In the last six months, the number of comments and emails in my inbox asking me questions about the practicalities of becoming a US to New Zealand expat increased significantly. Since I am the (only) defined benefit pension plus Financial Independence Retired Early in New Zealand blogger guy, the range of questions varied. Many of the questions included a defined benefit pension angle, while others included immigration pathway questions. However, if there is one unifying theme to the majority of the questions I received, it is international taxes.

The popularity of international tax questions from people interested in moving from the US to New Zealand should come as no surprise. Not only do people dislike paying taxes, but it is often hard to understand what the impacts of the US and New Zealand’s tax codes will be on a US expat moving to New Zealand. Thus, in some cases, after answering the initial set of questions, I pass the people asking the questions on to a trusted accountant for further discussions. In other cases, I take them on as a paying client and help them determine if their finances and retirement plans can survive the financial implications of the move.

However, not everyone who writes to me is at the point where they want to spend money to determine if a move is right for them. Many are still doing their initial research and are just gathering data points. So, in keeping with one of my original reasons for starting this blog (i.e., sharing my hard-learned lessons for free), I wrote an article that answered the most frequently asked tax questions related to moving from the US to New Zealand sent to me in the past six months. I based the answers on my hard-won knowledge gained during five years of pension hacking my way to early retirement in New Zealand.

Why Now?

While I hope this article proves to be an evergreen point of reference for the Financial Independence community, I think it will also prove timely based on the increase in queries I’ve received over the past six weeks from pensionable workers or pensioners in the US looking to move. It doesn’t take a top-flight intelligence analyst to see the correlation and causation. It’s mid-March 2025 as I am writing this post. The second Trump administration is in the process of eviscerating the US federal bureaucracy. Elon Musk’s DOGE crusade to shrink the federal government under the guise of saving a few bucks means mass layoffs have already started, along with federal grant and funding freezes. These funding freezes have also impacted state workers, many of which are also in pensionable jobs.

Although the legality of these moves is still up for debate in the US courts, tens of thousands of federal workers have already lost their jobs. Hundreds of thousands more are in fear of losing their jobs as the Trump administration aims to eliminate 20% of the federal workforce. Therefore, it’s no surprise that more pensionable workers, recently fired or otherwise, are asking me about the process of moving to, working in, and retiring in New Zealand.

I empathize with these people. The ground is literally shifting beneath their feet, and the ones losing their jobs are feeling bewildered, hurt, and angry. Even those who haven’t lost their jobs are anxious and stressed that they soon will. If nothing else, good Americans, many of whom were proudly working in service of their country and communities as park rangers, veteran’s affairs case managers, foreign aid workers, scientists, medical researchers, military officers, and countless other professions, are for the first time contemplating whether the US is the right place for the long term. For some, that answer is now “no.” To them, I say, “Welcome to the party. New Zealand will be happy to have you.”

Why New Zealand is Happy to Have You

I’m not going to blow smoke and tell you New Zealand is a perfect country. But, I will say to you it is a much better place to live and raise a family than the US… and has been for some time. That said, while New Zealand is beautiful, with an excellent quality of life that consistently scores in the top ten on many governance ranking lists, it has declined in recent years from some of its best scores.

Part of this reflects the post-COVID economic environment, which witnessed several shallow recessions and a cost-of-living crisis. While the end of the latest recession is in sight in early 2025, unemployment continues to creep up and is close to pandemic levels. This latest economic situation drove record numbers of New Zealand citizens to emigrate in 2024, mainly to Australia, which has a long history as a destination for young and mid-career New Zealand workers looking for better jobs and pay. That trend looks set to continue for 2025, although probably not at a record pace.

A portion of these emigration numbers are cyclical, while others are unique to the moment. With decent public education and good universities, New Zealand routinely produces well-educated workers who can move to many parts of the English-speaking world and earn a better wage than at home. 2024’s increase in this so-called Brain Drain may be a convergence of a few transitional factors that will abate as 2025 progresses. For instance, many who left were people who returned during the COVID pandemic because New Zealand dealt with the pandemic far more effectively than most countries around the world. However, this Brain Drain will not go away entirely because it’s almost always been there. That’s good news for future US expatriates, especially those with skills and work experience like, for instance, recently laid-off federal employees.

Why This is Good News

New Zealand’s Brain Drain problem creates opportunities for immigrants coming to New Zealand. As I noted in my post about returning to work to gain residence in New Zealand, the most direct route to residence in New Zealand (other than an investor visa) is a job that qualifies for a skilled resident visa. And, with so many New Zealand citizens leaving to work overseas, there are a lot of skilled fields with jobs that need filling here in New Zealand. This is a pathway into the country known as skilled residence.

