British Expat in US - portfolio help please!

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Topic Author
boglechris
Posts: 25
Joined: Fri Nov 14, 2014 11:59 pm

British Expat in US - portfolio help please!

Post by boglechris »

Hi All,

I’m a new arrival in the US (British Citizen), and delighted to discover there’s an entire forum dedicated to what I’ve been doing for the past few years :-). I’m not sure whether I’ll stay here long-term, or maybe move back to the UK in 3 – 5 years. Having just moved, I’m trying to get my finances in order; here’s where I currently stand:

Emergency funds: Four months
Debt: None.
Tax Filing Status: Single (No partner or kids)
Tax Rate: 28% Federal, 9.3% State
State of Residence: CA
Age: 33
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: US 45% of stocks, UK 30%, Other 25% - am currently about right

Current retirement assets

Taxable
£75k ($117k) cash, earning ~3% in UK

His 401k at Vanguard
$3.5k Vanguard Target Retirement 2045 Trust I (VFT45) (0.0825%)
Company match in (S&P500) company stock. I am a director and so restricted when I can sell – but as soon as I can I intend to sell and transfer to the Target Retirement fund.

His Backdoor Roth IRA at Vanguard
$5,500 Vanguard Total Bond Market ETF (BND) (0.08%)

His UK Pension at Hargreaves Lansdown
£37k Vanguard FTSE Al-World UCITS ETF (VWRL) (0.25%)
£6k Vanguard U.K. Government Bond UCITS ETF (VGOV) (0.12%)
£16k Vanguard FTSE 10 UCITS ETF (VUKE) (0.09%)

Contributions

New annual Contributions
$17.5k his 401k, $6k employer matching
$5.5k his Backdoor Roth IRA
~$15k for other investing

Available funds


Funds available in his 401(k)

Vanguard Target Retirement funds only

Funds available in his UK Pension
http://www.hl.co.uk/shares/exchange-traded-funds-etfs - restricted to ETFs to avoid platform costs

Questions:
Would appreciate feedback on my portfolio, and if there’s anything I can optimise further. Specifically:

1. What to do with the UK cash, and ~15k new annual savings? I have no particular goal in mind at present, but would like to avoid tying it up in retirement funds as I may use it for a house deposit in 3-5 years’ time. Obviously I have to be mindful of US taxation rules here.

2. How on earth do I get exactly $17.5k into my 401k? My provider (Vanguard) only lets me specify whole-number percentages of my salary?

3. I am likely to be hit by Highly Compensated Employee refund on my 401k next year, as we employ armies of call center and warehouse workers. Any way to manage or avoid this?


Thanks in advance for any advice! :D
User avatar
nedsaid
Posts: 19275
Joined: Fri Nov 23, 2012 11:33 am

Re: British Expat in US - portfolio help please!

Post by nedsaid »

Mostly, I am bumping the thread.

I wish I could advise you but I am ignorant what UK tax laws have to say about US Retirement Accounts such as 401k and IRA plans. What happens to these when you move to back to the UK? My guess is that there is a tax treaty between the two nations regarding retirement accounts. But I don't know.

Can you take advantage of UK retirement accounts while you are in the United States? Can you contribute to a UK retirement account from the US? Is there an IRA Account equivalent in the UK?
A fool and his money are good for business.
LeeMKE
Posts: 2233
Joined: Mon Oct 14, 2013 9:40 pm

Re: British Expat in US - portfolio help please!

Post by LeeMKE »

bump

Sorry, I'm no help either. Maybe someone has a recommendation of how to find a CPA w/UK expertise?
The mightiest Oak is just a nut who stayed the course.
TedSwippet
Posts: 5181
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: British Expat in US - portfolio help please!

Post by TedSwippet »

boglechris wrote:I’m not sure whether I’ll stay here long-term, or maybe move back to the UK in 3 – 5 years.
This is your largest block to planning. If you're going to stay the rest of your life in the US then saving into a 401k will turn out in retrospect to have been the right thing.

Not so much if you leave, though, since your money will then be trapped in the US for perhaps several decades. The US permits no QROPS. The US/UK tax treaty treats 401ks and IRAs relatively well -- no tax until withdrawal, and then only by the UK if you avoid becoming a US citizen or green card holder. The US is the side to watch for problems, since it has a penchant for reneging on its tax treaty obligations. For example the 'exit tax' which has the capacity to produce genuine double-tax on retirement savings by circumventing the US/UK treaty.

