US citizens abroad cannot invest through [Fidelity]

For investors outside the US. Personal investments, personal finance, investing news and theory.
Sister forums: Canada, Spain (en español)
---------------
bpp
Posts: 2017
Joined: Mon Feb 26, 2007 11:35 am
Location: Japan

Re: US citizens abroad cannot invest through a US brokerage

Post by bpp »

FoolishJumper wrote:I ensure I'm 100% complaint with the laws of the country I'm living in, in addition to U.S. laws, so don't see why Vanguard/Fidelity need to treat me like a child.
I don't think they are treating you like a child, I think they are just covering their own behinds. Your being 100% compliant everywhere is not the issue to them; the problem for them is they may not be compliant somewhere if they accept you as a customer while you are a resident of some jurisdiction in which they are not licensed to operate. If they see you as a risk, they will throw you under the bus. Just be prepared for that possibility, is all.
Karamatsu
Posts: 1447
Joined: Mon Oct 27, 2008 2:42 am

Re: US citizens abroad cannot invest through [Fidelity]

Post by Karamatsu »

I don't think the risks of deceiving someone about my country of residence are worth it. Vanguard, at least, is very clear that their services are for US residents. When I asked them if I could set up an account using the address of a family member in the US, they simply reiterated their legal boilerplate, that their services were for US residents. So I figure, if they don't want me, I don't want to be there. And Schwab has no problem with my address, so for now, at least, I'm OK.

Regarding the Fidelity site, apparently Fidelity uses Akamai to play DNS tricks with name resolution so people get a server mirror that's close to them for better performance. My guess is that the mirror site hasn't been given the correct certificate for some reason, because it's still showing as invalid. Good thing I'm not a Fidelity customer!
bpp
Posts: 2017
Joined: Mon Feb 26, 2007 11:35 am
Location: Japan

Re: US citizens abroad cannot invest through [Fidelity]

Post by bpp »

Karamatsu wrote:Regarding the Fidelity site, apparently Fidelity uses Akamai to play DNS tricks with name resolution so people get a server mirror that's close to them for better performance. My guess is that the mirror site hasn't been given the correct certificate for some reason, because it's still showing as invalid.
Doesn't sound so akamai after all, then...
User avatar
ResearchMed
Posts: 16795
Joined: Fri Dec 26, 2008 10:25 pm

Re: US citizens abroad cannot invest through [Fidelity]

Post by ResearchMed »

lululu wrote:
ResearchMed wrote: I typed in that address [https://www.fidelity.com] and got to Fidelity. I'm pretty sure that it was the "right" Fidelity, because it auto-filled-in the account name (a bunch of asterisks, then the last few characters, correctly].
I have never taken the time to figure out how browsers autofill, but I have seen them autofill on sites that I have not gone to before. I assumed the fields had common names, like FirstName or something, at multiple sites, and that's what the browser recognized.
That's certainly possible, but not likely: We use a "bizarre" login ID at Fidelity (using "netbenefits") that has nothing to do with any part of either of our names, etc. It's also not a login ID we use for other purposes (email, amazon, etc.).

The Fidelity page certainly looked like what the "netbenefits" pages connect us to if we want to actually make any changes to our investments, such as moving the new contributions from money market to particular fund(s), but we aren't required to login when that switch occurs.

And I typed in (NOT allowing any autocomplete) the website address precisely as it was shown on the Fidelity homepage.

RM
User avatar
Epsilon Delta
Posts: 8090
Joined: Thu Apr 28, 2011 7:00 pm

Re: US citizens abroad cannot invest through a US brokerage

Post by Epsilon Delta »

FoolishJumper wrote:
cbeck wrote:A physical US address, for instance with a family member, would be ideal, but not in a state with an income tax since the financial institution would file a 1099 with the state tax bureau eventually provoking a tax domicile audit.
There are only 12 states which require filing of 1099's (aside from 1099-R's) with them, so all you need to do is pick one of the other 38 states, which is much less restrictive than the 7 states that don't have any income tax.
I'm not sure what you mean by this, but it's probably not something you can hang your hat on. The payee files the 1099 with the IRS. The IRS has information sharing agreements with all states except TX and NV. So if you're a tax residence in one of the other states it almost certainly gets a copy of your 1099s as part of the Feds data dump.
m2go
Posts: 105
Joined: Fri Jun 17, 2011 7:05 pm

Re: US citizens abroad cannot invest through a US brokerage

Post by m2go »

FoolishJumper wrote:As a US citizen abroad for 9 years, I'm far from concerned about this. I've opened multiple accounts (both bank and brokerage) with companies that claim only US residents can open accounts. The main point is that they do not know I live abroad. I never provided them a foreign address. And they can't simply look if people login from outside the US, as far too many people travel internationally for work.
Actually, they can, and some do. I recently opened an account at Merrill from Europe while on a business trip and within 2 weeks was contacted by compliance that they were closing my account. I either had to immediately withdraw all my stocks that I had transferred from another brokerage, or they were going to issue and mail paper certificates and sell any remaining assets for which they couldn't issue paper certs.

Took some hoops to jump through to get this resolved. (I have since changed broker, but we all should expect this to happen more often in the future.)
Karamatsu
Posts: 1447
Joined: Mon Oct 27, 2008 2:42 am

Re: US citizens abroad cannot invest through [Fidelity]

Post by Karamatsu »

That's quite a horror story. The only thing worse would be if they put you on the no-fly list, too.
User avatar
thursdaysd
Posts: 126
Joined: Tue May 13, 2014 10:55 am
Location: NC
Contact:

Re: US citizens abroad cannot invest through [Fidelity]

Post by thursdaysd »

But this is really ridiculous. What am I supposed to do with my IRA if I decide to live abroad for a couple of years? Or permanently? I can't believe that all the many US expats don't have 401ks and IRAs.
Thursday's child has far to go
User avatar
in_reality
Posts: 4529
Joined: Fri Jul 12, 2013 6:13 am

Re: US citizens abroad cannot invest through [Fidelity]

Post by in_reality »

thursdaysd wrote:But this is really ridiculous. What am I supposed to do with my IRA if I decide to live abroad for a couple of years? Or permanently? I can't believe that all the many US expats don't have 401ks and IRAs.
I had to transfer over to a Schwab International account (IRAs and taxable). My admiral shares of Vanguard funds are now held there though I can't add to them (or any mutual funds) except for dividend reinvestment. ETF investing is available and luckily Schwab has some pretty good funds. Well, my child's 529 plan is still frozen at Vanguard and can't be moved (since I already did that in the last year) or changed right now. Not sure what I'll do with that ...

There are some minor inconveniences like not being able to use electronic deposit on checks (via ipad or smartphone) and available muni funds are a little higher cost than Vanguard's (which aren't available as ETFs), but for the most part all is well and good.