As displayed in the graphic below, there are currently three different skilled residence pathways set out by Immigration New Zealand, with several subsets. A Straight to Residence Visa is the most straightforward pathway in my opinion. All it requires is a job or job offer from an accredited employer whose role is on Tier 1 of the Green List. Don’t be intimidated by that description because the Green List is long and packed with both trades and professions that many a recently laid off federal US or state worker would qualify under. If that intrigues you, click that link to the Green List I just gave you and look for your area of expertise.

Of course, finding a job right away isn’t the only pathway to residence in New Zealand. In fact, during a tough economy, it may not be all that realistic of an expectation. A lot of that depends on your qualifications and just how much the New Zealand economy needs your skill set. If you’re a doctor, dentist, or nurse, then you’re probably going to have no problem since New Zealand always needs more. On the other hand, even if you’re an accountant and your job title is on the Green List, you may have some difficulty finding a job offer in the current economic environment.

Other Pathways

Take heart, though, because as I chronicled elsewhere on this blog, I came to New Zealand on a student visa by using my GI Bill and completing a master’s program at a New Zealand Polytechnic University. By doing so, I earned a three-year post-study work visa that allowed both Mrs. Grumpus and me to (leisurely) search for jobs that would qualify for residence. It’s a common pathway for many immigrants, even if it’s not a cheap one, since you have to pay for a university program. That said, I’ve taken on several clients over the past year who asked me to analyze and model their financial ability to replicate my pathway. So, it can be done, even without the GI Bill. If that interests you, feel free to contact me. Just remember, I’m a freelance financial analyst who specializes in pensions, not an immigration advisor.

My bottom line on the visa issue is that where there is a will (and you are under age 55) there is a way. I’ve listed a few pathways, but those certainly aren’t all of them. If you are interested in exploring others, I suggest conducting some research and contacting a licensed immigration advisor or attorney since (again) I am neither. If you don’t know where to start in that regard, drop me an email, and I can put you in touch with some trusted immigration experts.

Understand What You’re Getting Into

When a person says New Zealand, I bet a fair number of people think Lord of the Rings. If that’s all you know about New Zealand, and you’re contemplating moving here, you’ll want to learn more. I would not recommend immigrating to New Zealand sight unseen. In fact, I recommend you make the journey at least once prior to deciding to move. Doing so will provide a good perspective on just how far away it is from everywhere else in the world. It will also offer you the opportunity to soak in the natural beauty of the country, meet the people, and come to grips with the geographical realities that may affect your choice of places to live. For example, the differences between culture and lifestyles on the North and South Island are notable.

Another thing you’ll discover about New Zealand is that it isn’t necessarily a cheap place to live. As a large pair of islands at the bottom half of the world, it takes some extra effort to ship goods and products to the country. That extra effort translates into higher prices on many items. As a net food exporter, one would think that groceries would be cheap, but in fact, they are not. I discussed the grocery issue (and several other financial lessons learned about life in NZ) in a previous article, so I won’t belabor the point here. Needless to say, if you buy into the idea of moving here sight unseen, it’s buyer beware when it comes to the wallet.

As someone who runs a financial blog, I am sensitive to impacts on the wallet. Therefore, I want to lessen the impact of a potential move from the US to NZ on yours. Furthermore, as someone who has worked, lived, and retired early by using my pension in New Zealand, I am sensitive to what expenses connected to a sudden change of residence can do to saving for and executing a retirement budget. With that in mind, here are the answers to the seven most frequently asked tax questions I received about the costs associated with moving from the US to New Zealand in the past six months.

NZ FAQ#1: Does New Zealand Tax Your Defined Benefit Pension?

Since I run the only blog about defined benefit pensions and Financial Independence, it should come as no surprise that readers who learn that I retired to New Zealand often ask if my pension is taxed. Most often, they ask if the New Zealand government taxes my US military pension. Typically, they are trying to ensure that their defined benefit pension won’t be taxed twice if they move here.

The short answer is no, the New Zealand government doesn’t tax my pension. The US government taxes it instead. Why? Because the US-NZ Double Tax Agreement (DTA) states that US government pensions remain under the jurisdiction of the US government to tax. Even better, the definition of “government” for the US side includes state and local governments, not just federal. This is an essential caveat because it means more than just former federal US pensionable workers can move over to New Zealand and stretch their dollars in retirement. State and local pensionable workers who may have lost their jobs due to federal grant and funding freezes could also take advantage of this tax rule.

Why does it matter?

The US federal government taxing my pension instead of New Zealand’s is important for several reasons. For one, New Zealand’s marginal tax brackets have lower income thresholds before moving up the scale, meaning they tax income more aggressively than the US. New Zealand’s top marginal bracket is also higher than the top US bracket. Ultimately, it is cheaper for the US to tax my pension.

