Expat Investing: U.S. Citizens Abroad, FEIE, FBAR, and Brokerage Account Access

Key Takeaways

• U.S. citizens and permanent residents must file U.S. tax returns regardless of where they live, reporting worldwide income. Citizenship-based taxation is a rare global practice specific to the U.S. (and Eritrea).
• The Foreign Earned Income Exclusion (FEIE) can exclude up to $126,500 (2024) of foreign earned income from U.S. tax. It does not apply to investment income (dividends, interest, capital gains).
• Using the full FEIE reduces IRA contribution eligibility to zero because IRA contributions require U.S. taxable earned income above the contributed amount.
• FBAR is required if foreign accounts exceed $10,000 aggregate at any point in the year. FATCA (Form 8938) applies at higher thresholds. Both are separate filing requirements.
• Many U.S. brokers restrict or close accounts when customers provide a non-U.S. address. Researching broker policies before moving or maintaining a U.S. address on file is advisable.

U.S. Citizenship-Based Taxation

U.S. citizens and permanent residents (green card holders) are required to file U.S. tax returns and pay U.S. taxes on their worldwide income regardless of where they live and work. This applies even if the individual has not lived in the U.S. for many years and has no income from U.S. sources. The U.S. is one of only two countries (along with Eritrea) that taxes its citizens and permanent residents based on citizenship rather than residence.

Foreign Earned Income Exclusion and Foreign Tax Credit

U.S. expats have two main mechanisms to reduce or eliminate double taxation: the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC). The FEIE directly excludes qualifying foreign earned income from U.S. taxable income (up to $126,500 in 2024, inflation-adjusted annually). The FTC provides a dollar-for-dollar credit for income taxes paid to a foreign government, which can reduce or eliminate U.S. tax on income already taxed abroad. The FEIE and FTC cannot both be applied to the same income. In high-tax countries, the FTC often eliminates the U.S. tax liability without using the FEIE, which preserves IRA contribution eligibility.

FBAR and FATCA for Expats

Expats who hold foreign bank, brokerage, or other financial accounts must report those accounts under FBAR (FinCEN Form 114) if the aggregate maximum balance exceeds $10,000 at any point during the year. FATCA (Form 8938) requires reporting specified foreign financial assets above higher thresholds ($200,000 for single filers living abroad at year end, or $300,000 at any point). Both requirements apply to accounts in the expat's name anywhere outside the U.S. Penalties for willful non-compliance are severe.

Brokerage Account Access from Abroad

U.S. brokerage firms are subject to securities laws in each country where they operate or have customers. Many firms restrict or close accounts for customers with a foreign residential address, as compliance with local securities laws in every country where a customer may reside is complex and expensive. Expats who want to maintain U.S. brokerage accounts often do so by keeping a U.S. mailing address on file; however, using a foreign address when required is a compliance obligation. The specifics vary by country and broker. Establishing accounts before moving is a common practical approach.

Frequently Asked Questions

What is the Foreign Earned Income Exclusion?

The Foreign Earned Income Exclusion (FEIE) allows qualifying U.S. citizens and resident aliens who live and work abroad to exclude up to $126,500 (2024 amount; indexed for inflation annually) of foreign earned income from U.S. federal income tax. To qualify, the individual must meet either the bona fide residence test (a full tax year as a bona fide resident of a foreign country) or the physical presence test (at least 330 full days in a foreign country during any 12-month period). The FEIE excludes only earned income (wages, salary, self-employment income), not passive income such as dividends, interest, or capital gains.

Can U.S. expats keep their U.S. brokerage accounts?

Many U.S. brokerage firms restrict or close accounts for customers who provide a foreign address, due to compliance requirements under international securities laws and FATCA. The restriction varies by broker and by country of residence. Some brokers (including several discount online brokers) serve U.S. expats with a U.S. address on file; others do not. Maintaining a U.S. mailing address (such as a family member's address or a mail forwarding service) may allow continued account access, but this has its own compliance implications. U.S. expats who expect to invest long-term from abroad should research broker policies before moving or establish accounts before departing.

Can U.S. expats contribute to an IRA using foreign income?

U.S. expats can contribute to an IRA only if they have qualifying U.S. earned income (or U.S. sourced self-employment income) that has not been excluded under the FEIE. If all earned income is excluded under the FEIE, the resulting U.S. taxable earned income is zero, making IRA contribution eligibility zero as well. Expats who exclude some income under the FEIE but not all (because earned income exceeds the exclusion limit) can contribute to an IRA based on the non-excluded portion. Many expats face this limitation and find that maintaining some non-excluded income, or using the foreign tax credit instead of the FEIE in some years, preserves IRA contribution eligibility.