Not sure about the 401k part, but if you are changing companies, could roll it over to an IRA.
m2go wrote: I recently opened an account at Merrill from Europe while on a business trip and within 2 weeks was contacted by compliance that they were closing my account. I either had to immediately withdraw all my stocks that I had transferred from another brokerage, or they were going to issue and mail paper certificates and sell any remaining assets for which they couldn't issue paper certs.

Took some hoops to jump through to get this resolved.
Harsh.

Alls Vanguard did was freeze everything immediately. Their systems had trouble canceling my open trades and the money just disappeared for a while. Their quote to me was "so many people have touched your account recently that I can't tell what is happening" and "we'll call you back" which they never did... Then there was a series of conflicting statements about how to get the accounts unfrozen which I never did.

Anyway, given that we pay US taxes while we are overseas, it seems unfair that we are prohibited from investing.
User avatar
NAVigator
Posts: 2545
Joined: Tue Feb 27, 2007 6:24 am
Location: Iowa

Re: US citizens abroad cannot invest through [Fidelity]

Post by NAVigator »

thursdaysd wrote:But this is really ridiculous. What am I supposed to do with my IRA if I decide to live abroad for a couple of years? Or permanently? I can't believe that all the many US expats don't have 401ks and IRAs.
My daughter has a small Roth IRA at Vanguard and has moved to a country in Europe a few years ago. I called Vanguard because I was concerned about an inheritance to her. She has the IRA account, but cannot contribute to it because she doesn't earn US dollars (no W-2) which is a US law. She has an address in the US to get paperwork, but she does everything online. Yes, she can inherit my Vanguard holdings, but not just yet... :wink:
"I was born with nothing and I have most of it left."
User avatar
thursdaysd
Posts: 126
Joined: Tue May 13, 2014 10:55 am
Location: NC
Contact:

Re: US citizens abroad cannot invest through [Fidelity]

Post by thursdaysd »

I had to transfer over to a Schwab International account (IRAs and taxable). My admiral shares of Vanguard funds are now held there though I can't add to them (or any mutual funds) except for dividend reinvestment.
I just got through moving almost all my 401k funds to Vanguard... I'm retired so I wouldn't be adding anything anyway, and I suppose this would certainly make you a buy-and-hold investor, but no rebalancing?

I'm glad to hear there is at least one possibility, although I wonder how long it may last! I think I may call Vanguard and ask them how long I would have to be abroad before they froze my accounts, and whether moving around altered things - what if I just go nomad for a year or two, but plan to return?
Thursday's child has far to go
normaldude
Posts: 803
Joined: Tue Jan 27, 2009 3:41 am

Re: US citizens abroad cannot invest through [Fidelity]

Post by normaldude »

in_reality wrote:I had to transfer over to a Schwab International account (IRAs and taxable).
Do you have to file PFIC forms with your US taxes?
Karamatsu
Posts: 1447
Joined: Mon Oct 27, 2008 2:42 am

Re: US citizens abroad cannot invest through [Fidelity]

Post by Karamatsu »

Where you live (expatriate or not) has no bearing on US PFIC rules. They apply to any US taxpayer with an investment in a foreign-based passive investment entity. So for most of us, as ordinary retail investors, that would mean a foreign-based mutual fund, ETF, or REIT. Of course, someone living abroad long-term may well wish to invest locally, if only to avoid the friction caused by exchange rates. In that case you can either choose investments that are not passive or bite the bullet and fill out Form 8621. The simplest option there is mark-to-market, which isn't that bad, but it is a trade-off and you have to decide if it's worth it.
Karamatsu
Posts: 1447
Joined: Mon Oct 27, 2008 2:42 am

Re: US citizens abroad cannot invest through [Fidelity]

Post by Karamatsu »

But this is really ridiculous. What am I supposed to do with my IRA if I decide to live abroad for a couple of years? Or permanently? I can't believe that all the many US expats don't have 401ks and IRAs.
It is ridiculous, but there's not much we can do about it at the moment except write to the appropriate people in government. Anyway at this point what I think most expatriates with such accounts must be doing is either (a) pretending to have a US address, (b) keeping the accounts frozen (no new contributions), or (c) moving to Schwab. Perhaps there are other brokers willing to deal with expatriates, too, but I'm not sure. It would be good to know if someone has experience getting full service while being up-front about their foreign address.

Meanwhile it is worth noting that the blowback has already begun, with foreign countries now requiring US financial institutions to provide reporting. Maybe once the shoe is on the other foot, they will complain loudly enough (and with enough campaign contribution strings attached) to get some changes made.
normaldude
Posts: 803
Joined: Tue Jan 27, 2009 3:41 am

Re: US citizens abroad cannot invest through [Fidelity]

Post by normaldude »

Karamatsu wrote:Where you live (expatriate or not) has no bearing on US PFIC rules. They apply to any US taxpayer with an investment in a foreign-based passive investment entity. So for most of us, as ordinary retail investors, that would mean a foreign-based mutual fund, ETF, or REIT. Of course, someone living abroad long-term may well wish to invest locally, if only to avoid the friction caused by exchange rates. In that case you can either choose investments that are not passive or bite the bullet and fill out Form 8621. The simplest option there is mark-to-market, which isn't that bad, but it is a trade-off and you have to decide if it's worth it.
From what I understand, PFIC mark-to-market is a disaster..

- Not handled by TurboTax, so you'll have to pay $5,000/yr to a specialized offshore tax account to add 100+ PFIC pages to your tax return.

- Taxed on unrealized gains every year (mark-to-market), and at ordinary income tax rates (not capital gains rate).

- PFIC capital losses can't be used to offset US investment capital gains, or future years losses. Losses are simply losses.

So under PFIC mark-to-market, let's say you initially invest in an offshore mutual fund (assume no dividends) with $1 million. In odd years (1,3,5, etc) it spikes to $2 million, and in even years (2,4,6,etc) it drops back down to $1 million. For the next 10 years, under PFIC mark-to-market, you'd pay ordinary income tax rates (let's say around 35%) in odd years, so you'd pay $350,000 in 5 of those years, or $1.75 million in taxes, completely wiping out an investment that went nowhere (started at $1 million, and 10 years later ended at $1 million).

In contrast, if that mutual fund were non-PFIC, then the taxes would have been zero.

If I'm doing the math wrong, let me know. But from what I understand, PFIC mark-to-market is horrible.
User avatar
in_reality
Posts: 4529
Joined: Fri Jul 12, 2013 6:13 am

Re: US citizens abroad cannot invest through [Fidelity]

Post by in_reality »

normaldude wrote:
in_reality wrote:I had to transfer over to a Schwab International account (IRAs and taxable).
Do you have to file PFIC forms with your US taxes?
No. I am investing in regular US domiciled ETFs such as Schwab's SCHB, SCHF, SCHE etc. or VTI, VSS (if you prefer Vanguard at $8.95 per trade). I get the exact same tax statements and file US taxes like everyone normally does. I have no holdings domiciled outside the US.

