Hello from Germany

[MikeK]

Sorry about the efficiency of the IRS in getting their piece of the pie.

This is part of being a U.S. citizen.

Will you be able to file taxes as a South Dakotan for this year? What are your thoughts on filing through a company there versus elsewhere? Do you have a tax professional you like for tax efficiency (gain/loss harvesting)? I don't mean to pry but I'm really ignorant in this area and looking to get smarter by hiring someone that's good at it.

Thanks in advance for anything else you can share!

I will file as a Virginia non-resident for part of the year and South Dakota for the rest of the year. As soon as I returned to Germany from selling my house and changing residency, I changed my state withholding status through MyPay and removed Virginia. When I receive my 2018 W2, the only federal income that will be reported to Virginia will be through June 2018.

I use a tax preparer in San Antonio for my federal and state returns. My returns are complicated because of my wife's non-U.S. income, foreign taxes paid,and the rental income. I have never found a consumer software package that can duplicate what the tax professional delivers. I even tried the free military tax office on post, but the volunteer agents aren't trained for much beyond preparing a 1040EZ.

Two years in a row, I bought the two most popular tax preparation packages as an experiment, but they always failed to complete the federal return the same as the professionals because forms were missed or not available, or the calculated values were different. I used the professional return as a template for the data entry, but the consumer packages didn't work for me.

I am content with paying the professionals to prepare and file our returns. The added benefit was in 2008 and 2009 when I was audited by the IRS. The enrolled agent who prepared my returns handled the audits at no cost and they were resolved without any additional payments to the IRS.

The person who has been preparing my returns for the past four years has already worked some trial 2018 returns using the 2017 package to give me a good estimate of my tax bill as a result of the huge capital gains from the sale of the house. She rolled in all of the expenses and losses with the rental property that were carried forward and can now be claimed. The bill was much less than I thought it would be, but it is still a lot of money.

[jlozano042]

Amazing portfolio you and the missus have there MikeK. Kudos to both of you!! The Roth Conversion might make sense after you are retired if your tax bracket lowers due to less income. Will the US still tax you for the Federal if you are living in Germany? Are you going to be tapping into any of the IRA's for income before 59.5? I don't need to know. I was just curious if you were going to have to pay the penalty for early withdraw or take it out under a life expectancy to avoid it. Otherwise you might want to leave some of it in TSP for monthly disbursements until 59.5. Again, you guys have done an awesome job preparing for retirement and I hope to hear good stories of you reaping from the bounty you have created!

Cheers! Tim

Thank you, Tim. Unfortunately, there is no escaping the long arm of the IRS, so I will be paying federal income tax on all retirement pay. Fortunately, the tax treaty between the U.S. and Germany ensures I won't be liable for German taxes on the income that is subject to U.S. taxation.

Part of my retirement planning included selling my house in Northern Virginia and changing my legal residence to South Dakota earlier this year. Virginia is not a tax-friendly state for overseas retirees, but South Dakota is. There were other reasons for choosing South Dakota, but the lack of a state income tax was important. I have a large capital gains tax bill from the sale of the house because I didn't live in it for the past 21 years, but I took care of that by pre-paying the federal and VA state tax estimates from the proceeds of the sale as I severed my ties to Virginia.

I don't plan on touching the TSP or Vanguard assets for at least the first year. I'll be 62 when I retire with 28 years of federal service, and I am still debating on taking the early Social Security annuity or hold off until I reach the full retirement age. We won't need the money, unless something horrible happens to the savings.

Will there be any chances of running into you at the Sturgis rally in Buffalo Chip some time in the future?

[TSPBuilder]

[quote="jlozano042]
Will there be any chances of running into you at the Sturgis rally in Buffalo Chip some time in the future? [/quote]

Probably not ...Give me twenty years and look up at Mt. Rushmore

[jlozano042]

Probably not ...Give me twenty years and look up at Mt. Rushmore

I like how you think.

[crondanet5]

MikeK I think you are making a mistake not taking the Medicare for you and your wife, assuming she is a US citizen. If for any reason you come back to the states and have a medical emergency you might be liable for a huge bill. Or you might need to come to the states for medical treatment. Not having Medicare might get you turned down for acceptance into treatment. Think of it in the same light as LTHC. You don't plan to use it but it is there if you need it.