I don't live in the US and am not a US citizen, but I have a 401k which is trapped in the US. If I had the time over again I might choose differently and save in taxable accounts instead.
boglechris wrote:Funds available in his UK Pension
http://www.hl.co.uk/shares/exchange-traded-funds-etfs - restricted to ETFs to avoid platform costs
SIPP, right? You have to be very careful with these for US tax purposes. Even experts disagree on whether they are covered by the US/UK tax treaty -- the explanatory notes suggest yes, but the strict text not so much. At a minimum it can produce a shed-load of annual reporting forms and headaches trying to get the numbers for these forms. Forever, since you cannot simply collapse a SIPP in the same way as a 401k or IRA, Canadian RRSP, and so on. Also, note that HL won't let you hold some investments now that you are a US resident.
boglechris wrote:1. What to do with the UK cash...? I have no particular goal in mind at present, but would like to avoid tying it up in retirement funds as I may use it for a house deposit in 3-5 years’ time. Obviously I have to be mindful of US taxation rules here.
US taxation rules will probably restrict you to doing nothing with the UK cash. Thanks to FATCA many UK brokers, and quite a few banks, now refuse accounts for anyone with any connection to the US, and once your bank knows that you have moved to the US you may even find that they summarily close your account. If you want to do something other than leave it in a simple savings account then honestly your best bet is probably to move this cash to the US and invest locally. Yes, you will lose to forex (potentially twice, if you subsequently move back), but the balkanization of the US investment and tax landscape leaves few choices. In any case, 3-5 years is too short to comfortably invest in anything other than cash.
boglechris wrote:2. How on earth do I get exactly $17.5k into my 401k? My provider (Vanguard) only lets me specify whole-number percentages of my salary?
Does your company's payroll simply stop payments when you hit the limit? It's a fairly standard feature provided by most companies. The wrinkle is when you work for more than one employer in a year -- you have to tell your new payroll department how much you have already contributed for that year to other plans, and in my experience they will generally fail to apply it correctly. Payroll departments are the same the world over...
boglechris wrote:3. I am likely to be hit by Highly Compensated Employee refund on my 401k next year, as we employ armies of call center and warehouse workers. Any way to manage or avoid this?
Extol the virtues of 401k saving to your army?
Topic Author
boglechris
Posts: 25
Joined: Fri Nov 14, 2014 11:59 pm

Re: British Expat in US - portfolio help please!

Post by boglechris »

Thank you Ted, that's really useful (and just a bit depressing!)
if you leave, though, since your money will then be trapped in the US for perhaps several decades...I have a 401k which is trapped in the US. If I had the time over again I might choose differently and save in taxable accounts instead.
Hmmm. I hadn't really given this much thought before. I'd assumed that if I head home, sure the money is stuck in the US, but once I retire I can draw it tax free in the US if I'm no longer a US person, or if I am then I pay tax in the US, but then my UK tax bill is correspondingly reduced. Other than the associated bureaucracy, what's the catch?
SIPP, right? You have to be very careful with these for US tax purposes. Even experts disagree on whether they are covered by the US/UK tax treaty -- the explanatory notes suggest yes, but the strict text not so much. At a minimum it can produce a shed-load of annual reporting forms and headaches trying to get the numbers for these forms. Forever, since you cannot simply collapse a SIPP in the same way as a 401k or IRA, Canadian RRSP, and so on. Also, note that HL won't let you hold some investments now that you are a US resident.
Thanks for the useful link, I'd missed that. Looks like another advantage of holding ETFs. As you say there's not much else beyond SIPPs that I can do with the money though, so I guess I'll just have to stick with it.
US taxation rules will probably restrict you to doing nothing with the UK cash. Thanks to FATCA many UK brokers, and quite a few banks, now refuse accounts for anyone with any connection to the US, and once your bank knows that you have moved to the US you may even find that they summarily close your account. If you want to do something other than leave it in a simple savings account then honestly your best bet is probably to move this cash to the US and invest locally.
Makes sense. I'm avoiding drawing attention to my new US status by sending all of my post to my elderly father's house for now - I have no qualms about hiding this from the banks, but given the restrictions on actually investing the funds I may need to move at least part of the funds over here to invest. I'd just love to have some simple low-risk mean of inflation-proofing them - is there any such investment?
Does your company's payroll simply stop payments when you hit the limit?
I'll look into this - thanks.
TedSwippet
Posts: 5181
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: British Expat in US - portfolio help please!

Post by TedSwippet »

boglechris wrote:...I'd assumed that if I head home, sure the money is stuck in the US, but once I retire I can draw it tax free in the US if I'm no longer a US person, or if I am then I pay tax in the US, but then my UK tax bill is correspondingly reduced. Other than the associated bureaucracy, what's the catch?
The catch is changing US tax law. I saved for more than a decade under the terms that the US agreed to in the US/UK tax treaty. In 2008 with HEART the US reneged on its treaty obligations with retroactive effect, leaving me facing more than $100k in additional tax on my already accumulated retirement savings. As a result I summarily left the US, and have not returned since. Under those circumstances you don't own a 401k, it owns you. If you stay in taxable accounts you can take your cash with you wherever you go and whenever you want. This lets you better control your own life, rather than have politicians control it for you.
boglechris wrote:...I'd just love to have some simple low-risk mean of inflation-proofing them - is there any such investment?
Only inflation linked bonds, as far as I know. If you leave the cash in the UK you will have to buy the actual bonds themselves rather than, say, a bond fund or an ETF such as INXG. Any 'collective' you buy will fall foul of the US's obnoxious PFIC tax rules.
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