As a non U.S. resident, the account does not allow me to buy mutual funds (though I can transfer existing holdings in to sell or hold there). In fact, I can't even browse them to see what the option are.
normaldude
Posts: 803
Joined: Tue Jan 27, 2009 3:41 am

Re: US citizens abroad cannot invest through [Fidelity]

Post by normaldude »

in_reality wrote:
normaldude wrote:
in_reality wrote:I had to transfer over to a Schwab International account (IRAs and taxable).
Do you have to file PFIC forms with your US taxes?
No. I am investing in regular US domiciled ETFs such as Schwab's SCHB, SCHF, SCHE etc. or VTI, VSS (if you prefer Vanguard at $8.95 per trade). I get the exact same tax statements and file US taxes like everyone normally does. I have no holdings domiciled outside the US.

As a non U.S. resident, the account does not allow me to buy mutual funds (though I can transfer existing holdings in to sell or hold there). In fact, I can't even browse them to see what the option are.
Thanks. That's good to know.
Karamatsu
Posts: 1447
Joined: Mon Oct 27, 2008 2:42 am

Re: US citizens abroad cannot invest through [Fidelity]

Post by Karamatsu »

From what I understand, PFIC mark-to-market is a disaster
No thanks to the IRS, but it's not quite that bad. It's true that TurboTax doesn't handle Form 8621, but completing the mark-to-market option doesn't require a tax accountant or 100 extra pages. All you do is tick the box for the MTM option in Part II and (unless you sold shares during the year) fill in 3 to 5 numbers in Part IV (and one of those is copied directly from the previous year's return). Done. There is some bookkeeping to do behind the scenes, but it's simple. The expensive accountants and 100+ pages in extra documentation that you mentioned refers to ways of reporting PFIC investments that give you treatment more like a US-based fund, but those obviously won't be worth it unless you have a major investment.

Likewise the maths in your example don't take into account the way that losses are recognized. It's true that you will pay $350K in taxes in the odd numbered years, but by applying the losses you will also save $350K in taxes in the even-numbered years. So at the end of 10 years the investment is tax-neutral, though you do incur the opportunity cost of having $350K temporarily missing from your portfolio in odd-numbered years. It could be better, but it could be worse.

Anyway I'm not saying it's good. Or for everyone. It's still horribly discriminatory. But in the end the trade-off that a person has to consider is whether they want the foreign investment enough to pay US short-term taxes on phantom income. More and more that seems unlikely... every day new ETFs are announced in more and more specialized assets. Anything not covered already by a US-based ETF is probably some dusty corner of a foreign market where the typical index investor has no interest anyway. But for expatriates, differential (and often discriminatory) tax regulations plus zero exchange rate friction can make owning locally-domiciled funds more attractive. For us, the MTM option may be viable, but everyone needs to decide for themselves.
normaldude
Posts: 803
Joined: Tue Jan 27, 2009 3:41 am

Re: US citizens abroad cannot invest through [Fidelity]

Post by normaldude »

Karamatsu wrote:
From what I understand, PFIC mark-to-market is a disaster
Likewise the maths in your example don't take into account the way that losses are recognized. It's true that you will pay $350K in taxes in the odd numbered years, but by applying the losses you will also save $350K in taxes in the even-numbered years. So at the end of 10 years the investment is tax-neutral
Ok, I took a closer look at the PFIC rules. I guess in my example, the PFIC losses (years 2,4,6, etc) could be applied to past gains (years 1,3,5). But I don't think PFIC losses can be carried forward.

So let's use another example: Let's say a US citizen invests $1 million in an offshore mutual fund, and in year 1, it drops -90% to $100,000. PFIC losses can't be carried forward, so that loss is a pure loss. Then in year 2, it jumps back to $1 million, and assuming around 35% ordinary income tax rate, the person would have to pay $315,000 in taxes according to PFIC mark-to-market. Meanwhile, if it were a non-PFIC mutual fund, the tax liability would have been zero.

Is that right?
livesoft
Posts: 86080
Joined: Thu Mar 01, 2007 7:00 pm

Re: US citizens abroad cannot invest through [Fidelity]

Post by livesoft »

in_reality wrote:As a non U.S. resident, the account does not allow me to buy mutual funds (though I can transfer existing holdings in to sell or hold there). In fact, I can't even browse them to see what the option are.
Was the question about ETFs and stocks at Fidelity answered? All the news I read specifically states mutual funds, but does not mention other kinds of assets.
Wiki This signature message sponsored by sscritic: Learn to fish.
User avatar
in_reality
Posts: 4529
Joined: Fri Jul 12, 2013 6:13 am

Re: US citizens abroad cannot invest through [Fidelity]

Post by in_reality »

livesoft wrote:
in_reality wrote:As a non U.S. resident, the account does not allow me to buy mutual funds (though I can transfer existing holdings in to sell or hold there). In fact, I can't even browse them to see what the option are.
Was the question about ETFs and stocks at Fidelity answered? All the news I read specifically states mutual funds, but does not mention other kinds of assets.
I don't think it was. Schwab allows them because they have an account set up to handle that case. Vanguard won't allow ETFs by non US residents because I think they don't have an account legally set up to handle this case. So Fidelity could legally offer them, but I don't know if they are set up to do that.

One thing you could try if at Fidelity if they don't have an account for this is to get compliance approval for trades. At one point I submitted a "non-disclosure agreement" with Citibank to enable me to make trades even while overseas under the condition that Citibank not provide any information on the funds while I was out of the country (the account had to be opened from within the US though). It was approved but I never made any trades through them since Schwab's set up is better. Of course Fidelity may say no because it's not possible for them to not give you information while out of the country. Schwab has their site set up for this and my Citibank account wasn't showing me anything about fund possibilities either, so that may have been why they are able.
bpp
Posts: 2017
Joined: Mon Feb 26, 2007 11:35 am
Location: Japan

Re: US citizens abroad cannot invest through [Fidelity]

Post by bpp »

normaldude wrote:
Karamatsu wrote:
From what I understand, PFIC mark-to-market is a disaster
Likewise the maths in your example don't take into account the way that losses are recognized. It's true that you will pay $350K in taxes in the odd numbered years, but by applying the losses you will also save $350K in taxes in the even-numbered years. So at the end of 10 years the investment is tax-neutral
Ok, I took a closer look at the PFIC rules. I guess in my example, the PFIC losses (years 2,4,6, etc) could be applied to past gains (years 1,3,5). But I don't think PFIC losses can be carried forward.