To illustrate this, I created a detailed table below comparing the marginal tax brackets for single taxpayers in the United States and New Zealand for the year 2024. The US thresholds are based on recent data for 2024, while New Zealand’s brackets follow the current tax structure:

Let’s run a thought experiment to see what this means. Say I was single and earned $60K US in 2024 from my US military pension. Doing some simple tax bracket math shows that I would have paid approximately $8,520 US in US federal income taxes in 2024 as a single filer. In other words:

$1,100 (10%) + $4,059 (12%) + $3,361 (22%) = $8,520 US

Conversely, let’s say New Zealand had taxing authority for my pension. Using the average 2024 USD to NZD exchange rate of 1.65 NZD to 1 USD means I would have earned approximately $100K NZ from my US military pension. Had New Zealand taxed that $100K NZ in 2024, I would have paid $23,920 NZ using the following tax bracket math:

$1,470 (10.5%) + $5,950 (17.5%) + $6,600 (30%) + $9,900 (33%) = $23,920 NZD

Roughly speaking, $24K NZ converted to USD in 2024 equaled $14,500 USD. That’s a $6K US savings on taxes (10% of my pension’s annual value) based purely on which country has taxing authority in this thought experiment. Also, it’s worth keeping in mind that I didn’t include any deductions or exemptions, so in actuality, a US tax bill would be even cheaper!

FAQ#2: Do I File US Taxes Annually?

Simply put, yes, I do. The US is one of a handful of countries that taxes its citizens and their income worldwide. One of the reasons the US-NZ Double Tax Agreement (DTA) exists is because the US makes these demands of its expats. Therefore, countries like New Zealand, with numerous US expats, decided it was best to deconflict with the US government over who pays what to whom for taxes. This international tax jurisdiction by the US is one of those complicating factors of an expat’s financial life that I wrote about in my article entitled The Complicated Financial Life of a US to NZ Expat.

FAQ #3: Does the US-NZ DTA Actually Prevent Double Taxation?

The DTA does a decent job of preventing most double taxation. However, if you decide to work in New Zealand, you must be proactive in claiming the foreign tax credit (FTC) and foreign earned income exclusion (FEIE) on your US taxes each year to mitigate the worst potential impact of double taxes. Make sure you understand the difference between the two as well.

In my five years here, I’ve only found a few weird areas where I cannot mitigate double tax. Some of these I identified prior to moving by paying for professional tax help. One of those areas is Roth IRA withdrawals.

In the US, contributions to a Roth IRA are post-tax, meaning I paid tax on the income prior to investing it for retirement. Therefore, withdrawals I make from a Roth IRA after retirement age (59.5 years) are not taxed in the US. However, New Zealand does not observe the difference between Roth and Traditional IRAs. It treats Roth IRA withdrawals as Traditional IRA withdrawals (e.g., as income). Therefore, my Roth withdrawals will be taxed as regular income in New Zealand.

Fortunately, you can claim those taxes back in the US as foreign tax credits; at least, that’s what I’ve read. It’s sub-optimal, but unless you knew that you wanted to move to and retire in New Zealand decades ago, there isn’t much you can do about it. However, if you are seriously contemplating a move to New Zealand, I recommend not placing any more money into a Roth retirement vehicle. Direct it towards a Traditional account instead.

FAQ #4: Do I Pay US State Taxes as an Expat in New Zealand?

Strangely, some US states tax their former residents who now live overseas. However, I do not pay US state taxes while living in New Zealand despite the fact that California was my final state of residence prior to moving. I mention California because it is one of the stricter states when it comes to divesting your tax residence status as an expat.

As a military member, my family and I hadn’t lived in California for six years prior to moving to New Zealand. Military members don’t pay California state taxes when posted out of the state, so we hadn’t paid state taxes for six years. Our only real tie was a condominium in San Diego, but we sold it about six months prior to moving to New Zealand. Once we did that, our San Diego-based accountant assured us that California would have no interest in us as tax residents. As a result, we stopped filing state taxes in California.

FAQ #5: Does New Zealand Tax Your Veteran’s Administration (VA) Disability?

Again, the short answer is “no.” Despite being a New Zealand tax resident, New Zealand’s Inland Revenue (their version of the IRS) only tax earned income. Disability pay is not “earned income” in the US and is not taxed. Therefore, it doesn’t show up as income on any US tax-related document, and I don’t declare it as income in New Zealand.

One of the reasons I paid a New Zealand accountant prior to moving was to determine whether or not my VA disability would be taxed. I wanted to understand what my tax liability would look like after I moved, and she unequivocally stated in writing that New Zealand doesn’t tax VA disability payments. Had they, it would have been a non-starter for us to move.

FAQ #6: How Does the New Zealand Temporary Tax Exemption Work?

As this blog post from a New Zealand accountancy website points out:

Transitional residents can get a temporary tax exemption from paying tax in New Zealand on most types of overseas income. This exemption lasts for four years and is designed to give you a chance to get your head around the New Zealand tax implications of your overseas investments.

