Tax-Efficient Fund Placement for G-4 Visa Holders (Non-Resident Aliens)

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Tax-Efficient Fund Placement for G-4 Visa Holders (Non-Resident Aliens)

Post by MrDee » Sun May 27, 2018 6:25 pm

Hello everyone,

What tax-efficient fund placement options do G-4 visa holders have? Any fellow Bogleheads with G-4 visas in this forum?

Let me first starting with explaining the tax scenario I understand is applicable to G-4 visa holders: as long as a G-4 visa holder is employed and working on a full-time basis for an international organization, his/her days are not counted as U.S. days and the individual will be treated as a Non-Resident for income tax purposes and therefore is required to file a 1040NR form. However, capital gains are a different story.

The law provides that capital gains from the sale of securities (i.e. stocks, bonds, mutual funds, etc.) are not taxable to a Non-Resident if the capital gain is "foreign source". However, those nonresidents who work for international organizations in the U.S. and spend more than 183 days in the U.S. during the calendar year (i.e. G-4 visa holders) are generally subject to U.S. taxation on their worldwide (not sure about this worldwide yet...) sale of securities at a flat 30% tax rate :shock:.

Portfolio interest is tax-exempt for G-4 visa holders. Most bonds on the market today qualify as portfolio interest. However, earnings/distributions from bond mutual funds are not tax-exempt as those are considered dividends not interest. Foreign dividends earned by mutual funds are tax-exempt since they are deemed to be foreign-source income.

I understand that a G-4 visa holder could open an IRA, Roth IRA, SEP but that contributions from their wages received from an international organization are NOT eligible! :oops:

So...putting all of the above together (pheeww! :shock:)...what's the most tax-efficient fund placement for a G-4 visa holder when trying to build a portfolio of investments?

Thanks for taking the time to read this! :)

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Joined: Thu Jun 28, 2018 5:00 pm

Re: Tax-Efficient Fund Placement for G-4 Visa Holders (Non-Resident Aliens)

Post by Ste » Thu Jun 28, 2018 6:39 pm

Fellow (soon to be) G-4 holder here!

Thanks for your post. Good to find someone in the same situation.

If I understand my own research on the topic right, you are correct. We don't pay income tax, but do pay a rather unpleasant 30% on capital gains since these are counted as US-sourced based on our usual place of residence since we meet the 183-days/year threshold. Thanks for pointing to the portfolio interest exemption - potentially interesting.

I wanted to ask: You talk about mutual funds. Are you thinking about US-domiciled or foreign-domiciled funds? For the latter case, do you have any information on whether we fall under PFIC reporting requirements as G-4 holders?
I have researched extensively but not found a conclusive answer. To explain: I'm a UK investor with all my investments in European-domiciled funds. As a resident on a "normal" (non-income tax exempt) visa, I would definitely have to worry about PFIC reporting and the potential severe to catastrophic tax implications. However, the fact that as G-4 holders we will have to file a W-8ben instead of a W-9 implies we are a "foreign person" which I understand might exempt us from PFIC regulations (and potentially also FBAR and FATCA). Do you have any information on this?

I'm an almost complete beginner in investing and definitely no tax expert, so it's well possible I might not have entirely understood some of the details here.

My plan right now is to simplify my investments as much as possible to around 3 (European-domiciled) accumulating index funds, and hold these stubbornly until I'm being rotated to another location in 2-3 years. I should mention that I'm definitely not planning to stay in the US long-term. Thereby I will be avoiding realised capital gains and taxation in the US altogether, and minimising the potential impact of PFIC. This opens me to the risk of taxation in my next location (unknown), but almost anything would be better than 30%. Another reason for this approach is that I hold my investments in a UK ISA (fully tax-exempt account). If I return to the UK, I won't pay any CGT on it.
My other idea was to use a service like wealthmanagement to invest in individual shares and systematic tax-loss harvesting, but I have discarded this option because I'm too convinced by the simplicity of index tracking and would also prefer to avoid anything that requires more tax reporting.

Thanks for reading!

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