So let's use another example: Let's say a US citizen invests $1 million in an offshore mutual fund, and in year 1, it drops -90% to $100,000. PFIC losses can't be carried forward, so that loss is a pure loss. Then in year 2, it jumps back to $1 million, and assuming around 35% ordinary income tax rate, the person would have to pay $315,000 in taxes according to PFIC mark-to-market. Meanwhile, if it were a non-PFIC mutual fund, the tax liability would have been zero.

Is that right?
Yes, PFIC losses can only be carried back to prior years, not carried forward to later ones. So the relative timing of losses and gains is critical.

One alternative to PFICs for local market stocks is Passively Managing Individual Stocks (Wiki). Can save on taxes and costs as compared to using US-based ETFs covering those markets, though the approach is not for everyone.
Karamatsu
Posts: 1447
Joined: Mon Oct 27, 2008 2:42 am

Re: US citizens abroad cannot invest through [Fidelity]

Post by Karamatsu »

So let's use another example: Let's say a US citizen invests $1 million in an offshore mutual fund, and in year 1, it drops -90% to $100,000. PFIC losses can't be carried forward, so that loss is a pure loss. Then in year 2, it jumps back to $1 million, and assuming around 35% ordinary income tax rate, the person would have to pay $315,000 in taxes according to PFIC mark-to-market. Meanwhile, if it were a non-PFIC mutual fund, the tax liability would have been zero.

Is that right?
I don't think that's accurate. My understanding is that your adjusted basis in the stock after Year 1 is still $1M, therefore when you compute the PFIC gain in Year 2 it would be zero. The important point is that, in each year, you're not reporting gains/losses over the 365 day period, but the difference between the market value at the end of the year and your basis in the stock at the end of the year. Because your basis didn't change after Year 1 the increase in value from $100,000 to $1,000,000 in year to just brings you back to even, so no tax.

I should say, though, that I'm not a tax expert, so if I'm wrong I would be very grateful to know it now, rather than when it's too late.
bpp
Posts: 2017
Joined: Mon Feb 26, 2007 11:35 am
Location: Japan

Re: US citizens abroad cannot invest through [Fidelity]

Post by bpp »

Karamatsu wrote:
So let's use another example: Let's say a US citizen invests $1 million in an offshore mutual fund, and in year 1, it drops -90% to $100,000. PFIC losses can't be carried forward, so that loss is a pure loss. Then in year 2, it jumps back to $1 million, and assuming around 35% ordinary income tax rate, the person would have to pay $315,000 in taxes according to PFIC mark-to-market. Meanwhile, if it were a non-PFIC mutual fund, the tax liability would have been zero.

Is that right?
I don't think that's accurate. My understanding is that your adjusted basis in the stock after Year 1 is still $1M, therefore when you compute the PFIC gain in Year 2 it would be zero. The important point is that, in each year, you're not reporting gains/losses over the 365 day period, but the difference between the market value at the end of the year and your basis in the stock at the end of the year. Because your basis didn't change after Year 1 the increase in value from $100,000 to $1,000,000 in year to just brings you back to even, so no tax.

I should say, though, that I'm not a tax expert, so if I'm wrong I would be very grateful to know it now, rather than when it's too late.
I thought the idea behind mark-to-market was that one is deemed to have sold and instantly repurchased something at the end of the year, generating a gain or loss, and resetting the basis to the year-end value. Not sure how to avoid resetting the basis, unless perhaps through some invocation of the Wash Sale Rule? (Maybe do an actual sale and re-purchase to force its application?) However, MTM PFIC gains and losses are treated as ordinary gains and losses, not capital gains and losses, so not obvious to me that the Wash Sale Rule is applicable here. If it were, that would seem to preclude carrying losses back to prior years, which we know is allowed.

But of course, I am no tax expert, either.
Karamatsu
Posts: 1447
Joined: Mon Oct 27, 2008 2:42 am

Re: US citizens abroad cannot invest through [Fidelity]

Post by Karamatsu »

I think the notion of MTM as an instantaneous sale/repurchase at the end of the year may be a useful analogy but isn't entirely accurate. The form, at least, asks only for the market value of the PFIC stock and the end of the year and your adjusted basis at the end of the year. If you consider the ways that the cost basis is adjusted for gains and losses, it seems to make sense that, in the second scenario, you'd owe no tax, nor would you be able to report any losses, because your basis would not have changed.

Otherwise with MTM there would be incredible discontinuities from year to year, and although I know this is going out on a limb, I don't think even the IRS is that unreasonable.

I know, I know... Please visit me when I'm in debtor's prison.
bpp
Posts: 2017
Joined: Mon Feb 26, 2007 11:35 am
Location: Japan

Re: US citizens abroad cannot invest through [Fidelity]

Post by bpp »

Karamatsu wrote:I think the notion of MTM as an instantaneous sale/repurchase at the end of the year may be a useful analogy but isn't entirely accurate. The form, at least, asks only for the market value of the PFIC stock and the end of the year and your adjusted basis at the end of the year. If you consider the ways that the cost basis is adjusted for gains and losses, it seems to make sense that, in the second scenario, you'd owe no tax, nor would you be able to report any losses, because your basis would not have changed.

Otherwise with MTM there would be incredible discontinuities from year to year, and although I know this is going out on a limb, I don't think even the IRS is that unreasonable.

I know, I know... Please visit me when I'm in debtor's prison.
Thought experiment: Buy $10,000 worth of PFIC, and it doubles by the end of the year. Then it stays constant at $20,000 for the next few years. Under your scenario, every year one would have to declare a $10,000 gain? (Because the basis never changes.) That would be unreasonable in a different direction.

I think "adjusted basis" for each year has to be the market value at the end of the previous year, plus/minus any additions/subtractions during the current year, for any kind of logical outcome, unpleasant as the results may be in some cases...
Last edited by bpp on Mon Jul 07, 2014 6:33 am, edited 1 time in total.
User avatar
Tim_in_GA
Posts: 509
Joined: Wed Jun 08, 2011 9:42 am

Re: US citizens abroad cannot invest through [Fidelity]

Post by Tim_in_GA »

I plan to move overseas at retirement. At that time I will be in the withdrawal phase so this wouldn't really matter to me, right? I won't be buying funds but I do see the possibility of rebalancing.
User avatar
in_reality
Posts: 4529
Joined: Fri Jul 12, 2013 6:13 am

Re: US citizens abroad cannot invest through [Fidelity]

Post by in_reality »

Tim_in_GA wrote:I plan to move overseas at retirement. At that time I will be in the withdrawal phase so this wouldn't really matter to me, right? I won't be buying funds but I do see the possibility of rebalancing.
You should be fine. If you need to rebalance and you can't buy mutual funds, you could always get an account at Schwab that let's you buy ETFs to rebalance into. Wouldn't be a pure three funder then but...

