Advice for resident alien

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applec
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Advice for resident alien

Post by applec » Tue Mar 14, 2017 12:57 pm

Hi,

I've been reading the wiki and some of the forum, good stuff! :D
The seven-twelve portfolio is convincing to me but so is the 3 funds portofolio... I'm leaning towards the latter with some added flexibility.

I'm 30 and looking to invest around 50K in the following funds with an overall 40/60 AA or 50/50, with a slight tilt to small-cap value:

Stocks:
Vanguard total stock admiral (VSTAX)
Vanguard Small-cap value admiral (VSIAX)
Bonds:
Vanguard total bond admiral (VBLTX)
Vanguard TIPS admiral (VAIPX)

I will likely also invest an additional portion in a few US stocks that are in the sector I'm familiar with.

I'm an EU citizen working in the US but I don't know if I'll keep staying here or go back to EU (still getting paid in US), becoming then a non-resident alien.
Given the above, should I also look into funds that mention 'tax-exempt' in their title?

In the forum I also read that for non-resident aliens:
so I can keep the cash in US accounts, invest in Irish domiciled funds, and not be affected by US dividend tax (directly) or inheritance tax? Still wondering if a non-US bank would be preferable here.

Yes, also if for your fixed income portion of portfolio you buy treasuries directly (instead of through an ETF) you are exempted from interest taxes and estate taxes on your treasury holdings. Most US brokerages will let you buy treasuries for free, so zero commission and zero ongoing charges (as opposed to a fixed income ETF).


Any advice on this?

Thank you
Last edited by applec on Tue Mar 14, 2017 3:38 pm, edited 1 time in total.

TedSwippet
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Re: Advice for resident alien

Post by TedSwippet » Tue Mar 14, 2017 1:38 pm

applec wrote:I'm an EU citizen working in the US but I don't know if I'll keep staying here or go back to EU (still getting paid in US), becoming then a non-resident alien. ... Given the above, should I also look into funds that mention 'tax-exempt' in their title?

Welcome to the forum.

Unfortunately, I don't think anyone will be able to give you a meaningful answer to this, given your own uncertainty about where you will spend your future. In general, holding US investments when (no longer) a US resident can fall anywhere on a spectrum of 'benign' right through to 'financial death-sentence'. It all depends on what you hold, what country you will live in, whether or not that country has a tax treaty with the US, if it does, what terms that offers, what that country's view of 'offshore' holdings is, that country's local tax laws, and so on. These problems multiply if you throw retirement savings accounts such as 401ks and IRAs into the mix.

Your best bet is probably to stay as flexible as you can. For taxable accounts, you can invest in the way that works best for your current US-person status, because these are fairly easy to liquidate and take with you when you leave if that's the best route. For 401ks and IRAs, retaining flexibility can be hard, because of the 10% early withdrawal penalties (plus any state penalty stuck on top). Depending on your likelihood of retiring in or out of the US, consider participating perhaps only up to the maximum company match on any 401k.

Meanwhile, research US tax landmines such as FATCA, FBAR, estate taxes for NRAs, the US 'exit tax', and so on. This may help you solidify a plan that won't entirely collapse if/when you leave the US.

applec
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Re: Advice for resident alien

Post by applec » Tue Mar 14, 2017 3:32 pm

Indeed I forgot to mention that I'm not planning to do any 401k or IRAs. So it would be all in a taxable account. After the lump sum, I would probably do dollar-cost averaging and invest around 2k per month.
I'm trying to do my homework and reasearch those 'landmines' but I'm pretty confused, professional help that is really familiar with this is also hard to find... The 'exit tax' you mention should be the expatriation tax but that doesn't apply to me as I'm not a US citizen.

You believe I should follow the advice I read elsewhere on the forum about investing in irish-based ETFs (advice for non-resident aliens), even if -for this year at least- I'm a resident? If you could choose based only on tax reasons (and investment reasons), would it be best to be resident alien, non resident alien, or potentially green-card holder? Would I need to setup a company and get paid there and/or invest through that to optimize?
Having a bit more clarity on the different scenarios and pros/cons would help me decide on what to do in the future as well.
Appreciate any help also regarding taxes.

With respect to asset allocation, portfolio and assets what do you think?

