US expat in Germany

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Storamin
Posts: 34
Joined: Sun Jan 15, 2017 5:25 am
Location: Düsseldorf, Germany

US expat in Germany

Post by Storamin »

Thanks,

Storamin
Last edited by Storamin on Fri Oct 16, 2020 1:28 pm, edited 1 time in total.
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Kitty Telltales
Posts: 353
Joined: Thu Mar 17, 2016 8:36 am
Location: Florida and Germany

Re: US expat in Germany

Post by Kitty Telltales »

Hi Storamin, Your situation reflects my own in many respects but we are a few years further along than you and your partner are, we are 57 and 67. My question to you and others on the forum is, is it possible to contribute to a ROTH if you are not paying US Federal tax due to the Foreign Tax Credit?

Your partner’s queasiness towards investing reflects my husband’s as well. Although, he’s in retirement which adds to his feeling about risk. Most people I have spoken with on this topic in Germany see investing as pure speculation and they feel amazingly confident they will receive enough from the retirement system, when that time comes. My husband and I came together later in life so, in many respects, we make separate investment decisions for the assets we brought into our marriage and keep the money we earn in separate accounts, mine mostly in America. We share the title to our jointly owned house. His name is on what I consider “my German giro accounts” used for both personal and business reasons, but we don’t even know each other’s passwords and make decisions separately. It was just easier to open the accounts with his name too when I first arrived 12 years ago. Like you, no one knows for sure if we will stay here or head back to the States. My feeling however is that we’ll probably stay here due to the health insurance system and a much lower cost of living generally. Plus we have a really lovely garden here.

The Stuftung Warentest Finantest regularly evaluates EFT’s including an overview of fees.

A few years back I thought it would be wise to invest in German firms, then the Deutsche Bank and VW debacles happened. Now my route to investing is either US based, with international exposure as most firms are, or global with no particular German bias.

It sounds like you are on a good road with your savings. As Taylor Larimore often says, “there are many road to Dublin”, and also to Berlin.
Last edited by Kitty Telltales on Sun Jun 10, 2018 8:28 am, edited 1 time in total.
Valuethinker
Posts: 48954
Joined: Fri May 11, 2007 11:07 am

Re: US expat in Germany

Post by Valuethinker »

Storamin wrote: Sat May 19, 2018 12:34 pm Hey everyone,

We're a US citizen & German citizen living in Germany. I am covered under US & German taxes while she is covered under German taxes. We will probably marry in the near future. Location in Germany is unsure – perhaps we will move to the US or another country. Retirement location is probably either the US or Germany.

Emergency fund of 6+ months exists
No Debt
Tax Filing Status: Single. In the future, probably Married Filing Separately due to non-US citizen marriage
Tax Rate: No US Federal due to Foreign Tax Credits, No US State. Covered under German tax system – the applicable tax rate is between 40 and 45%.
Age:32 & 29
Desired Asset allocation: 80% stocks / 20% bonds <- I’m OK with being more aggressive. Right now I'm closer to 90/10.
Desired International allocation: 50% I suppose, since we're not sure where we'll end up. Definitely more weighted towards US in my US accounts and Europe/International in German accounts

Current retirement assets - 150k USD

His Rollover IRA at Vanguard 85k USD
12% Vanguard Total Bond Market Index Fund Admiral Shares VBTLX
33% Vanguard Total International Stock Index Fund Admiral VTIAX
55% Vanguard Total Stock Market Index Fund Admiral VTSAX

His ROTH IRA at Vanguard 60k USD
7% Vanguard Total International Bond Index Fund Investor VTIBX
39% Vanguard Total International Stock Index Fund Admiral VTIAX
54% Vanguard Total Stock Market Index Fund Admiral VTSAX

I think I will move the bonds to the Rollover IRA by:
Sell all of the VTIBX in ROTH IRA and purchase VTIAX
Sell the equivalent amount of VTIAX in Rollover IRA and purchase VTIBX (maybe even a bit more to qualify for Admiral shares)

HSA 5% of total
20% Vanguard Total International Bond Market Index Fund Admiral VBTLX
10% Vanguard 500 Index Fund Admiral VFIAX
10% Vanguard Mid-Cap Index Fund Admiral VIMAX
10% Vanguard Small-Cap Index Fund Admiral VSMAX
20% Vanguard Total International Stock Index Fund Admiral VTIAX
30% Vanguard Total Stock Market Index Fund Admiral VTSAX

Contributions
ROTH IRA (up to phased out amount)
German retirement company funded pension exists for both
Employer Stock Program exists for both (30% discount)
Approx 50k EUR per year after tax cash, half of which will go the Schwab International One Account and half to a German bank account. This split can change.

