Your IRA in the US is closing? As an American expat or US-connected individual with an IRA or Roth IRA in the US, it can be a really stressful situation when you receive a letter or email from an investment firm giving you a 90 days closure notice. We see that more and more as many firms in the US are making the decision to exit the expat market.
In this article, we will review your options as an American expat and the time needed in order to execute a rollover while abroad.
If you read this article, you might have already received a letter from your current custodian. We find that it is getting harder and harder for American Expats to keep their accounts with one of the big retail investment firms in the USA.
I know firsthand as I was a financial advisor with Wells Fargo Advisors when they made the decision close the accounts of all expatriate clients in 2021. The decision was made a few years before that when advisors were told to give their expat clients a year’s notice.
We already know that firms like Wells Fargo Advisors, Merrill Lynch, UBS, Etrade, TD Ameritrade, Morgan Stanley and JP Morgan made the decision to not service expats.
IRA in the US is closing – 90 days’ notice, what should I do?
I can understand how stressful it might be if you receive an email or letter letting you know that your brokerage account will be closed in less than 90 days.
It is also really important to realize that most people don’t read the mail they get from their bank and we often see accounts closed with clients not having the time to do anything about it. Since most expats use an old address or the address of someone else on their IRA or brokerage account while living abroad, it is common to forget about the accounts in the USA and not fully understand the risk involved.
If you are an American Expat and you receive a closure notice you don’t have to panic. We work with custodians that will allow us through our EU/UK/USA licenses to open new IRA or Roth IRA accounts for you by using your foreign address.
It is a really specialized field but it is definitely possible. The first step would be to contact us and provide a statement so we can assess the custodian and how quickly we can move forward.
If you are in a rush and have less than 30 days before your account is closing, you will need to have certain documents in order to open an account and process a rollover. Here is a list of what you need:
- IRA statement less than 3 months if possible
- Proof of address (utility bill or bank statement with your foreign address on it)
- Proof of identity (passport picture, depending on the country it might be possible to use a driver’s license)
- It would also be important to know some details about your current IRA (managed fee charged by the current firm)
How fast can a rollover be processed?
In general, from the first meeting to the day the new account is funded, we need a minimum of 2 weeks. We are able to get all of our paperwork electronically filled out and signed by Docusign. If a client fills out the paperwork on the same day, we can open the brokerage account in less than 48 hours.
Once the account is active we can request an electronic account transfer (ACAT). This usually takes about 1 week to go through. If your current provider is not on the ACAT list, then we might need to fill out a paper form which will add more time to process the transfer.
It is also important to know that some mutual funds will not transfer easily or at all. It is suggested to sell mutual funds before we process a transfer. It takes 2 business days for a sale to settle. There is no tax implication of selling funds inside an IRA.
If you have a 401K and you received a closure notice, you most likely will have to call the plan provider and request the rollover by phone. We can open the IRA or Roth IRA account ahead of that call so you have an account number to provide to the firm. 401Ks typically only send checks by mail.
It is ideal to have the check mailed directly to the new firm but most 401K providers only mail checks to the client at the address of record. It is not a problem and we can assist with having that check mailed directly to the new custodian. There are no tax implications of rolling over a 401K into an IRA as long as the check is made payable to the new custodian (FBO) for the benefit of the client.
Some plan providers require a paper form to be filled out and mailed to them.
Tax implications if my account closes without notice?
If your account is closed or is about to close, you need to know that you have 60 days to deposit the money back in another IRA account. You would be able to avoid that tax hit.
If you are below 59 1/12 years old, you would have a 10% penalty on top of paying federal and possibly state income tax. You would receive a form 1099 with the full amount of the account counted as a withdrawal. That amount would be added to your taxable income for that year.
It can be devastating especially if you have hundreds of thousands of dollars in your IRA and you end up with a 45% tax bill.
What if my IRA is not restricted?
There are still some firms not putting restrictions on their expat client’s accounts but it can change at any time and in order to avoid a future problem, my suggestion is to set up your accounts using your current foreign address now so you don’t have to worry about it. You never know when these decisions are made and the trend is that the top 10 US brokers in the USA will restrict expats in the near future.
Some firms are keeping accounts opened but will restrict trading, freeze accounts or shut down online banking. Many clients have shared with us stories regarding accounts with Fidelity, Schwab, and Vanguard as well. When these firms discover a customer no longer physically resides in the United States, they may freeze their brokerage accounts or force American expats to liquidate their investment holdings.
With the technologies these firms are using, they know when a client is logging in each week from a foreign IP or computer.
In conclusion, I can appreciate the fact that it might be daunting to make the switch to a new investment provider after using the same one for many years. I believe it is a risk that should be avoided since there are ways to have your funds managed by a cross-border advisor with an investment platform that is set up for you as an American expat.
The platforms we use have billions of assets under management and have great reputations. If you received a closure notice and want to know what your options are, don’t hesitate to reach out.