Now your real worry might be how to get the money....

NYTimes: U.S. Banks Curtail International Money Transfers
http://nyti.ms/1mYIGTL

Under regulatory pressure, many banks are ending or limiting money transfers...

Let's hope brokerages don't follow suit! Oops, looks like JPMorgan has ...
User avatar
Tim_in_GA
Posts: 509
Joined: Wed Jun 08, 2011 9:42 am

Re: US citizens abroad cannot invest through [Fidelity]

Post by Tim_in_GA »

in_reality wrote: Now your real worry might be how to get the money....

NYTimes: U.S. Banks Curtail International Money Transfers
http://nyti.ms/1mYIGTL

Under regulatory pressure, many banks are ending or limiting money transfers...

Let's hope brokerages don't follow suit! Oops, looks like JPMorgan has ...
Yeah, that worries me a little. I have 15 years to go so hopefully by then things will change for the better.
bpp
Posts: 2017
Joined: Mon Feb 26, 2007 11:35 am
Location: Japan

Re: US citizens abroad cannot invest through [Fidelity]

Post by bpp »

bpp wrote:
Karamatsu wrote:I think the notion of MTM as an instantaneous sale/repurchase at the end of the year may be a useful analogy but isn't entirely accurate. The form, at least, asks only for the market value of the PFIC stock and the end of the year and your adjusted basis at the end of the year. If you consider the ways that the cost basis is adjusted for gains and losses, it seems to make sense that, in the second scenario, you'd owe no tax, nor would you be able to report any losses, because your basis would not have changed.

Otherwise with MTM there would be incredible discontinuities from year to year, and although I know this is going out on a limb, I don't think even the IRS is that unreasonable.

I know, I know... Please visit me when I'm in debtor's prison.
Thought experiment: Buy $10,000 worth of PFIC, and it doubles by the end of the year. Then it stays constant at $20,000 for the next few years. Under your scenario, every year one would have to declare a $10,000 gain? (Because the basis never changes.) That would be unreasonable in a different direction.

I think "adjusted basis" for each year has to be the market value at the end of the previous year, plus/minus any additions/subtractions during the current year, for any kind of logical outcome, unpleasant as the results may be in some cases...
Actually, the Instructions for Form 8621 for mark-to-market treatment seem fairly unambiguous:
If a PFIC shareholder elects to mark the stock to market, the shareholder either:
1. Includes in income each year an amount equal to the excess, if any, of the fair market value of the PFIC stock as of the close of the taxable year over the shareholder's adjusted basis in such stock or
2. Is allowed a deduction equal to the lesser of:
a. The excess, if any, of the adjusted basis of the PFIC stock over its fair market value as of the close of the tax year or
b. The excess, if any, of the amount of mark-to-market gain included in the gross income of the PFIC shareholder for prior taxable years over the amount allowed such PFIC shareholder as a deduction for a loss with respect to such stock for prior taxable years.
[...]
Basis adjustment. If the stock is held directly, the shareholder's adjusted basis in the PFIC stock is increased by the amount included in income and decreased by any deductions allowed.
So yes, it looks like the basis resets every year. Which means that taking a loss before a gain is much worse than taking a gain before a loss, due to the lack of ability to carry losses forward. Asymmetric treatment.
Karamatsu
Posts: 1447
Joined: Mon Oct 27, 2008 2:42 am

Re: US citizens abroad cannot invest through [Fidelity]

Post by Karamatsu »

Thought experiment: Buy $10,000 worth of PFIC, and it doubles by the end of the year. Then it stays constant at $20,000 for the next few years. Under your scenario, every year one would have to declare a $10,000 gain? (Because the basis never changes.) That would be unreasonable in a different direction.
Oh, I'm not saying that the basis never changes. Only that the basis can never go below what was actually paid. When you have gains, your basis naturally becomes your basis + the gain. When you have losses that you can recognize (that is, up to the amount of any unreversed inclusions), your basis is reduced by the amount of the recognized losses. But it never goes below what you originally paid.

The reason the basis doesn't change in the example we were working with is that in the first year, the taxpayer is not able to recognize the loss because he has no unreversed inclusions. Therefore his basis remains the same. "Inclusions" is IRS-speak for gains "included" in your adjusted basis.

Naturally if you SELL a PFIC stock at a loss, the loss is then realized, but since that wasn't the scenario, I didn't want to muddy the waters.
bpp
Posts: 2017
Joined: Mon Feb 26, 2007 11:35 am
Location: Japan

Re: US citizens abroad cannot invest through [Fidelity]

Post by bpp »

Karamatsu wrote:
Thought experiment: Buy $10,000 worth of PFIC, and it doubles by the end of the year. Then it stays constant at $20,000 for the next few years. Under your scenario, every year one would have to declare a $10,000 gain? (Because the basis never changes.) That would be unreasonable in a different direction.
Oh, I'm not saying that the basis never changes. Only that the basis can never go below what was actually paid. When you have gains, your basis naturally becomes your basis + the gain. When you have losses that you can recognize (that is, up to the amount of any unreversed inclusions), your basis is reduced by the amount of the recognized losses. But it never goes below what you originally paid.

The reason the basis doesn't change in the example we were working with is that the taxpayer is that, in the first year, the taxpayer is not able to recognize the loss because he has no unreversed inclusions. Therefore his basis remains the same. "Inclusions" is IRS-speak for gains "included" in your adjusted basis.

Naturally if you SELL a PFIC stock at a loss, the loss is then realized, but since that wasn't the scenario, I didn't want to muddy the waters.
Hmm, going back to the instructions:
If a PFIC shareholder elects to mark the stock to market, the shareholder either:
1. Includes in income each year an amount equal to the excess, if any, of the fair market value of the PFIC stock as of the close of the taxable year over the shareholder's adjusted basis in such stock or
2. Is allowed a deduction equal to the lesser of:
a. The excess, if any, of the adjusted basis of the PFIC stock over its fair market value as of the close of the tax year or
b. The excess, if any, of the amount of mark-to-market gain included in the gross income of the PFIC shareholder for prior taxable years over the amount allowed such PFIC shareholder as a deduction for a loss with respect to such stock for prior taxable years.
[...]
Basis adjustment. If the stock is held directly, the shareholder's adjusted basis in the PFIC stock is increased by the amount included in income and decreased by any deductions allowed.
So when the PFIC value goes down in a year, one is allowed a deduction equal to that loss (unless one has used it against prior years' gains), and the basis is then decreased by the amount of that allowed deduction (loss).

