RetireJapan

My questions are fairly technical and we will need to speak to an expert, but I am curious if anyone else has done something similar. Can you recommend a Japanese/US accountant that deals with these type of complex issues?

TLDR: Can we sell equities within our U.S IRA’s, which is considered a Trust held by the custodian, and convert to cash prior to departing Japan that doesn’t trigger a taxable event or any documentation within the U.S. thereby avoiding the Japanese exit tax?

TLDR 2: Upon reading the below taxable events that trigger the exit tax is it possible to create a U.S. Trust with assets held by a U.S. LLC to hold our brokerage accounts? As an LLC member we would technically not own the securities but the LLC would?

Relevant Taxable Events:
- Securities
- Equity in silent partnership contract (tokumei kumiai keiyaku)
- Unsettled derivatives transactions
- Unsettled margin transactions
- Unsettled when-issued transactions

Japanese spouse and I (US) are considering moving to Japan. We will both be 50 when we arrive and don’t plan on working. We will be ineligible to access both our Roth IRA accounts and both our Traditional IRA accounts without a large tax bill and penalty’s by the U.S. given we need to be 59.5 years old. We will both have brokerage accounts as well plus other income sources to live on while in Japan.

We expect the combined total of all the IRA and brokerage accounts to be in the neighborhood of $1,000,000 split between the two of us with approximately 70% in my name.

Ideally we will both be in Japan for less than 5-years but things happen and it’s possible we stay longer. I am aware of the annual reporting requirement for my wife and myself if I stay long enough to be a Permanent Resident.

I understand the exit tax does not count cash, by temporarily selling IRA assets to convert to cash we can tell the NTA we have cash but not equities. Since there is no documentation to create a taxable event in a trust held by a custodian not in our name would this get us around this problem?

What about putting our brokerage accounts into an LLC where we would be a member and technically would not own the equity’s?

Not sure about the transparency of LLCs, but US trusts are not a tax shield here. Eg for inheritance, if the trust says the funds are to be disbursed in partial stages, the govt/NTA here sees the full amount of the trust being inherited immediately.

Also, from what I read, an LLC is particularly tax-inefficient since it's liable for taxes in the US, and then you, as the owner of the company, are effectively running/operating a business here, so you need to declare it as such (and be taxed).

One thing you can do is to up your cost basis before moving. Within an IRA sell any fund/stock and rotate into something similar (or the same after 30 days). This will bring your basis up to present levels, and also peg your purchase date as recent, so you won't have phantom gains from the weakened yen.

"...which is considered a Trust held by the custodian"

That's valid for the US tax regime. But things that are taxable/tax-free in one country will likely be treated differently in another. Japan has some tax-free things (NISA, iDeCo) that the US does not recognize as tax free. Or lump sum severance payout on retirement--which is taxed preferentially here, but the US simply counts as income. It's not too different than in the US, where some states do, and some don't, tax SS benefits.

Thank you for the response!

I like the idea of upping the cost basis within the IRA and considered it, but read conflicting details about it. Although my wife would need to do this before arriving, wouldn’t I be able to do this in Japan as long as I am considered a Non-Permanent Resident since I would not be remitting anything into Japan?

I was also wondering about a securities based line of credit by borrowing cash against the value of the brokerage account, thereby reducing its value.

The LLC is tax efficient in the U.S., but Japan I don’t know. My point about the LLC is to get the brokerage accounts out of our name and into the name of a different entity. If there is no taxable event within the LLC there is no income to declare. If we don’t own the equity’s within the LLC but are members of the LLC we don’t have to count that as part of the exit tax.

Not sure any of this would work or not, but we may consider another pacific rim country and visit Japan more often.