TedSwippet
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Re: Advice for resident alien

Post by TedSwippet » Tue Mar 14, 2017 6:01 pm

applec wrote:Indeed I forgot to mention that I'm not planning to do any 401k or IRAs. So it would be all in a taxable account.

Fair enough. You might be giving up some employer match, though, and if the match is large enough, it's possible that you could be better off taking it even if you later have to pay early withdrawal penalties on the 401k. Just a thought.

applec wrote:I'm trying to do my homework and research those 'landmines' but I'm pretty confused, professional help that is really familiar with this is also hard to find... The 'exit tax' you mention should be the expatriation tax but that doesn't apply to me as I'm not a US citizen.

The 'exit tax' also applies to 'long term' permanent residents, where 'long term' is currently defined as eight years, though it can be as low as six years, since the IRS counts years in perverse ways. Permanent residents are green card holders, aka "resident aliens", which may or may not be you. (Closely allied to the 'exit tax' is the often-overlooked 'sailing permit'. Google that and weep at the lunacy!)

applec wrote:You believe I should follow the advice I read elsewhere on the forum about investing in irish-based ETFs (advice for non-resident aliens), even if -for this year at least- I'm a resident?

No. NO. NO! Holding non-US domiciled ETFs while you are a US resident will cause a world of tax pain. While in the US and under US tax jurisdiction, avoid non-US domiciled things like the proverbial plague. Once you leave the US, the converse may be true -- depending on where you move to, you may then need to avoid US-domiciled things like the plague.

This is why you need to stay flexible. On leaving the US the best plan is often -- again, depending on where you go -- to take all your money and assets with you, and disconnect entirely from the US and the IRS as best you can.

applec wrote:If you could choose based only on tax reasons (and investment reasons), would it be best to be resident alien, non resident alien, or potentially green-card holder?

You don't really have that choice. Unless you're on a J (student) visa, if you live in the US then you are a 'US resident for tax purposes', and all you can do is to design your portfolio to avoid the major US tax landmines for US residents. That would be, typically, PFIC rules on holding non-US domiciled funds. If you don't live in the US, and are not a US citizen or green card holder, you are a non-resident alien, and now you must avoid the US tax landmines for US non-resident aliens. That would be things like higher than necessary dividend taxes and the potential for US estate tax, which you can sidestep by holding only non-US domiciled funds.

In a nutshell, while in the US invest exactly as a US citizen would, and if/when you leave, be prepared to move everything around so that you invest exactly as a non-resident alien would.

US citizens and residents are heavily encouraged by US tax rules into holding only US domiciled funds. Non-resident aliens are (often) heavily discouraged by US tax rules from holding any US domiciled funds.

applec
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Re: Advice for resident alien

Post by applec » Wed Mar 15, 2017 3:50 pm

TedSwippet wrote:No. NO. NO! Holding non-US domiciled ETFs while you are a US resident will cause a world of tax pain. While in the US and under US tax jurisdiction, avoid non-US domiciled things like the proverbial plague. Once you leave the US, the converse may be true -- depending on where you move to, you may then need to avoid US-domiciled things like the plague.

This is why you need to stay flexible. On leaving the US the best plan is often -- again, depending on where you go -- to take all your money and assets with you, and disconnect entirely from the US and the IRS as best you can.


Ok so if I'm a resident this year then I buy US Vanguard funds (likely ETFs to stay more flexible I guess). What's the issue if I become a non-resident alien then? I can't possibly sell all the assets and move them to a EU bank, doesn't make lots of sense to me... I'd keep a US bank and a EU bank.
I'd hold the US funds I bought when I was resident and eventually do the new investments in irish-based ETFs...

What makes it such a plague? You suggest to keep everything in cash then and not invest?

TedSwippet wrote:
applec wrote:If you could choose based only on tax reasons (and investment reasons), would it be best to be resident alien, non resident alien, or potentially green-card holder?

You don't really have that choice. Unless you're on a J (student) visa, if you live in the US then you are a 'US resident for tax purposes', and all you can do is to design your portfolio to avoid the major US tax landmines for US residents. That would be, typically, PFIC rules on holding non-US domiciled funds. If you don't live in the US, and are not a US citizen or green card holder, you are a non-resident alien, and now you must avoid the US tax landmines for US non-resident aliens. That would be things like higher than necessary dividend taxes and the potential for US estate tax, which you can sidestep by holding only non-US domiciled funds.