No?
Karamatsu
Posts: 1447
Joined: Mon Oct 27, 2008 2:42 am

Re: US citizens abroad cannot invest through [Fidelity]

Post by Karamatsu »

My understanding is that, when you have a MTM loss in a given year, you can take a deduction equal to the lesser of (a) the amount of the loss, or (b) your net gains in the PFIC stock since it was first acquired. You then reduce your basis by the amount recognized. If you have no unreversed inclusions, (as when a loss occurs in the first year), then you can't recognize any of the loss, but it does carry forward. It's just not carried forward in the way we're used to with Schedule D.

So say you bought $10,000 of a foreign-domiciled ETF. In the first year you had a gain of $500. You fill out Form 8621 showing a $500 gain, pay the tax, and adjust your basis in the stock to $10,500. In the second year you have a $200 loss. You fill out Form 8621 showing a $200 loss (Form 1040 Line 21) and adjust your basis to $10,300. That all seems to make sense. Where it gets tricky is in the third year, where you have an $800 loss. Now, your loss (a) is $800 but your total unreversed inclusions (b) is only $300. So in this case you recognize a loss of $300 (1040 Line 21), and you reduce your basis to $10,000. The remaining $500 of loss cannot be recognized in that year, but it is still unaccounted for, what you might call a "latent" loss, because the market value of the shares is now $9,500 compared to the $10,000 basis.

Say in Year 4 the stock gains $200. When you fill out Form 8621, you'll still show a loss, but it's a loss you can't recognize because you have no unreversed inclusions. At the end of the year your basis is still $10,000 and the market value is $9,700. Then in Year 5 the stock gains $500. Now when you fill out Form 8621 the market value is $10,200 and your basis is $10,000... You now have a MTM gain of $200, so you pay the tax and increase your basis to $10,200.

So what you see is that all net gains and losses in previous years are "encoded" in the amount of the adjusted basis, avoiding any weird discontinuities no matter what happens. The key point is that your basis never gets adjusted below what you actually paid. It can't (a) because that wouldn't make sense, and (b) because the rules won't let you recognize any loss in excess of your unreversed inclusions.

It seems to make sense. Or at least it's the most sensible interpretation I've been able to come up with, no thanks to the IRS.

There is a fine point that comes up when you sell, and you can see that in Form 8621, Line 14. Lines 14a and 14b make sense, but Line 14c is vague in that losses exceeding unreversed inclusions are supposed to be treated "according to the rules generally applicable for losses provided elsewhere in the Code and regulations." This is, of course, an instruction which says nothing at all, but it's clear that they do intend to recognize net losses. They just aren't willing to tell us exactly how. I suspect this is because there is some variation depending on the nature of the asset. My guess, for what it's worth, is that in the case of an ETF, it would be a capital loss, but before attempting that I would definitely ask the IRS for guidance.
bpp
Posts: 2017
Joined: Mon Feb 26, 2007 11:35 am
Location: Japan

Re: US citizens abroad cannot invest through [Fidelity]

Post by bpp »

Karamatsu wrote:So what you see is that all net gains and losses in previous years are "encoded" in the amount of the adjusted basis, avoiding any weird discontinuities no matter what happens. The key point is that your basis never gets adjusted below what you actually paid. It can't (a) because that wouldn't make sense, and (b) because the rules won't let you recognize any loss in excess of your unreversed inclusions.
Ah, yes, now I see what you are saying. This is the effect of Line 2b in the instructions:
If a PFIC shareholder elects to mark the stock to market, the shareholder either:
1. Includes in income each year an amount equal to the excess, if any, of the fair market value of the PFIC stock as of the close of the taxable year over the shareholder's adjusted basis in such stock or
2. Is allowed a deduction equal to the lesser of:
a. The excess, if any, of the adjusted basis of the PFIC stock over its fair market value as of the close of the tax year or
b. The excess, if any, of the amount of mark-to-market gain included in the gross income of the PFIC shareholder for prior taxable years over the amount allowed such PFIC shareholder as a deduction for a loss with respect to such stock for prior taxable years.
[...]
Basis adjustment. If the stock is held directly, the shareholder's adjusted basis in the PFIC stock is increased by the amount included in income and decreased by any deductions allowed.
In the case of a first-year loss, 2b is obviously zero (there being no prior years), so the deduction is zero (the lesser of 2a and 2b). So no deduction allowed, and the basis does not adjust down.

So the bookkeeping becomes more complicated, but the result becomes more humane, than what I had been thinking.

I like the way you're thinking.

I'll have to meditate on this a bit more, but feel like a lightbulb just went on. Thanks for flipping the switch.
lawman3966
Posts: 1352
Joined: Sun Aug 10, 2008 12:09 pm
Location: Tacoma WA

Re: US citizens abroad cannot invest through [Fidelity]

Post by lawman3966 »

in_reality wrote: As a non U.S. resident, the account does not allow me to buy mutual funds (though I can transfer existing holdings in to sell or hold there). In fact, I can't even browse them to see what the option are.
I don't completely follow the above, and am attempting to get a clarification. Are you saying that you are able to transfer money out of mutual funds though not into mutual funds. If so, can this money be moved into money market funds? into ETFs? I am trying to think through ways to handle this, as I have accounts at both Fidelity and Vanguard and intend to retire overseas.

Pursuant to the above, I am trying to figure out whether the following steps could be followed by an overseas U.S. retiree holding only U.S. domiciled funds at Fidelity. (If I need to use Schwab instead to Fidelity for any of the following, please let me know. However, the questions should otherwise still apply as written.

1) Prior to going abroad, move all VG funds to Fidelity. (My VG funds are in a Rollover IRA, so selling and repurchasing funds will not be taxable events.

2) While overseas, I can rebalance from equity to income holdings by: selling stock mutual fund shares, and buying bond ETFs (issued by Vanguard or other company).

3) To get access to cash, I can sell any of (a) stock mutual funds; (b) bond mutual funds; (c) stock ETFs; (d) bond ETFs, and place the proceeds in a money market account.

4) I can move money overseas by transferring cash from my (Fidelity or Schwab) money market account to an overseas bank account. (I would expect to hold only limited amounts of money in overseas bank accounts - perhaps $3K to $5K at any one time).

Is the above legal and doable under the current rules?
User avatar
in_reality
Posts: 4529
Joined: Fri Jul 12, 2013 6:13 am

Re: US citizens abroad cannot invest through [Fidelity]

Post by in_reality »

lawman3966 wrote:
in_reality wrote: As a non U.S. resident, the account does not allow me to buy mutual funds (though I can transfer existing holdings in to sell or hold there). In fact, I can't even browse them to see what the option are.
I don't completely follow the above, and am attempting to get a clarification. Are you saying that you are able to transfer money out of mutual funds though not into mutual funds. If so, can this money be moved into money market funds? into ETFs? I am trying to think through ways to handle this, as I have accounts at both Fidelity and Vanguard and intend to retire overseas.
At Schwab, yes I can sell mutual funds but not but them. I can then leave them money in my money market account or buy ETFs. I don't know about Fidelity.

