U.S. Retirement: why gross doesn’t equal net

For many French expatriates, retirement is often viewed in terms of accumulated capital.Yet in the United States, the real question is not what you have… but what you can actuallyuse.

Between taxation, taxable withdrawals, and coordination with France, the gap between gross
capital and net income can be significant.

1. A system based on capitalization and taxation

In the United States, retirement relies heavily on capitalization vehicles such as 401(k)s orIRAs.

These plans offer tax advantages on the way in:

• deductible contributions,
• tax-deferred growth.

But on the way out:

• withdrawals are taxed as ordinary income,
• the rate depends on your tax situation at the time of withdrawal.

The IRS states that distributions from retirement accounts are generally taxable.

Source:https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distributions

2. The real impact of withdrawals on your net income

Significant capital does not guarantee high income.

In retirement:

• each withdrawal could increase your taxable income,
• this can move you into a different tax bracket,
• certain thresholds trigger indirect effects (additional taxation, Medicare,etc.).

The IRS also governs required minimum distributions (RMDs), which require you to withdrawa certain amount each year starting at a given age.

Source:https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions

This means you do not always control the pace of your withdrawals… or their taxation.

3. Coordination with France: a key point

For French-American profiles, the situation is even more complex.

Under the tax treaty:

• private pensions are generally taxable in the country of residence,
• but certain types of income may be treated differently depending on their nature.

Official source:https://www.irs.gov/pub/irs-trty/france.pdf

Poor coordination can lead to:

• partial double taxation,
• a loss of tax efficiency,
• gaps between the systems.

4. The illusion of accumulated capital

Many investors think in terms of capital:

“I have 1 million dollars, I’m set.”

But in practice:

• that capital is gross,
• it could be taxed upon withdrawal,
• its return depends on your allocation strategy.

The difference between gross capital and net income can be significant, especially over thelong term.

5. Structuring your retirement income intelligently

A sound strategy could consist of organizing your income sources:

• taxable vs tax-advantaged accounts
• withdrawal timing
• diversification of account types

The objective:

• smooth out taxation,
• avoid tax spikes,
• secure net income.

6. Best practices for expatriates

A well-designed strategy will help make it possible to turn capital into truly optimized income.

Conclusion

In retirement, what matters is not what you have accumulated, but what you can actuallyuse.

Without a strategy, the gap between gross and net can be substantial.

With a structured approach, it is possible:

• to optimize taxation,
• to secure your income,
• and to gain visibility.

At USAFF™, we help support French-American expatriates in turning their retirement capital intooptimized and sustainable net income.

Adrien Eyraud, Partner, USAFF™

Future written communications may be in English only.This material is provided for educational and informational purposes only and is not intended as investment, tax, or legal advice, nor as a recommendation of any strategy or course of action. The information discussed is general in nature and does not take into account individual objectives, financial circumstances, or needs. Tax laws, regulations, and treaty interpretations are complex and subject to change. Actual outcomes will vary based on individual circumstances. Financial professionals do not provide tax or legal advice. Individuals should consult their own qualified tax, legal, and financial professionals regarding their specific situation.

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