The other thing that concerns me about your situation is IRS pursuit of an overseas US citizen. You might be denied German banking and credit. Don't know, maybe I'm wrong, but there are stories. I recommend you stay squeaky clean and not seek every way to save a nickel. The world and the way they treat you is changing. Do take Medicare and continue to build your Accounts.

[edguev66]

MikeK,

I plan on moving to Germany in July 2020 with my German wife. I am very interested in the comments you made about your US tax liability. Specifically you stated that you are not liable for German income taxes on money that was taxed in the US e.g. retirement income. It was my understanding, and i could be very wrong, that the German Taxes would be reduced by the amount of taxes already paid in the US. In the end you pay the higher of the 2 taxes, although part would be to the US and part to Germany. German taxes are much steeper than US taxes and will undoubtedly be the higher of the 2. Also i'm not sure how Germany addresses income from Roth distributions since in German eyes it is seen as income and i could find anything stating that it would not be taxed in Germany. Any useful links on retirement taxation in German for non-German residents would be appreciated.

[MikeK]

MikeK I think you are making a mistake not taking the Medicare for you and your wife, assuming she is a US citizen. If for any reason you come back to the states and have a medical emergency you might be liable for a huge bill. Or you might need to come to the states for medical treatment. Not having Medicare might get you turned down for acceptance into treatment. Think of it in the same light as LTHC. You don't plan to use it but it is there if you need it.

The other thing that concerns me about your situation is IRS pursuit of an overseas US citizen. You might be denied German banking and credit. Don't know, maybe I'm wrong, but there are stories. I recommend you stay squeaky clean and not seek every way to save a nickel. The world and the way they treat you is changing. Do take Medicare and continue to build your Accounts.

I appreciate your concern, but Medicare Part B doesn't have much value for someone who already has a great health insurance plan. Medicare Part B becomes the primary plan when a person has more than one health plan, but it is not required. I will certainly sign up for Part A, since it's free, but like Part B, it is completely useless to anyone who does not live in the States. As I stated earlier, I will retain my federal health insurance plan and my long term care plan and have no intention of returning to the States to live. I will certainly visit from time to time, but will remain in Germany. My German wife insists on it.

I don't know where the paranoia about the IRS and expats is coming from, but I am boringly going where thousands have gone before. This is nothing new and I don't anticipate any issues with the IRS, or the German banking system. My wife and I have maintained our joint German bank account for nearly two decades and I faithfully file my FBAR statements every January. Our German bank did not hesitate to give us a mortgage for our house, as it has for other U.S. citizens in the area. My current job requires squeaky clean finances and I don't see any reason to change this when I retire.

[MikeK]

MikeK,

I plan on moving to Germany in July 2020 with my German wife. I am very interested in the comments you made about your US tax liability. Specifically you stated that you are not liable for German income taxes on money that was taxed in the US e.g. retirement income. It was my understanding, and i could be very wrong, that the German Taxes would be reduced by the amount of taxes already paid in the US. In the end you pay the higher of the 2 taxes, although part would be to the US and part to Germany. German taxes are much steeper than US taxes and will undoubtedly be the higher of the 2. Also i'm not sure how Germany addresses income from Roth distributions since in German eyes it is seen as income and i could find anything stating that it would not be taxed in Germany. Any useful links on retirement taxation in German for non-German residents would be appreciated.

I'm relying on information from German financial planners, U.S. tax professionals, and feedback from the many U.S. federal employees in the Wiesbaden and Darmstadt areas that retired here. If there was a hidden tax liability waiting to pounce on us, I'm sure someone would have screamed about it by now. However, even if the tax treaty allows the Germans a bite at my tax apple, I don't think it will be big enough for me to pack up my toys and go home.

Roth distributions might be fair game for the Germans, since they are not taxed by the IRS. My friends over here with Roth portfolios are postponing the RMD until it is mandatory, so I don't have any relevant information about the German tax reporting.

A good source for information about expats from expats is Toytown Germany. Just about everything you want to know about moving to and living in Germany has been asked and answered on that forum. Use the search feature first, as some of the members tend to be testy with new members who jump in to ask what has been answered thousands of times before.

Mike

[jlozano042]

... My current job requires squeaky clean finances and I don't see any reason to change this when I retire.

Semper Vigiles

[MikeK]

Semper Vigiles

Yes, always!