Pursuant to the above, I am trying to figure out whether the following steps could be followed by an overseas U.S. retiree holding only U.S. domiciled funds at Fidelity. (If I need to use Schwab instead to Fidelity for any of the following, please let me know. However, the questions should otherwise still apply as written.

1) Prior to going abroad, move all VG funds to Fidelity. (My VG funds are in a Rollover IRA, so selling and repurchasing funds will not be taxable events.

2) While overseas, I can rebalance from equity to income holdings by: selling stock mutual fund shares, and buying bond ETFs (issued by Vanguard or other company).

3) To get access to cash, I can sell any of (a) stock mutual funds; (b) bond mutual funds; (c) stock ETFs; (d) bond ETFs, and place the proceeds in a money market account.

4) I can move money overseas by transferring cash from my (Fidelity or Schwab) money market account to an overseas bank account. (I would expect to hold only limited amounts of money in overseas bank accounts - perhaps $3K to $5K at any one time).

Is the above legal and doable under the current rules?
All of these are possible I believe. One thing to be aware of is that IRA distributions going overseas automatically have tax withheld from them (30% maybe). You could then get a refund on your return if it's above what you should be paying. I wonder too if you took the distribution to your money market account or sent it to a US bank if they would do the withholding or just tax it as a US distribution. Also, you may have to pay taxes to the country where you are living on the IRA distribution and then claim a foreign tax credit (on Form 1116). Not sure about a Roth -- either if that is subject to a withholding tax(that you get back) or if a foreign country can tax it. If a foreign country is taxing your IRA, I bet they will tax the ROTH too. It depends on the country I believe.

You could also do an in-kind transfer of taxable assets to avoid taxable events, and do in-kind transfers for IRA to avoid being out of the market (if you indeed wanted to move assets to an ETF friendly brokerage). You could also, I would imagine, hold the assets at Vanguard and transfer cash from sales from there -- spending money overseas and rebalancing money to a brokerage that lets you buy ETFs. I assume Vanguard does international transfers too but...

With Schwab, you can transfer money overseas with the ABA routing number of the bank and the account number to deposit to -- either in USD or a local currency. You can withdraw money via your debit card at ATMs worldwide (ATM fees are reimbursed). This is now right, I've seen articles saying JPMorgan stopped transfers to Mexico due to concerns about money laundering etc. It's getting strict so do double check in a few years.

I use Citibank. It seems these days like local banks are reluctant to open accounts for Americans do to regulatory requirements.
I haven't heard exactly Fidelity's policy on ETFs. You might want to inquire with them.

One other consideration is what country you would be in. Schwab isn't able to open "international one brokerage" accounts for all residents of all countries due to restrictions in those countries. Switzerland, the UK and Hong Kong don't appear to offer ETFs. They only have stocks, fixed income and options.

Fun eh? So I believe it is currently possible for a US citizen to live overseas and still be able to invest in the US. That's what I am doing. Wouldn't say it's as easy as being home though.

P.S. Apologies if anything here is incorrect. It's to the best of my knowledge.
User avatar
kramer
Posts: 1953
Joined: Wed Feb 21, 2007 1:28 am
Location: World Traveler

Re: US citizens abroad cannot invest through [Fidelity]

Post by kramer »

In regards to the practical considerations of living overseas and getting access to your money, a lot will depend on which country you end up in and whether you also want to buy property and invest there.

I have lived in a total of four foreign countries but have now settled in the Philippines. Luckily, I can just deposit a check written on my USA checking account and it will be cleared in my local Philippines account in around 17 business days (into a dollar account). The maximum check size is $5,000 so I just write $5,000 checks now and then. I don't want to involve my brokerages in this process at all.

I also use US-based ATMs both locally in the Philippines and in other countries -- I have about 5 US banks due to fear of being shut out of the system in the future by the Patriot Act but really only use 2 of them extensively, the ones with 0% charges and full fee reimbursement. The others are for back ups and use in the USA.

But the reasonable getting money options were different in each country. As you can imagine, when I was living in Colombia it was more difficult to get money there than in the Philippines.

I thought I would never need to have over $10,000 in foreign accounts but I had to create a deposit account in a local bank as a secured bond in order to get a permanent visa. So now I have to file an FBAR every year on accounts in two different local banks. But the FBAR is pretty easy as long as you don't exceed $50,000 which requires a much more complicated filing. For a simple setup like I have, I would say 2 hours of work AFTER you have done it the first time which will take you longer. Owning property probably creates more complications. All the FATCA information is also shared with your new country of residence, so in some cases they will want to confirm the source of your funds (e.g., make sure you are not working or have a local business on which you are not paying local taxes).

Whatever you do, don't fall out of compliance. It's just not worth it. This is one of the warnings I give to new expats and I have helped get several friends into full compliance.
lawman3966
Posts: 1352
Joined: Sun Aug 10, 2008 12:09 pm
Location: Tacoma WA

Re: US citizens abroad cannot invest through [Fidelity]

Post by lawman3966 »

kramer wrote:The maximum check size is $5,000 so I just write $5,000 checks now and then. I don't want to involve my brokerages in this process at all.
My assumption, based on the above, is that if you sell investments in your brokerage accounts and generate cash, you then move the cash from the brokerage to a U.S. based bank, and thereafter write checks on the bank to deposit cash in a Philippines-based bank. Is that right?

Do you keep your brokerages out of the process out of concern that directly transferring money from a brokerage to a foreign bank would elicit suspicion, and possibly cause them to freeze or close your account? I wasn't aware that there was any problem in transferring assets from a brokerage to a foreign account, but I can see that it is simpler/cleaner (not sure of the right word) to keep brokerage matters separate from foreign banking matters.
User avatar
kramer
Posts: 1953
Joined: Wed Feb 21, 2007 1:28 am
Location: World Traveler

Re: US citizens abroad cannot invest through [Fidelity]

Post by kramer »

lawman3966 wrote:
kramer wrote:The maximum check size is $5,000 so I just write $5,000 checks now and then. I don't want to involve my brokerages in this process at all.
My assumption, based on the above, is that if you sell investments in your brokerage accounts and generate cash, you then move the cash from the brokerage to a U.S. based bank, and thereafter write checks on the bank to deposit cash in a Philippines-based bank. Is that right?

Do you keep your brokerages out of the process out of concern that directly transferring money from a brokerage to a foreign bank would elicit suspicion, and possibly cause them to freeze or close your account? I wasn't aware that there was any problem in transferring assets from a brokerage to a foreign account, but I can see that it is simpler/cleaner (not sure of the right word) to keep brokerage matters separate from foreign banking matters.
Yes, I first move cash from my brokerage money market to a US-based bank checking account. Being a boglehead, probably my biggest motivation has been that there is no fee to just write a check at my bank -- the only penalty is the wait and I never need fast access to the money, anyway. Whereas there is a fee for doing brokerage transfers and the hassle of setup.