In a nutshell, while in the US invest exactly as a US citizen would, and if/when you leave, be prepared to move everything around so that you invest exactly as a non-resident alien would.

US citizens and residents are heavily encouraged by US tax rules into holding only US domiciled funds. Non-resident aliens are (often) heavily discouraged by US tax rules from holding any US domiciled funds.


I kind of do have the choice. What I meant is that I could choose where to stay, US or EU, so that I can be resident alien or NRA (depening on how much time I spend in US), even though I'd still get paid in US. So given that choice, better to stay resident or non-resident for tax and investments reasons, given the elements above?

TedSwippet
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Re: Advice for resident alien

Post by TedSwippet » Wed Mar 15, 2017 4:46 pm

applec wrote:Ok so if I'm a resident this year then I buy US Vanguard funds (likely ETFs to stay more flexible I guess). What's the issue if I become a non-resident alien then? I can't possibly sell all the assets and move them to a EU bank, doesn't make lots of sense to me... I'd keep a US bank and a EU bank.

As a US resident, you should hold US Vanguard funds or ETFs (or any other US-domiciled investments). Holding non-US domiciled investments subjects you to painful US tax rates and very time consuming and expensive US tax filings.

If you subsequently become a non-resident alien, you sell these funds at that point and re-buy the same things as EU Vanguard funds (or any other non-US domiciled investments). Holding US domiciled investments as a non-resident alien can subject you to painful US tax rates, and potentially US estate taxes.

I don't know how to make things any clearer than that.

Exactly how painful it is to hold US domiciled funds as a non-resident alien depends on which country you move to, and the details of any tax treaty between that country and the US. Note that the US actually has only very few estate tax treaties in place. Investigate these for your EU country and you'll get a better picture of how this would work for you.

applec wrote:I'd hold the US funds I bought when I was resident and eventually do the new investments in irish-based ETFs...

Again though, holding US funds when you are a non-resident alien potentially subjects you to some unpleasant US tax laws. It is better to sell those and buy the equivalent non-US funds.

applec wrote:What makes it such a plague? You suggest to keep everything in cash then and not invest?

No. Invest, but use the appropriate vehicles to avoid US tax landmines. Here, the 'appropriate vehicles' are different depending on whether or not you are a US resident, so if you change you US residency status you might also want to change investment vehicles.

applec wrote:I kind of do have the choice. What I meant is that I could choose where to stay, US or EU, so that I can be resident alien or NRA (depending on how much time I spend in US), even though I'd still get paid in US. So given that choice, better to stay resident or non-resident for tax and investments reasons, given the elements above?

Let's get the terminology clear. You are a US resident alien only if you hold a green card. If you spend enough time in the US -- H1B or L1 visa, for example -- you are then resident 'for tax purposes'. In both these cases you should follow the rules for US based investors, since doing anything else is hugely painful in terms of US tax. (Note that if you somehow become a green card holder living outside the US, you are still subject to the same US tax laws and restrictions as US citizens and residents.)

If you are neither a green card holder nor resident for tax purposes you are a non-resident alien. In this case you should probably -- depending on your actual country of residence -- follow the rules for non-US based investors. You'll also want to take special care not to spend enough time in the US that the US considers you to be resident (check out the 'substantial presence test').

Which of these is 'best' depends on how your home country's tax laws compare with the US's. Of course, there is much more to the decision about where to live than tax.

applec
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Re: Advice for resident alien

Post by applec » Wed Mar 15, 2017 5:50 pm

I see, well this would make things super complicated and potentially hugely decrease any gains in doing any investments.. Especially if somehow I end up being US resident for a year, non-resident for a couple of years, then back to resident for some time, etc... :oops:
At that point isn't it best to just put the money in an online savings account with 1% interest like ally bank? Any tax plagues there?

What if I open a US company and invest/get paid through that? That should make things easier

TedSwippet
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Re: Advice for resident alien

Post by TedSwippet » Wed Mar 15, 2017 6:21 pm

applec wrote:I see, well this would make things super complicated and potentially hugely decrease any gains in doing any investments.. Especially if somehow I end up being US resident for a year, non-resident for a couple of years, then back to resident for some time, etc...

