Investing as a new US resident: what happens to your European funds, and how US funds, bonds and startup stakes are taxed

Most Europeans who move to the United States bring savings with them: a fund savings plan, a pension wrapper, a brokerage account with ETFs, perhaps a stake in a friend's startup. Moving does not change what you own. It changes how a new tax system sees it, from the first day of US residency. Some European investments that are perfectly ordinary at home become expensive to hold as a US taxpayer, and some American products have no European equivalent. The rules are those in force in 2026; they are general tax information, not investment advice.

The day your portfolio becomes American

As a US tax resident you are taxed on your worldwide income: interest from your bank in Lyon, dividends from Milan, gains on a sale in Stockholm. When that starts depends on how you become resident. Under the substantial presence test, the IRS sets your residency starting date as generally the first day you are present in the US in the calendar year you meet the test; under the green card test, the first day you are present as a permanent resident. The year of the move is usually a dual-status year, with a part as nonresident and a part as resident, as our guide to the tax return in the year of the move explains.

One consequence surprises many newcomers. US tax law measures gains from your basis, and the IRS states that the basis of property you buy is usually its cost. There is no general rule that resets the basis to market value on the day you arrive. A share bought for €10,000 years ago and worth €50,000 when you land can produce a US-taxable gain of the whole difference if you sell it while resident (subject to any tax treaty rules). That makes the months before the move the right time to review the portfolio with your advisers at home and in the US. Our guide to moving to the US with wealth covers the planning side.

The PFIC trap for European funds and ETFs

For a US taxpayer, most European investment funds, including UCITS ETFs and mutual funds domiciled in Luxembourg, Ireland or your home country, are likely to be passive foreign investment companies (PFICs). A foreign corporation is a PFIC if 75% or more of its gross income is passive, or if at least 50% of its assets produce passive income. A fund holding shares and bonds typically meets both tests.

Without an election, the default PFIC regime of section 1291 is harsh:

• Distributions above 125% of the average of the three preceding years are "excess distributions".
• The entire gain on a sale is treated as an excess distribution.
• The excess is spread over your holding period; the part allocated to the current year and pre-PFIC years is ordinary income, and the parts for earlier PFIC years carry a separate tax plus an interest charge.

Two elections can soften this. A QEF election requires the fund to provide annual information so you can include your share of its earnings each year, which many European funds do not provide. A mark-to-market election is available for PFIC shares regularly traded on a qualifying exchange and taxes the annual increase in value as ordinary income. Each PFIC generally needs its own Form 8621; there is a filing exception for small holdings in section 1291 funds of $25,000 or less in aggregate ($50,000 on a joint return) when there was no excess distribution or sale.

For many clients the practical answer is to decide about European funds before becoming US resident. Our detailed guide to PFICs and ETFs works through the forms.

US funds and the rates that apply in 2026

Once resident, US-domiciled mutual funds and ETFs are the straightforward choice for most taxpayers: they report on Form 1099, and their dividends and gains fall under the ordinary US rules. Long-term capital gains and qualified dividends are taxed at 0%, 15% or 20%. For 2026 the thresholds published by the IRS in Revenue Procedure 2025-32 are:

On top comes the net investment income tax of 3.8% on the smaller of your net investment income or the amount by which your modified adjusted gross income exceeds $200,000 (single), $250,000 (married filing jointly) or $125,000 (married filing separately). Interest, dividends, capital gains, rents and royalties count; wages do not.

Short-term gains, on assets held a year or less, are taxed as ordinary income. Mutual funds can also distribute capital gains to you even when you did not sell anything, a reason many investors prefer ETFs in taxable accounts. Your state may add its own income tax; Texas and several others do not.