Cash Assets (Available to Invest)
Schwab International One Account 30k USD. I will probably start purchasing Vanguard ETFs soon (50% VTI, 30% VXUS, 10% BND, 10% BNDX)
Her Cash assets of 120k EUR cash available for investing in Germany, covered under German tax rules

Questions:
1. I just wanted to check to see if this appears reasonable.

2. The HSA account is somewhat limited in the funds that it offers. It's an account I won't need to touch (until retirement). But, I've chosen a couple different funds for no real reason. :confused

3. She's got about 120k EUR cash available for investing in Germany, covered under German tax rules. She's a bit gun shy about pulling the trigger and moving it into stocks / bonds. Unfortunately Vanguard isn't really operating in Germany yet. What funds would you recommend in Germany (or perhaps Ireland ETFs?)

4. What would be a good split for new investments in my Schwab Account?

Thanks,

Storamin
1. keep all your financial affairs as separate as possible. Your US citizenship and US tax by citizenship not residence means that your tax situation is by default difficult. Take FATCA (compulsory US reporting) plus MIFID II (means that it's hard to find US funds that you can actually buy, as a European) and you have a lot of investment issues.

Note that your US taxing authority may not recognize your savings in a German pension. You might find dividends, interest & capital gains in that fund are taxable in the USA.

2. your first issue is what does the German government tax? Is there a tax treaty? Do they recognize 401k, IRA etc as protecting you from German taxation?

3. your second issue is that under PFIC rules, your best bet is to hold US listed ETFs. But that's where MIFID II might bite- -not being able to find a European broker that will allow you to trade in them.

(Ted Swippet is British, but lived in America for 10 years, virtually every post he has written on the subjects of foreigners taxed in US, US citizens taxed abroad, is worth reading)

4. beware US estate taxes. You might be in luck, and there is a Treaty between US and Germany (note, not between EU and USA).

5. note your US will may not apply. German, being a Civil Law country, has (as I understand it, at least this is true for France), quite strict laws on who inherits, which overwrite any will. Thus for example first wives, children of previous marriages etc. may get first bite of the estate, regardless of the deceased's wishes.

On your spouse:

- there are various Irish or Luxembourg domiciled funds. I am not German based (and I won't be in the EU more than about another 9 months ;-)) but if you can buy those and it works for your spouse's tax position then:

- global equity index fund, currency unhedged - I would say 50% of portfolio
- global government bond fund, currency hedged to the EUR, 50%

Now:

- it depends on how the German tax system works whether you buy Distributing or Accumulating shares. Some tax systems treat dividends as taxable, even if no cash is distributed. Then you want distributing funds. Otherwise Accumulating funds are good-- the money is just reinvested into the assets of the fund

- there's a risk that both of my suggested investments could go down. That might sour your spouse on investing ever again- -people have to be comfortable with volatility and with showing a book loss (below purchase price) on investments from time to time.

Thus an alternative is bank Certificates of Deposit/ Term Deposits/ insert German term. A "ladder" say of 1, 2, 3 years. Problem is in Germany right now they will pay very little interest (if any).

So I would suggest say 50% in each of:

- ladder of CDs- so say 30k maturing each year 12 months, 24 months, 36 months

- global equity fund (as above)

The term deposits cannot lose money-- they are within the EUR 100k guarantee for any financial institution, backed by the German government. the equity funds will go up and down.
plats
Posts: 512
Joined: Mon Dec 31, 2007 8:46 pm

Re: US expat in Germany

Post by plats »

Kitty Telltales wrote: Sun Jun 10, 2018 7:08 amMy question to you and others on the forum is, is it possible to contribute to a ROTH if you are not paying US Federal tax due to the Foreign Tax Credit?
Unlike the FEIE, the Foreign Tax Credit doesn't exclude income, so you can contribute to a tIRA or ROTH IRA.
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Nate79
Posts: 9354
Joined: Thu Aug 11, 2016 6:24 pm
Location: Delaware

Re: US expat in Germany

Post by Nate79 »

Is Vanguard aware you do not reside in the US? If so I do lot think they will let you trade in your account. Contact them and ask.
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