See if your target EU country has a normal tax treaty and/or an estate tax treaty.

If it has these, and if your target EU country does not go out of its way to punish 'offshore' holdings with high taxes or other discouraging measures, then holding US domiciled funds while a US NRA and a resident of that country probably won't be too terrible.

Under a normal treaty, the US dividend tax rate for NRAs would typically be 15% rather than the usual 30%, and can be as low as 10%, often creditable against local taxes. If there is an estate tax treaty, then US estate taxes would probably kick in at $5.25mm or so rather than the stingy $60k generally allowed for NRAs. You can find the US tax rates for your target EU country in the appropriate treaties (if any).

applec wrote:What if I open a US company and invest/get paid through that? That should make things easier

No idea. (Though in general, owning a US company is likely to be a tax nightmare all of its own.)

Tylenol Jones
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Re: Advice for resident alien

Post by Tylenol Jones » Sun Mar 19, 2017 8:34 am

You should just invest as a US resident. When you are exiting, you will maybe have to pay tax on gains but that's not really a big deal given all the great opportunities you have in the US. Since you'll have to pay exit tax, you should sell your US domiciled ETFs at that time, and then buy non-US-domiciled ETFs once you exit. This will also let you enter your next country in cash which will make it easier to keep track and comply with their tax system once you enter.

hachiko
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Re: Advice for resident alien

Post by hachiko » Sun Mar 19, 2017 9:51 am

applec wrote:I see, well this would make things super complicated and potentially hugely decrease any gains in doing any investments.. Especially if somehow I end up being US resident for a year, non-resident for a couple of years, then back to resident for some time, etc... :oops:
At that point isn't it best to just put the money in an online savings account with 1% interest like ally bank? Any tax plagues there?

What if I open a US company and invest/get paid through that? That should make things easier


The reason it's hard to plan and go back and forth is that they don't only care what happens in the current year, they also take into account how many days you were in the US during the preceding two tax years. Meaning, you could potentially be in the US only 31 days in 2016, but still be a resident alien for tax purposes.

It's not very hard to get to the 31 days either. For example, if you have a stopover in the US, you automatically have 2 days counting as US days.

applec
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Re: Advice for resident alien

Post by applec » Mon Mar 20, 2017 2:02 pm

Let's say I decide to stay in Italy (wikihas a page on it).

It looks like I can file as non-resident then. So if I file taxes as non-resident alien I can't invest as a resident? Even at the flat 30% rate, it's only when I have capital gains (sell the funds/stocks) right?
It could still be ok for a buy&hold strategy

So only way I can avoid the exit tax is to start as non-resident and stay non-resident?

Tylenol Jones
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Re: Advice for resident alien

Post by Tylenol Jones » Tue Mar 21, 2017 3:48 am

applec wrote:Let's say I decide to stay in Italy (wikihas a page on it).

It looks like I can file as non-resident then. So if I file taxes as non-resident alien I can't invest as a resident? Even at the flat 30% rate, it's only when I have capital gains (sell the funds/stocks) right?
It could still be ok for a buy&hold strategy

So only way I can avoid the exit tax is to start as non-resident and stay non-resident?


How can you stay non-resident if you reside in US and have a working visa? I believe that there are only few visa types that let you spend some limited time in US without becoming tax resident.

TedSwippet
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Re: Advice for resident alien

Post by TedSwippet » Tue Mar 21, 2017 5:27 am

applec wrote:Let's say I decide to stay in Italy (wikihas a page on it).

From the bogleheads wiki page, as I understand things, Italy taxes returns from non-EU funds at a much higher rate than EU funds. So if you hold US domiciled funds or ETFs while resident in Italy, you pay an Italian tax penalty. The US does the converse, so if you hold EU domiciled funds while resident in the US, you pay a US tax penalty.

This is the potential no-win situation. The only way to avoid it is to reorganise a portfolio on moving country.

applec wrote:It looks like I can file as non-resident then. So if I file taxes as non-resident alien I can't invest as a resident? Even at the flat 30% rate, it's only when I have capital gains (sell the funds/stocks) right?

