Have you thought about making Mexico your full-time or part-time home?

John and I spent the spring months in San Miguel de Allende and loved it so it's no surprise to us that so many Americans have already made the move. Mexico, with its beautiful cities and stunning coastlines, warm climate, rich cultural tapestry, affordable living, and mouthwatering cuisine, has become a top choice for those looking to work, retire, or simply enjoy life in another country.

If you are considering this, let’s look at ten core financial questions to help you ensure a smooth transition.

#1 Investment Challenges:

Navigating financial services abroad, including in Mexico, comes with its challenges due to increased compliance requirements like FATCA. Many financial institutions struggle to meet these demands, which could even lead to account closures when they learn of your move.

That’s why it’s crucial to partner with a firm that understands your international status and can maintain or establish relationships despite your new address. At Journey Strategic Wealth, we will open accounts for you as a US advisory firm, taking care of your investments and guiding your planning wherever you live in the world.

#2 Tax Implications:

If you establish a home in Mexico without one in the U.S., you're considered a Mexican tax resident. However, according to the ‘tiebreaker’ rules, if you don’t work in Mexico and earn more than 50% of your income from U.S. sources, you'll be classified as a Mexican non-resident (for tax purposes) and only Mexican-sourced income will be taxed.

U.S. taxes are based on your residency and citizenship, meaning you'll still file U.S. taxes even while living in Mexico. Figuring out your Mexican tax status early on can help avoid double taxation and manage your tax responsibilities effectively.

#3 Managing Retirement Accounts:

Your U.S. retirement accounts stay put even after your move. Depending on your situation, you may still be able to make contributions, but it’s essential to consider the tax implications and seek advice from a seasoned cross-border financial advisor.

#4 Taxation of Retirement Accounts:

Withdrawals from U.S. retirement accounts are taxable in both countries unless you’re considered a non-resident for Mexican tax purposes (see #2, above).

#5 Social Security

As an American citizen living in Mexico, you can collect the Social Security income you have qualified for. Other nationalities who have qualified for Social Security in the US can also collect, with some limitations.

#6 Property Ownership:

Foreigners can own property in Mexico, but some areas, like the "Restricted Zone," have specific regulations. Understanding these rules and seeking legal guidance is crucial before making any purchases.

The “Restricted Zone” includes many of the more desirable areas:50 kilometers from the coast or 100 kilometers from the international border. Property in the restricted zone must be owned by a 50-year renewable trust and the trustee must be a Mexican financial institution or corporation. You as the owner will hold the beneficial title, right to use, sell, and bequeath the premises. One more reason San Miguel de Allende is such a popular expat locale – it is not close enough to the border or the coast to be a Restricted Zone. We met many happy homeowners there.

#7 Estate Planning:

Probating U.S. assets in Mexico can be complex and costly. We recommend that you avoid having US assets probated in Mexico by drafting a Mexican will for Mexican assets, alongside your U.S. estate plan to streamline the process.

Some states in Mexico permit adding beneficiaries to property deeds via Testamento Simplifacado, bypassing probate and passing the property directly to your beneficiary.

#8 Inheritance Considerations:

Mexico doesn’t allow joint survivorship titling. If you own assets or real estate in Mexico, you need to set up a will in Mexico to probate those assets at your death so that they pass according to your prescribed intentions.

Inheritance laws differ between Mexico and the U.S., so it’s essential to ensure your beneficiaries understand their tax obligations on both sides. There is no estate or gift tax in Mexico, but your heirs may still be subject to taxes on the US side.

#9 Trusts and Asset Protection:

Mexico recognizes U.S. trusts in certain cases, but we recommend setting up the appropriate U.S. trust for your U.S. assets, and a will for your Mexican assets.

#10 Taxation of Inheritances:

Inheritances received by Mexican tax residents are subject to taxation at ordinary income rates, but full exemptions apply for lineal descendants/ascendants and spouses.

If Mexico is calling to you,

We are here to help you navigate the financial ins and outs of your move. Let’s chat about how we can assist you as an American abroad.

Schedule a meeting to learn more about our services tailored for U.S. expats.