Bonds: three kinds of interest

The tax difference is reflected in prices: municipal bonds usually yield less than comparable corporate bonds, so their advantage grows with your tax bracket. For residents of a high-tax state such as New York, the combination of federal and state exemptions makes a home-state municipal bond attractive to many investors; in Texas, which has no state income tax, the Treasury's state exemption is worth nothing extra. Bonds bought at a discount or sold before maturity raise further rules, including accrued interest and market discount, best handled with your tax preparer.

European bonds held directly are not PFICs, but their interest is taxable in the US, and gains and losses from currency movements can have their own US tax treatment.

Retirement accounts: the American wrappers

The US equivalents of pension wrappers are individual retirement arrangements (IRAs) and employer or self-employed plans such as the 401(k). For 2026 the IRS limits are:

• IRA: $7,500 a year, plus a $1,100 catch-up from age 50.
• Roth IRA: the contribution phases out for modified adjusted gross income between $153,000 and $168,000 (single) and $242,000 and $252,000 (married filing jointly).
• 401(k): $24,500 of elective deferrals, plus an $8,000 catch-up from age 50 and $11,250 for ages 60 to 63.

A traditional account defers tax until withdrawal; a Roth account is funded with taxed money and grows tax free if the rules are met. If you run your own US company, a Solo 401(k) or SEP IRA can shelter far more than an IRA alone. Note that your European pension savings stay subject to your home country's rules and to the tax treaty; how the US treats them depends on the product and the treaty, and they deserve their own review.

Startups and alternative investments

America's startup culture tempts many newcomers to invest in young companies. The rules divide investors into two groups. You are an accredited investor, according to the Securities and Exchange Commission, if your net worth exceeds $1 million excluding your primary residence (alone or with a spouse or partner), or your income exceeded $200,000 alone or $300,000 with a spouse or partner in each of the past two years with the same expected this year, or you hold a Series 7, 65 or 82 licence in good standing. Accredited investors can join most private placements. Others can invest through Regulation Crowdfunding, under which a company may raise up to $5 million in 12 months, online and only through an SEC-registered broker-dealer or funding portal, with annual limits on how much a non-accredited investor may put in.

The tax incentive for startup investing is the exclusion for qualified small business stock under section 1202, which the One Big Beautiful Bill Act expanded in July 2025. For stock acquired after the date of enactment, the exclusion is tiered: 50% of the gain after three years, 75% after four and 100% after five or more. The per-issuer cap rises to $15 million and the company's gross assets may not exceed $75 million at issuance, both indexed from 2027. The stock must be originally issued by a domestic C corporation that is an active business, so an LLC taxed as a partnership does not qualify.

Startup stakes, private real estate funds and other alternatives can lose their entire value, are hard to sell and carry high fees. We tell clients to treat them as money they can afford to lock away for a decade.

Reporting what you keep in Europe

Keeping accounts at home is legal and normal. Reporting them is mandatory:

Failing to file Form 8938 can cost $10,000, plus $10,000 for each 30 days after an IRS notice, up to $60,000; FBAR penalties are higher and adjusted for inflation. One filing does not replace the other. European banks also report US account holders under FATCA, so the IRS often already knows about the account; see our guide to FATCA and CRS and our step-by-step FBAR guide.

A sequence that works

1. Six to twelve months before the move: list every account, fund and policy. Identify European funds that will become PFICs and decide with your home adviser whether to sell, keep or replace them while you are still nonresident. Check how any sale is taxed at home and what exit rules apply.
2. At arrival: note your residency starting date and the value of each foreign account. Open a US brokerage account once you have an address and taxpayer number.
3. First tax season: file the dual-status return, FBAR and Form 8938 where required, and any Form 8621. Fix the reporting calendar for the following years.
4. Every year: use the US wrappers your situation allows, keep long-term holdings past one year where it makes sense, and review the state income tax picture if you move within the US.

Retirement income from your years of work belongs in the plan as well, including US Social Security if you have contributed here; our guide to Social Security benefits for expats explains estimates and the totalization agreements. Questions of what to buy belong with a licensed investment adviser; questions of how it is taxed belong with us.