Italy has decent tax treaties with the US, so if you are a US NRA -- which you apparently are not right now -- and invest as if you were a US resident, you pay a 15% US rate on dividends, potentially recoverable against Italian taxes, 0% US rate on capital gains, and have no particular issues with US estate taxes.

applec wrote:It could still be ok for a buy&hold strategy.

There is still the Italian tax penalty for holding non-US funds to consider, though. In general you always want to minimise taxes.

As a resident of Italy, you could hold a US-domiciled S&P500 index fund or ETF and, it seems, pay high Italian taxes. Or you could hold an EU-domiciled S&P500 index fund or ETF, get the precise same investment gains, and pay lower Italian taxes. Clearly the second route is the better one.

applec wrote:So only way I can avoid the exit tax is to start as non-resident and stay non-resident?

At this point, I think we've all lost track of what it is that you are trying to achieve. Perhaps you could re-state your aims in a less ambiguous form?

applec
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Re: Advice for resident alien

Post by applec » Wed Mar 22, 2017 4:44 pm

I already have a work VISA and I get salary but my accountant said I'll likely not qualify to be resident as I didn't spend enough time in US.

Can we quantify what would be the inconvenience/tax hit in terms of starting to invest now as NRA, even if in the future I decide to be resident in US (because I spend enough time there)?

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Re: Advice for resident alien

Post by TedSwippet » Thu Mar 23, 2017 5:19 am

Search Google for "PFIC tax". Non-US domiciled ETFs and mutual funds are PFICs.

Describing the US tax treatment on these as "punitive" is understatement. Filing is extremely complex, and generally requires expensive expert help. Expect to pay around 40-50% in US federal tax annually on both dividends and capital gains, potentially with state tax issues thrown on top. Over the long term, the tax liability can rise to consume your entire gain.

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in_reality
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Re: Advice for resident alien

Post by in_reality » Thu Mar 23, 2017 6:07 am

TedSwippet wrote:
applec wrote:Let's say I decide to stay in Italy (wikihas a page on it).

From the bogleheads wiki page, as I understand things, Italy taxes returns from non-EU funds at a much higher rate than EU funds. So if you hold US domiciled funds or ETFs while resident in Italy, you pay an Italian tax penalty. The US does the converse, so if you hold EU domiciled funds while resident in the US, you pay a US tax penalty.

This is the potential no-win situation. The only way to avoid it is to reorganise a portfolio on moving country.


What if you don't hold funds?

What if you paid some place like Personal Capital 0.89% to manage a portfolio of individual stocks. Wealthfront charges 0.25% and has "direct indexing" which buys the individual stocks [not 100% sure on the direct indexing price - if it's included in the 0.25% or not]. Wealthfront seems to include more stocks (up to 1000 or so). Personal Capital goes for equal weighting.

Since you don't seem to know where you will be in the future, and would have to pay taxes on gains to exit funds each time you switch; it seems like individual stocks might be a better alternative.
[60% US _ 26% DEV _ 14% EM] | (-16% LC _ +8% MC _ +8% SC) | [47% FND/VAL _ 40% MKT _ 7% MOM _ 6% REIT] | (+/- 5% or *25% rebalancing bands)

applec
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Re: Advice for resident alien

Post by applec » Fri Mar 24, 2017 9:37 am

I was thinking about using ETFs... Why are stocks different for taxation purposes?
What if I invest in a few US stocks from the US... What's the taxation under the different scenarios?

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in_reality
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Re: Advice for resident alien

Post by in_reality » Fri Mar 24, 2017 10:13 am

applec wrote:I was thinking about using ETFs... Why are stocks different for taxation purposes?
What if I invest in a few US stocks from the US... What's the taxation under the different scenarios?


I know nothing about Italy (except the pasta I had from there today was very good) and Italian taxation, but for the US, I don't believe individual stock holdings trigger PFIC taxation rules. So if you used (a collection of) individual stocks (that aren't in an ETF) while you are in Italy, I believe you could just keep holding them when you moved to the States.

If Italian taxes work the same (only extra taxes on foreign funds but not individual stocks), then presumably you could just keep the same collection no matter where you are and not have to sell every time you move to buy an ETF that is domiciled in the right place.

So if you buy a few US stocks from the US and when you are in Italy, is there special taxation? If bought you used an advisor who used an American brokerage to buy/sell/hold the stocks, would you face higher Italian tax?

