and Spending Accounts

Health Savings Account contribution limits increased from $3,600 to $3,650 for individuals and $7,200 to $7,300 for families. 

The HSA catch-up contribution for individuals 55 years old and older is an additional $1,000. This is unchanged from 2021.

The  Health Care Flexible Spending Account (FSA) limit has increased to $2,850 in 2022 – up from $2,750 in 2021.

The Dependent Care FSA limit in 2022 has reverted back to $5,000 for a married couple filing a joint tax return. The American Rescue Plan temporarily increased the limit to $10,500 in 2021.

529 College Savings Plan

529 plans do not have contribution maximums; however, contributions are considered completed gifts for federal tax purposes, and in 2022 up to $16,000 per donor ($15,000 in 2021), per beneficiary qualifies for the annual gift tax exclusion.

The Coverdell IRA contribution limit is $2,000 per student, per calendar year. 

The annual changes to contributions and income limits are not consistent year-over-year; therefore, understanding the changes and how they affect your specific situation is important. It is a good idea to check your contribution levels early in the year as payroll adjustments and/or automatic contributions into your IRA accounts may be required periodically.

Three Things To Know About Portugal’s Non-Habitual Residence (NHR) Program

Three Things To Know About Portugal’s Non-Habitual Residence (NHR) Program

One of the major developments in my practice has been the considerable uptick of expats considering (and consummating) a move to Portugal. Having lived briefly in Lisbon years ago, it’s been a true pleasure to see Portugal not just register on the American expat heatmap, but to become an epicenter of sorts. Portugal’s Non-Habitual Residence (NHR) tax program is a key driver behind this trend.

One of the more negative aspects of American expat life in Europe tends to be the cost of living. This is often the case when it comes to housing, goods, transportation, etc., but it is even more true when it comes to TAXES. Both income taxes and wealth transfer taxes (gift, estate, or inheritance taxes) tend to be much higher in Europe than in the United States. Because the United States uniquely practices “citizenship-based” taxation, this basically means that U.S. federal tax rates are the floor for an American’s global tax liability. However, when a U.S. expat takes up residence in a country with higher tax rates, the new residence country’s tax rates become a higher ceiling. Portugal has managed to attract American expats by substantially lowering that ceiling for a 10-year period of time, and they’ve been wildly successful in attracting U.S. expats as a result.

But before you go buy that dream home in the Algarve, Cascais, Porto, or Cintra, you should get very well acquainted with the NHR program and make sure you understand its details, requirements, and limitations. We’ll get you started on that homework by discussing three important aspects of the program.

Most “Non-Portugal-Source” Income Is Not Taxed In Portugal 

If you opt into the NHR Program, which you must do after obtaining a residence visa and before you’ve completed your first year as a tax resident, much of your income from foreign sources are excluded from Portuguese income tax. There are important caveats or exceptions. First, the program changed in 2020 (March 31) regarding foreign pension income (e.g., IRA, 401k, defined benefit pensions, etc.). For those entering the NHR program after March 31, 2020, Portugal will tax foreign pension distributions at the flat rate of 10%. For Americans, this is a change with little consequence, as the Portuguese tax on pensions produces a foreign tax credit that can be used to reduce the remaining U.S. tax liability from those distributions. Also, U.S. Social Security payments and payments from a U.S. federal, state, or local government pension (e.g., a transportation authority pension, the federal TSP, a state government pension, or public school system retirement plan) are only taxable in the U.S., by treaty

Second, U.S.-based portfolio income (intangible personal property), including dividends and capital gains in taxable brokerage accounts (i.e., not pensions), may still be taxed in Portugal at the Portuguese standard tax rate of 28%. The issue is somewhat unclear under the program, but most Portuguese tax preparers tend to take the conservative position that these sources of income are taxable and not excluded under the NHR program. We would encourage you to find and consult with a tax preparer in Portugal to make the final determination on that issue. 

Finally, I would point out that income from consulting or other services performed for businesses outside of Portugal may also be excluded from Portugal’s income tax during the NHR period. For this very reason, Portugal has become a haven not only for U.S. retirees but also for the so-called “digital nomads” working remotely for U.S. (and non-U.S.) companies.

Working in Portugal Is Still Tax-Advantaged While in the NHR Program

The NHR program is not just for retirees, independent contractors/consultants, and digital nomads. If you decide to work in Portugal while participating in the NHR program, Portugal-sourced earned income is taxed at a flat 20% rate instead of those higher progressive Portuguese income tax rates. This might exceed your U.S. federal effective tax rate, or not, depending on your individual income levels. Nonetheless, it is certainly a tax break from standard progressive income tax rates that apply to earned income in Portugal. Moreover, the foreign-earned income exclusion (FEIE) and foreign tax credits from Portuguese income tax paid on earnings should substantially reduce, if not altogether eliminate, U.S. federal tax liability. 

“Non-Habitual” Resident Is Not A Particularly Apt Name For This Program

The term “non-habitual resident” implies someone who transits between Portugal and their home country or suggests that NHR participants are merely visiting. However, to be clear, you can buy a home in Portugal (not required, of course), declare Portugal your adopted permanent home, and still qualify for the NHR tax status. The tax benefits of NHR expire after 10 years, but nothing precludes a longer stay and, in fact, I’m sure the Portugal tax authority would appreciate it if many stayed and began paying normal Portugal income taxes thereafter.

Moreover, to qualify for the NHR program, you must first obtain a residence visa and become a tax resident of the country. After you become a Portuguese resident, and only in the first year of tax residency, you may then opt into the NHR program. Beware that you may need to make a significant investment (financial commitment) in Portugal to obtain a residence visa – unless you hold an EU passport – which might simplify the process considerably. In fact, if you qualify for citizenship in another EU country, obtaining such dual citizenship might expedite the process or alleviate some of the financial requirements. Consulting with one of the many immigration services skilled in the Portuguese residence programs is an essential step in the process.

Portugal has become a premier destination for expats, including American expats, looking for a home in Europe that is both comfortable and affordable. The NHR program’s intriguing benefits are worthy of serious consideration to both young globetrotters and retirees alike. As always, please feel free to reach out to Walkner Condon to discuss your specific situation.

American Moving to Germany – Gimme Some Truth for US Expats Podcast

American Moving to Germany – Gimme Some Truth for US Expats Podcast

Thinking about moving to Germany as an American? Well, you’re definitely not alone.

We continue our country-specific journey for U.S. expats with another stop in Western Europe. Though we haven’t dedicated a lot of written content previously to Germany, we know from visitors to our website that it’s right up there among top destinations. Including the U.S., it ranks as our third-highest source of visitors, behind only the U.K., which was our first country-specific destination on Gimme Some Truth for Expats. And, several sources back that claim up, listing the number of Americans in Germany as more than 200,000.

In the words of Syl Michelin – Walkner Condon’s resident CFA® – Germany is generally a high tax jurisdiction. With that in mind, the journey to Germany centers a lot around the subject of taxation for Americans, whether that’s a short-term stay or a long-term stay. Syl is joined on the episode by Stan Farmer, CFP®, J.D., and Keith Poniewaz, Ph.D., as our full team of U.S. expat financial advisors dives into all things Deutschland when it comes to investing and managing their money.