Essentially, the temporary tax exemption means your foreign overseas holdings and income aren’t taxed for the first four years you live in New Zealand. It is an enticement for new residents to wind down their overseas holdings and bring them into New Zealand without incurring a NZ tax bill. Obviously, the New Zealand government wants new immigrants to bring over capital because doing so capitalizes markets in New Zealand. By providing a four-year window, the New Zealand government conveniently provides time as a method to manage capital gains tax for citizens of countries that charge such tax on investment sales, like the US.

I can attest this four-year foreign tax holiday is a great opportunity to make some strategic money moves that minimize your tax exposure in New Zealand. As I chronicled in Put Your (Pension) Money Where Your (House) Mouth Is, we used a chunk of money from our taxable investments in the US to purchase our New Zealand home prior to our four-year exemption expiration. This reduced my family’s exposure to New Zealand’s dreaded Foreign Investment Funds (FIF – see below) wealth tax, which started after the temporary tax exemption ended.

I only wished I had made a few more strategic moves during the four-year tax exemption, like withdrawing the principal from our Roth IRAs and using it as part of our downpayment. But alas, I did not for some reason. You live, and you learn.

FAQ #7: How Punishing is the FIF Tax?

New Zealand’s Foreign Investment Funds (FIF) tax is essentially a wealth tax on overseas investments. It is another mechanism designed to capitalize New Zealand’s markets, but rather than encourage people to bring money over and invest in New Zealand, it punishes them for keeping it out. That punishment can be calculated in one of five ways (whichever the taxpayer qualifies for and is most advantageous to them), but if your foreign investments rise in value during the New Zealand tax year, you will pay for a certain percentage of that increase.

Let me emphasize the word value there. It is not (just) a tax on dividends or capital gains but also a tax on your annual unrealized value. If you don’t have gains for the year, congratulations, you don’t have to pay the FIF tax. If you do have gains, though, then you have to come up with the cash to pay the tax. Fun stuff.

I could write an entire article about the FIF, but there are some bottom-line things you need to know. The most important thing is that for US expats, the FIF tax only applies to non-retirement investment accounts. Thus, if you have most of your investments in 401Ks, IRAs, 403Bs, or a TSP, then FIF taxes won’t apply to the majority of your wealth. Unfortunately for me, and as I cataloged many years ago elsewhere on this blog, most of my investments are in taxable accounts. Not only that, but 529s accounts are also subject to FIF, and I have two fairly large ones for my kids.

The second most important thing to point out about FIF is that depending on your marginal tax rate in New Zealand, the most common method for calculating FIF will probably equate to anywhere between a -1.5% and a -1.95% headwind on your accounts during years that they increase in value. In other words, if you were trying to live off the 4% Rule from those accounts, then 1.5-2% is eaten up by the FIF tax. This is real money, too. My accountant estimated my tax bill this year may be as large as $9,000 NZ based on the value of my taxable investments back in the US and my wife’s back in the UK. We will find out for sure when the tax year ends on 31 March 2025. Gulp!

Don’t Forget About PFIC

For those thinking that you will simply move your taxable accounts from the US to New Zealand, think again. The US has a similar tax rule known as PFIC that taxes US citizens’ foreign invested wealth. I wrote a long piece on it in my 18 Months of Kiwiarbitrage article. While you certainly could move your money over, the list of things you could invest in while not running afoul of the PFIC rules is amazingly short. Not only that, but those investment opportunities severely curtail how fast you can grow your money.

The bottom line is that remaining invested in the US while paying the FIF tax was cheaper and had more upside for growing my money than moving my investments to New Zealand and paying PFIC taxes. I only came to that conclusion after paying for professional US tax advice from an accountant who specialized in the international implications of US tax law. This is something I recommend you do prior to moving if you have a decent amount of wealth or a complicated financial situation.

Conclusion

Those are answers to seven of the most frequently asked US to New Zealand expat tax questions I received over the past six months. Some of them were straightforward, while others were extremely complicated. If you’re serious about becoming a US to New Zealand expat, don’t be put off by the complexity of the task. Yes, there are a lot of issues to consider from a financial and tax perspective, let alone immigration. However, it is doable. If I figured it out, anyone can. If you don’t know where to start, check out my other New Zealand move articles or drop me a line.

Finally, if you are a recently dismissed US federal or state worker, then I’m sorry. However, that setback doesn’t need to go for naught. In many ways, you might be in the perfect position to immigrate, work a few years, and then retire in New Zealand using your US defined benefit pension and retirement accounts — just like me. Again, I’m not about to blow smoke and tell you to make lemonade when life gives you a shit sandwich. However, I like sipping a glass of Kiwifruit juice every morning. You may, too.