It seems wealthfront only does direct indexing for US stocks so they might be out (as they'd use ETFs for international holdings which wouldn't work for you in Italy).
Personal Capital is more expensive but seem to be able to hold individual international stocks too.

You'd have to calculate if the Personal Capital cost would be less than taxation when you had to sell the ETFs each time you moved.

Obviously this is not ideal but your needing to switch countries and having to sell each time you do isn't ideal either. I'm not sure what the best approach is, but you might consider if individual stocks help you avoid the need to realize capital gains overtime you move.
[60% US _ 26% DEV _ 14% EM] | (-16% LC _ +8% MC _ +8% SC) | [47% FND/VAL _ 40% MKT _ 7% MOM _ 6% REIT] | (+/- 5% or *25% rebalancing bands)

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Re: Advice for resident alien

Post by TedSwippet » Fri Mar 24, 2017 11:47 am

in_reality wrote:... but for the US, I don't believe individual stock holdings trigger PFIC taxation rules.

They don't. Only funds, ETFs, and some non-US life insurance plans have this problem.

The PFIC rules are laughably intricate and arcane, but for regular investors they boil down to: US domiciled fund or ETF good, non-US bad. It is US protectionism pure and simple, but recognising it for what it is does nothing to neuter it.

Surrendering the idea of funds or ETFs and holding individual stocks instead may well be the most pragmatic approach, given the circumstances. Logistically painful, but at least it isn't a potential US tax death-sentence should one later become a 'US resident for tax purposes'.

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in_reality
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Re: Advice for resident alien

Post by in_reality » Fri Mar 24, 2017 6:59 pm

TedSwippet wrote:
in_reality wrote:... but for the US, I don't believe individual stock holdings trigger PFIC taxation rules.

They don't. Only funds, ETFs, and some non-US life insurance plans have this problem.

The PFIC rules are laughably intricate and arcane, but for regular investors they boil down to: US domiciled fund or ETF good, non-US bad. It is US protectionism pure and simple, but recognising it for what it is does nothing to neuter it.

Surrendering the idea of funds or ETFs and holding individual stocks instead may well be the most pragmatic approach, given the circumstances. Logistically painful, but at least it isn't a potential US tax death-sentence should one later become a 'US resident for tax purposes'.


I agree. My suggestions however don't appear to work. Weathfront uses ETFs for international funds. Personal Capital uses them for fixed income.

Italian investors who have to move back and forth to the US really do seem to have a particularly difficult challenge given that both countries require holding of funds domiciled in that country (or that follows EU UCITS directives in the case of Italy).

Maybe using ETFs and selling on each move is the best unless a better way to hold individual stocks is available.

Maybe you ought to try to build a portfolio that gives the most opportunity for tax loss harvesting. For example, instead of holding a total international fund, hold a separate emerging, small cap international, and large cap international or whatever you have good TLH parter funds.
[60% US _ 26% DEV _ 14% EM] | (-16% LC _ +8% MC _ +8% SC) | [47% FND/VAL _ 40% MKT _ 7% MOM _ 6% REIT] | (+/- 5% or *25% rebalancing bands)

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Re: Advice for resident alien

Post by TedSwippet » Sat Mar 25, 2017 4:36 am

in_reality wrote:My suggestions however don't appear to work. Weathfront uses ETFs for international funds. Personal Capital uses them for fixed income.

Yeah, that's a pity since it seemed like a possible escape route, but it's not entirely unexpected. Robo-firms are clearly going to use low-cost diversified things, not least because that's the obvious best approach for 99.99% of their customers.

If you want to invest, avoid both PFIC and any other versions of this from other countries, and be able to move across borders without continually selling and repurchasing, the only realistic option may be to open a brokerage account with someone like Interactive Brokers and passively manage a selection of direct US and non-US company stock. A relatively expensive pain in the neck, but nowhere near as expensive as triggering a PFIC or other tax landmine.

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in_reality
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Re: Advice for resident alien

Post by in_reality » Sat Mar 25, 2017 4:53 am

TedSwippet wrote:
in_reality wrote:My suggestions however don't appear to work. Weathfront uses ETFs for international funds. Personal Capital uses them for fixed income.

