Americans in France - Advice on IRAs, Social Security, and Inheritance, please!

There may have been discussions on this before, however I didn't have much luck when I searched, so apologies if anyone reads this and thinks...'OK, here we go again' ! We are fast approaching a time when we will need to consider our options with this and determine what is the best alternative.

My understanding with IRAs (Investment Retirement Account)and Social Security at retirement is that the distributions are taxed at source in the US and that there is agreement with France to avoid double taxation. Can anyone tell me if this is correct, and particulary, if it becomes necessary to file a tax return when you draw from your IRA?

My other question involves inheritance from a family member in the US. Does anyone know the tax implications here in France (my husband and I are resident here), and in the US for that matter. I suppose the biggest asset from any such inheritance for us would be the sale of a house.

Many thanks for your assistance!

Yes, you are required to file a return if you make more than $9,000. the IRs can technically disallow the Foreign Earned Income Exclusion if you don’t file a return to claim it, so you should file one return for the first year you were abroad, and then probably the last 3-5 years, depending on your income level.

This is especially important if you own a company, because if you’re required to file form 5471 (shareholders in foreign corporations), there can be huge penalties for not filing. And unfortunately, the IRS doesn’t always care that you didn’t know or you weren’t making much money.

I recommend you contact a tax professional to get your situation straigtened out. If your situation is really simple, it shouldn’t cost much. Heck, if it’s really smple, I’d even help you. I have no professional tax qualifications other tha3 years of experience working for this CPA.

Otherwise, the guy I used to work for is Steve Horton, based in Paris, and the website is Tell him Allison recommended him.

For the inheritance, I meant notify the French tax authorities, or at least have documentation to prove where the money came from if they ever ask. It’s just a formality so they don’t suddenly get suspicious that you were hiding huge bank accounts in the US all this time and audit you, which would be a pain.

Hi Allison,

Thank you very much for this information! How lucky to find someone on SFN who used to work doing tax returns for Americans in France!

Is it really necessary to file a US tax return when living abroad, if you're not in the 'upper echelons' of the income bracket? We lived in Ireland prior to coming here and did not file US returns then. We are resident here, working a small business that we started, and pay cotisations and taxes here.

Can I just clarify something? When you say that 'once we invest the money we should notify the tax authorities that we received an inheritance sum' I assume you mean the French tax authorities?

I think I'm glad to say that the ISF bit does not apply!! Not that I wouldn't like to have that much money, but I think I can live without the Impot hassle!

Again, thank you very much.

Also, regarding your US inheritance:

According to the treaty, gifts and estates are taxed according to where the giver resides. So your US-based inheritance will only be taxed in the USif applicable. (I’m not sure what the gift / estate tax limit is now but maybe $3.5M?)

If you receive a K1, you’ll need to report the interest and dividends on your French tax form, but these will be exempt from taxation. You do not have to report the sale of the house, which is not taxable in France, or other capital gains, which do not affect your tax rate and only confuse the tax office.

Once you invest the money, you will should notify the tax authorities that you received a large sum so they know it’s an inheritance, and not taxable income. You should also make sure to report all of your non-French bank accounts on your tax form every year.

Finally, if your net worth is more than €1.3M and you’ve been in France for more than 5 years, you’ll need to file the Impot de Solidarité sur la Fortune (ISF) and include all US assets. Check with a French tax advisor on the ISF thing, as the threshhold may have changed with the new goverenment (I left my tax job last July).

Hi Robin,

I used to work doing US and French tax returns for Americans in France.

You’re right that retirement accounts are taxed only in the country they’re paid out of. IRAS and Social Security are taxed in the US, and French retirement payments are only taxed in France.

In France, you do need to report your US income, including your retirement income, interest, and dividends, but you use form 2047 to show that they are neither taxed nor subjected to CSG/CRDS per the treaty. They will, however, incease your revenue “per part” and affect your tax rate.

If you have any income in France at all, you should already be filing a US tax return. US citizens are taxed on their worldwide revenue, which means that you should be reporting any French salary, interest, and dividendsand any other income you receive in France on your Us tax return. This includes reporting all foreign bank accounts on the Foreign Bank Account Report (Form 90-22.1) each year.

You will not need to report French retirement at all on your US tax return, as it is totally exempt from US taxation and does not affect your tax rate.

Hi Allison,

It’s been a long time since we’ve communicated. I remembered finding someone who was quite helpful on here and have just had a look back at our previous emails.

We managed to sort out the situation we were in when I first contacted you. We spoke with IRS Paris and IRS in the US. Had to file three years tax returns and catch up on FBARs…what fun that was, NOT!! :expressionless:

We are now trying to plan for retirement and have been looking up information on IRA withdrawals. We both have a Traditional IRA account and we would like to try to start bringing some of the funds to France, possibly starting next year when we will both be 59 ½. We know that the funds will be taxable in the US because it is a Traditional IRA. Obviously, we would like to transfer funds with as minimal a tax liability as possible, both in the US and in France. I presume the the funds would not be taxed in France since they come from a retirement account and would be taxed in the US.

We are wanting to try to determine, as much as possible, the best way to go about transferring the funds over a period of time and the tax implications of the different possibilities. Is this something you would recommend Horton Tax Services for? Our situation is not complex, but we still want to make sure that we are going about things, not only in the best way financially, but in the correct way.

Many thanks for you time,
Robin Wilson__