I have had mild worries about becoming a persona-non-grata at a brokerage or getting blacklisted by the US government someday or something like that -- but that was a bigger worry when I was living in Colombia. I have a Canadian friend who visits me every year and he has high bank costs. So, for the money for his visits, he transfers money to my US checking account from his Canadian account and then I give him the same amount in cash from my local bank account. This saves him over 3% of the amount. But now I wonder if I might be listed as a money launderer or something . . .
plats
Posts: 515
Joined: Mon Dec 31, 2007 8:46 pm

Re: US citizens abroad cannot invest through [Fidelity]

Post by plats »

kramer wrote:But the FBAR is pretty easy as long as you don't exceed $50,000 which requires a much more complicated filing.
For those living overseas the additional Form 8938 is has higher requirements. "If you are not married, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $200,000 on the last day of the tax year or more than $300,000 at any time during the tax year."

http://www.irs.gov/instructions/i8938/ch01.html#d0e144

On another topic, I got a follow-up email from Fidelity today after getting a letter last week.
User avatar
Topic Author
Houston101
Posts: 103
Joined: Fri Feb 26, 2010 2:15 pm

Re: US citizens abroad cannot invest through [Fidelity]

Post by Houston101 »

Just as a matter of curiosity, how do you maintain a U.S. address (not P.O. Box) and monitor it from abroad?

Do you have only important mail forwarded to you?
plats
Posts: 515
Joined: Mon Dec 31, 2007 8:46 pm

Re: US citizens abroad cannot invest through [Fidelity]

Post by plats »

Houston101 wrote:Just as a matter of curiosity, how do you maintain a U.S. address (not P.O. Box) and monitor it from abroad?

Do you have only important mail forwarded to you?
If that was to me: I don't have a USA address. Fidelity has been mailing to my foreign address for 25 years.
bpp
Posts: 2017
Joined: Mon Feb 26, 2007 11:35 am
Location: Japan

Re: US citizens abroad cannot invest through [Fidelity]

Post by bpp »

plats wrote:On another topic, I got a follow-up email from Fidelity today after getting a letter last week.
What did they say?
plats
Posts: 515
Joined: Mon Dec 31, 2007 8:46 pm

Re: US citizens abroad cannot invest through [Fidelity]

Post by plats »

bpp wrote:
plats wrote:On another topic, I got a follow-up email from Fidelity today after getting a letter last week.
What did they say?
Dear Suspicious Overseas Investor,

You can keep your mutual funds and reinvest distributions but you can't add to them or exchange between them.

Have a nice day.
BC_Doc
Posts: 196
Joined: Mon Mar 21, 2011 11:11 pm
Location: Western Canada

Re: US citizens abroad cannot invest through [Fidelity]

Post by BC_Doc »

Karamatsu wrote:Except for expatriate Fidelity customers, this doesn't seem to surprising. As others have mentioned, restrictions on the purchase of mutual fund shares by US citizens abroad has been around for a long time. The surprise is more that Fidelity allowed it before... I wish I'd known! Restrictions have been in place at Schwab since before 9/11 and at Vanguard whenever it was that I checked with them (I forget).

That said, it IS becoming more and more difficult for foreign and expatriate to invest. Right now it seems we can invest in ETFs, stocks, bonds, REITs and just about anything else, but the hurdles just keep getting bigger and bigger, more and more intrusive. Of course, foreign investors will always have their local markets, but it would not surprise me if, in the end, it becomes impossible for expatriates to invest at all, and long-term expats will be left making hard choices about either their country of residence or their citizenship.
These are tough times to be a US ex-pat. I left the US in 1993 to study medicine in Canada. I fell in love with the place and have been here ever since-- I've been a Canadian citizen since 2001. Here in Canada, there's lots of anxiety among ex-pats over FATCA. The figure I've read is that only about 5-10% of long-term ex-pats continue to file tax returns to the US. With FATCA, the other 90-95% face the possibility that their local bank accounts will now be disclosed to the US Treasury. Because of this, many long term ex-pats are relinquishing or renouncing their US citizenship. In the past, most long-term US ex-pats were able to live "off the grid"-- i.e. pay full taxes to their home country where they reside-- and not worry about filing in the US. Because of FATCA, in Canada, there is much concern among ex-pats that they will no longer be left alone. In Switzerland, ex-pats with dual citizenship are now starting to get locked out of local banking. A couple of websites are devoted to the FATCA ex-pat issue-- isaacbrocksociety.ca and maplesandbox.ca

Given that I've been out of the US for so many years, I've never used a US investment account, Fidelity or otherwise. I use US Vanguard ETFs to invest in my RRSP (Canadian tax deferred retirement account) and TFSA (Canadian Tax Free Savings Account). I use Vanguard Canada ETFs to invest in my non-registered taxable accounts. As I have no plans to return to the US, this strategy works well for me (i.e. I don't miss being locked out of US investment accounts).
Sleepless
Posts: 193
Joined: Wed Feb 24, 2010 9:00 am

Re: US citizens abroad cannot invest through [Fidelity]

Post by Sleepless »

thursdaysd wrote:
I think I may call Vanguard and ask them how long I would have to be abroad before they froze my accounts, and whether moving around altered things - what if I just go nomad for a year or two, but plan to return?
Did you ever get a response from Vanguard regarding this?

In general, are these "expat" accounts flagged forever, or are the restrictions removed once the owner returns to the US?
I was tired yesterday and I'm tired again today. I'm retired.
User avatar
in_reality
Posts: 4529
Joined: Fri Jul 12, 2013 6:13 am

Re: US citizens abroad cannot invest through [Fidelity]

Post by in_reality »

Sleepless wrote:
thursdaysd wrote:
I think I may call Vanguard and ask them how long I would have to be abroad before they froze my accounts, and whether moving around altered things - what if I just go nomad for a year or two, but plan to return?
Did you ever get a response from Vanguard regarding this?

In general, are these "expat" accounts flagged forever, or are the restrictions removed once the owner returns to the US?
They will unfreeze me when I submit a utility bill in my name at my listed residence in the US as well as a pay stub from my employer. That is what my flagship advisor wrote me. They kept changing their story though. I can't tell if it depended on the compliance person my advisor spoke with or it was because I'd complained about inaccuracies in my transaction confirmations and they just didn't want me as a customer.

If I am retired I assume there will be another way to document my residency. Maybe?
Tylenol Jones
Posts: 312
Joined: Mon Sep 14, 2009 6:54 am

Re: US citizens abroad cannot invest through [Fidelity]

Post by Tylenol Jones »

Any updates on this? Does anyone know what non-residents can still buy thru Fidelity?
Post Reply