Yeah, that's a pity since it seemed like a possible escape route, but it's not entirely unexpected. Robo-firms are clearly going to use low-cost diversified things, not least because that's the obvious best approach for 99.99% of their customers.

If you want to invest, avoid both PFIC and any other versions of this from other countries, and be able to move across borders without continually selling and repurchasing, the only realistic option may be to open a brokerage account with someone like Interactive Brokers and passively manage a selection of direct US and non-US company stock. A relatively expensive pain in the neck, but nowhere near as expensive as triggering a PFIC or other tax landmine.


I wonder if wealthfront would let you go 100% US equities? At 0.25% it'd probably be worth it.

Bonds at today's rates are unlikely to have much in capital appreciation, so you could probably use ETFs and sell on a move.

That'd only leave international stocks. It'd still be a headache but maybe there's an EU based advisory or robo doing that somewhat like Wealthfront is.
[60% US _ 26% DEV _ 14% EM] | (-16% LC _ +8% MC _ +8% SC) | [47% FND/VAL _ 40% MKT _ 7% MOM _ 6% REIT] | (+/- 5% or *25% rebalancing bands)

applec
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Re: Advice for resident alien

Post by applec » Mon Apr 10, 2017 7:33 am

So basically for me you suggest using this product and what they describe here as strategy? https://www.wealthfront.com/tax-optimiz ... t-indexing

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Watty
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Re: Advice for resident alien

Post by Watty » Mon Apr 10, 2017 8:08 am

A couple of things you should also add to your list of things to look into.

1) You may need both a US will and a EU will. The inheritance laws can be very different and contradictory so getting your estate settled could be expensive and take a long time. Even if you are relatively young and in good health it would be good to get this set up right since the amounts could be faily significant.

2) You also need to be concerned about the state taxes of the state where you are living and working. Some states like California have a reputation for trying to tax US expatriates that live overseas. Some people will move to a different tax friendly state for a couple of months before they leave the us to establish residency there. Establishing residency in a different state is sometimes tricker than it sounds be sure to research the details of that before you do anything.

It is good to do the research to know as much as you can about the situation but it sounds like you could use some professional tax planning by someone that is familiar with both US and EU laws.

applec
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Re: Advice for resident alien

Post by applec » Mon Apr 10, 2017 1:09 pm

Watty wrote:It is good to do the research to know as much as you can about the situation but it sounds like you could use some professional tax planning by someone that is familiar with both US and EU laws.


Indeed do you know any?

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Watty
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Re: Advice for resident alien

Post by Watty » Mon Apr 10, 2017 1:41 pm

applec wrote:
Watty wrote:It is good to do the research to know as much as you can about the situation but it sounds like you could use some professional tax planning by someone that is familiar with both US and EU laws.


Indeed do you know any?


No, but there are likely expat boards where people that are from your country post about living in the US.

applec
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Re: Advice for resident alien

Post by applec » Sun Apr 23, 2017 8:40 am

What about something like this? http://covestor.com
it's from interactive brokers and apparently exposes the securities directly

Khuen
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Re: Advice for resident alien

Post by Khuen » Mon Apr 24, 2017 5:12 am

Lots of good advice above -- a few more pitfalls I haven't seen mentioned:

(1) Interrupted Period of Residence, IRS Pub. 519: if you're US resident for 3 years or more, then non-resident for 1-3 years, and then resident again, you may need to amend returns for the NRA years and pay additional taxes, e.g. if you sold US holdings without paying as much capital gains as you would have while resident.

(2) Some individual stocks do end up qualifying as PFICs, e.g. international REITs. Annual 20-F SEC filings will say things like "we believe we were [not] a Passive Foreign Investment Company". That means constructing a portfolio of individual stocks involves some minimal care. US robo-advisors will steer clear of these, but I wouldn't rely on EU ones to filter them out.

(3) Italian wealth taxes: 0.2% on foreign investments ("IVAFE"). Assuming a typical dividend of 2%, that roughly translates to +10 percentage points in the dividend tax rate.

(4) Italian form RW to report all foreign holdings (much like the dreaded FATCA Form 8938 in the US).

