Non-resident alien, 22 looking for substitutes to 401k/IRAs

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acp03
Posts: 19
Joined: Mon Feb 23, 2015 1:02 pm

Non-resident alien, 22 looking for substitutes to 401k/IRAs

Post by acp03 » Thu Mar 05, 2015 7:15 pm

Hi All,

Thank you for taking the time to read my query.

I’m a non-resident alien, starting off in my first job out of college at 22. After reviewing the wiki and other forum topics it seems like if I do return back to my home country anytime in the near future, investing and contributing to my company’s 401(k) or IRAs isn’t the most convenient way to go, thanks to the high penalties and documentation that would be required at the time of moving back/ liquidating.

Therefore, what is the substitute to investing in ETFs and index funds via the 401(k) approach? I looked at my Scottrade account and it looks like the ETF trading on online brokerages is similar to investing in stocks, wherein I have to buy individual securities of the ETFs at a certain price point. Instead I’d like to contribute, for e.g., $500 to an ETF or some index vehicle on a monthly basis - how should I go about doing this? Are there ways wherein I can put $400 in stocks and $100 in bonds and $100 out of $400 in international markets on a monthly basis, without having to buy individual securities? Something like a savings account but investing in ETFs, etc. every month.

Thanks again!
ACP

mhalley
Posts: 6306
Joined: Tue Nov 20, 2007 6:02 am

Re: Non-resident alien, 22 looking for substitutes to 401k/I

Post by mhalley » Fri Mar 06, 2015 2:41 am

Sorry but I don't quite understand the question. Do you want to set up a program so that every month you buy $500 worth of an ETF or mutual fund that has a specific asset allocation? Or buy 3 different funds? You wouldn't want to setup an automatic etf purchase, because the price can vary quite a bit. You could setup an automatic payment to go to the brokerage each month, then manually buy the ETFs ou want. Fidelity has an automatic investment program for mutual funds. Just be sure to pick the low cost fidelity funds that you want. In general, these are the Fidelity Spartan funds. Here is a list of them:
https://www.fidelity.com/mutual-funds/i ... s/overview
If you want to invest in one fund, then you could consider the Fidelity INDEX target retirement funds.
Here is the form you fill out to setup an automatic investment at Fidelity:
http://r.search.yahoo.com/_ylt=A0LEVvi5 ... V5A049aA4-
Here is a list of some other brokerages that offer automatic investment programs:
http://www.brokerage-review.com/findbro ... plans.aspx
Hope that helps.
Mike

bawr
Posts: 62
Joined: Thu May 19, 2011 9:10 pm

Re: Non-resident alien, 22 looking for substitutes to 401k/I

Post by bawr » Sun Mar 08, 2015 6:00 pm

acp03,

Depending on the visa you have, you could be exempt from paying capital gains tax in the US. In that case, investing in a tax advantaged vehicle like a 401(k) would not make sense.

TedSwippet
Posts: 1877
Joined: Mon Jun 04, 2007 4:19 pm

Re: Non-resident alien, 22 looking for substitutes to 401k/I

Post by TedSwippet » Mon Mar 09, 2015 6:50 am

acp03 wrote:...After reviewing the wiki and other forum topics it seems like if I do return back to my home country anytime in the near future, investing and contributing to my company’s 401(k) or IRAs isn’t the most convenient way to go, thanks to the high penalties and documentation that would be required at the time of moving back/ liquidating.
Conversely, if you don't return to your home country, but stay -- marry, raise a family, retire -- in the US then you will kick your past self for not having saved in a 401k or IRA. That, in a nutshell, is your issue.

Congratulations on looking ahead to the tax horrors that can await folk who save into US tax deferred accounts and subsequently permanently leave the US. I wish my younger self had had your vigilance! Unfortunately it is a minefield. You have to consider: current US tax law; future US tax law (pretty much completely unpredictable, except for the certainty that it will be different to now and the high probability of it being worse than now); current tax law of your 'home' country; future tax law of your 'home' country; the minutiae of the tax treaty if any between the US and your home country; and the likelihood that the US will renege on any treaty between now and when you would withdraw the money -- note that it has done that several times already over the past few years alone. You also have to consider the possible effects of US estate taxes, especially where the US has no estate tax treaty with your 'home' country (quite likely; in total the US has inked fewer than twenty estate tax treaties).

Unless you are sure that you will remain in the US for the rest of your life, my suggestion would be to participate in a 401k but only up to the company match, and do the rest of your saving outside. If you end up collapsing the 401k when you go the match should outweigh the early withdrawal penalty, making it at least marginally better than if you had avoided the 401k entirely. Saving more than that in a 401k or other tax deferred account may be a losing strategy in the long run.

nun
Posts: 214
Joined: Wed Mar 12, 2008 9:51 pm

Re: Non-resident alien, 22 looking for substitutes to 401k/I

Post by nun » Mon Mar 09, 2015 11:24 am

ACP,
What is you nationality and where you go if you left the US? The US as tax treaties with most countries and retirement accounts are often well covered so you can maintain them in the US and keep the tax deferral until you retire. Also if you are working in the US and contributing to a 401k are you sure you are an NRA rather than a resident alien?

TedSwippet
Posts: 1877
Joined: Mon Jun 04, 2007 4:19 pm

Re: Non-resident alien, 22 looking for substitutes to 401k/I

Post by TedSwippet » Mon Mar 09, 2015 11:39 am

nun wrote:The US has tax treaties with most countries and retirement accounts are often well covered so you can maintain them in the US and keep the tax deferral until you retire...
This does not defuse the US estate tax landmine. If you move back home and then have the poor judgement to die before retiring and while holding a US 401k the odds are that the US will demand a slice of it. As noted above there are fewer than twenty US estate tax treaties in existence. And for non-resident aliens, US estate taxes kick in at just $60k. That's only just over 1% of the allowance the US gives to its own citizens. Worse, it carries no marital deduction unless your spouse happens to be a US citizen.

nun
Posts: 214
Joined: Wed Mar 12, 2008 9:51 pm

Re: Non-resident alien, 22 looking for substitutes to 401k/I

Post by nun » Mon Mar 09, 2015 11:45 am

TedSwippet wrote:
nun wrote:The US has tax treaties with most countries and retirement accounts are often well covered so you can maintain them in the US and keep the tax deferral until you retire...
This does not defuse the US estate tax landmine. If you move back home and then have the poor judgement to die before retiring and while holding a US 401k the odds are that the US will demand a slice of it. As noted above there are fewer than twenty US estate tax treaties in existence. And for non-resident aliens, US estate taxes kick in at just $60k. That's only just over 1% of the allowance the US gives to its own citizens. Worse, it carries no marital deduction unless your spouse happens to be a US citizen.
Estate taxes could be an issue, but without more detail about the OP's potential future residence it's impossible to answer the question.

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