What happens if your IRA account closes down as U.S. expat?

Are you facing the unfortunate situation of your IRA in the US closing? As an American expat or a US-connected individual with an IRA or Roth IRA in the US, receiving a 90-day closure notice from an investment firm can be extremely stressful. Unfortunately, this is becoming more common as many firms are opting to exit the expat market.

In this article, we will discuss the options available to you as an American expat and the necessary timeframe for executing a rollover while residing abroad.

If you are reading this article, it’s likely that you have already received a letter from your current custodian. It has become increasingly challenging for American expats to maintain their accounts with large retail investment firms in the USA.

I understand this firsthand, as I was a financial advisor with Wells Fargo Advisors when they decided to close the accounts of all expatriate clients in 2021. The decision had been made a few years prior, and advisors were instructed to provide their expat clients with a year’s notice.

We know that firms like Wells Fargo Advisors, Merrill Lynch, UBS, Etrade, TD Ameritrade, Morgan Stanley, and JP Morgan have all made the decision to stop servicing expats.

So, what should you do if your IRA in the US is closing with just 90 days’ notice?

Receiving an email or letter informing you that your brokerage account will be closed in less than 90 days can be a distressing experience. It’s important not to panic. We work with custodians who, through our EU/UK/USA licenses, can open new IRA or Roth IRA accounts for you using your foreign address.

This is a specialized field, but it is definitely possible. The first step is to contact us and provide a statement so we can assess the custodian and determine how quickly we can proceed.

What documents will you need?

If you have less than 30 days before your account closes and need to expedite the process, you will require certain documents to open a new account and initiate a rollover. Here is a list of the documents you will need:

• IRA statement dated within the last 3 months, if possible
• Proof of address (utility bill or bank statement with your foreign address)
• Proof of identity (passport picture, or depending on the country, a driver’s license may be acceptable)
• It is also important to know some details about your current IRA, such as the management fees charged by the current firm.

How quickly can a rollover be processed?

Generally, from the initial meeting to funding the new account, we require a minimum of 2 weeks. We can complete all the necessary paperwork electronically using DocuSign. If you fill 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 initiate an electronic account transfer (ACAT), which typically takes about 1 week to complete. If your current provider is not on the ACAT list, we may need to fill out a paper form, which will add additional time to process the transfer.

It is worth noting that some mutual funds may not transfer easily or at all. We recommend selling mutual funds before initiating the transfer. The sale of funds within an IRA does not have any tax implications, and it takes 2 business days for a sale to settle.

What about a 401K rollover?

If you have a 401K and have received a closure notice, you will likely need to call the plan provider and request a 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 plan provider. Typically, 401Ks only send checks by mail.

Ideally, the check should be mailed directly to the new firm, but most 401K providers only mail checks to the client’s address of record. This is not a problem, and we can assist in having the check mailed directly to the new custodian. Rolling over a 401K into an IRA has no tax implications as long as the check is made payable to the new custodian (FBO) for the benefit of the client.

Some plan providers may require a paper form to be filled out and mailed to them.

What are the tax implications if my account closes without notice?

If your account is closed or about to close, it’s crucial to know that you have 60 days to deposit the money into another IRA account to avoid tax consequences.

If you are below 59 1/2 years old, you will face a 10% penalty in addition to paying federal and possibly state income tax. You will receive a Form 1099 indicating the full amount of the account as a withdrawal, which will be added to your taxable income for the year.

This can be devastating, especially if you have a substantial amount of money in your IRA and end up with a 45% tax bill.

What if my IRA is not currently restricted?

While some firms have not placed restrictions on their expat clients’ accounts, this can change at any time. To avoid future problems, I recommend setting 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 indicates that the top 10 US brokers in the USA will restrict expats in the near future.

Some firms may keep accounts open but impose trading restrictions, freeze accounts, or disable online banking. Many clients have shared stories with us about accounts with Fidelity, Schwab, and Vanguard facing similar issues. These firms can detect when a client is logging in from a foreign IP or computer using the technologies they employ.

Conclusion

In conclusion, I understand that transitioning to a new investment provider after using the same one for many years can be daunting. However, 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 tailored to American expats.

The platforms we work with manage billions of assets and have excellent reputations. If you have received a closure notice and want to explore your options, please don’t hesitate to reach out.

If you would like to read more blogs like this, here are some I have written:

• Is the U.S. in for a lost decade of few returns?
• What are the benefits of transferring a 401k into an IRA as an Expat?
• How to Find the Best Investments for U.S Expats

Link to article on my website: https://investmentsforexpats.com/what-happens-if-your-ira-account-closes-down-as-u-s-expat/