I picked up the last 2 from skimming PWC pages, but they're not mentioned on our wiki; conversely, harmonized vs. non-harmonized ETFs from the wiki get no mention from PWC. I don't speak Italian and have no idea which of those is more complete or up-to-date.

Now, have you confirmed your status in your previous country of residence? It's not clear if that was Italy or somewhere else? This will vary by country, but in my own corner of the EU -- let's call it Ruritania for semblance of anonymity -- the Ruritanian tax authority wants proof positive that you're resident elsewhere before they allow you to unregister. (Get the IRS to issue Form 6166, take that along with your US apartment lease through a court translator, fill out a 6 page form, hope for the best. Spouse or children living in Ruritania? It's your center of life interests, still resident. Have real estate in Ruritania? Likewise still resident.)

Residence feeds into which brokers will allow you to maintain an account. From what I've been able to find, low cost brokerages in the EU will disallow and/or liquidate a US person (burden of FATCA reporting), and US brokerages will do the same for a non-US person (burden of FATCA reporting in the other direction). Interactive Brokers will direct non-US clients to their UK subsidiary, and switching back and forth is only allowed on a case by case basis.

All in all, I can totally imagine the cost of accountants and lawyers outweighing any gains on a $50-100K portfolio. If you find a workable approach, please do update the thread for the benefit of future readers. HTH, and good luck!

limjiahao
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Re: Advice for resident alien

Post by limjiahao » Thu May 04, 2017 1:29 pm

Sorry to hijack the post. I'm in a similar situation, I'm a resident alien and I want to set up a lazy portfolio but I want to keep my options open without going through too much hassles with taxes if I leave the US.


Say if I invest in Irish-domiciled ETFs (e.g. SWDA, IWDA, etc) now and then only sell it a few years later when I'm back in my home country, am I right that I do not incur any US taxes? Reason being that I'll not receive any dividends during my time in the US and I only sell the ETF after I have left the US, so no US capital gain taxes.


If I were to sell it a few years later while still being in the US, I'll only incur US capital gain tax. I do know that this is not favorable since I'm being tax twice as the US components of the ETF are already taxed once when leaving the US and I'm being taxed on it again when I sell it.


Hope someone have some insights on this :)

TedSwippet
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Re: Advice for resident alien

Post by TedSwippet » Thu May 04, 2017 2:02 pm

limjiahao wrote:Say if I invest in Irish-domiciled ETFs (e.g. SWDA, IWDA, etc) now and then only sell it a few years later when I'm back in my home country, am I right that I do not incur any US taxes? Reason being that I'll not receive any dividends during my time in the US and I only sell the ETF after I have left the US, so no US capital gain taxes.

Unlikely. The accumulated dividends, even though not received by you, may nevertheless count as 'distributions' for PFIC purposes. Your only defence here is to pay tax annually on a mark-to-market basis, meaning that you pay income tax rates on both dividend and capital gain elements. And no matter what you do before leaving the US, any subsequent PFIC punishment tax may become due when you leave the US, even if you don't sell until after leaving.

limjiahao wrote:If I were to sell it a few years later while still being in the US, I'll only incur US capital gain tax.

No. If you use mark-to-market you've already paid income tax rates on all the gains. If not, then you get to deal with the 'excess distribution' monstrosity, which taxes you at the highest income tax rate in existence in previous years, and then applies an interest element to each past year just to add insult to injury.

limjiahao wrote:Hope someone have some insights on this.

Really, don't even think about it. The annual tax reporting alone, never mind the actual tax rates, is so excruciating that it would leave you envying the dead.

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in_reality
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Re: Advice for resident alien

Post by in_reality » Fri May 05, 2017 1:47 am

applec wrote:What about something like this? http://covestor.com
it's from interactive brokers and apparently exposes the securities directly


Actually that looks pretty good if you stick to the cheap portfolios (0.08%ER). Transaction costs are in addition to that. Interactive Brokers is about the cheapest around but still if you are buying each stock individually ... not sure what your cost will end up as.

Also, there's no international exposure.

Maybe non-us stocks could be gotten at a similar Italian/European broker.
[60% US _ 26% DEV _ 14% EM] | (-16% LC _ +8% MC _ +8% SC) | [47% FND/VAL _ 40% MKT _ 7% MOM _ 6% REIT] | (+/- 5% or *25% rebalancing bands)

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