US Nonresident Aliens - Vanguard freezing legacy accounts

[typical.investor]

I know some people that may be in this situation. What is the exact definition of "non-resident"? This has been complicated in other contexts... is it based on time-in-country (per year, or running) or is it based, like tax things, on whether one has a green card or not and is or is not a "tax-resident" with tax obligations to the US, or something else?

For Vanguard's purpose of your having an account with them, they say:

Unless you reside in the U.S. and hold a permanent legal residential address, you can't open an investment account

In general, that goes for maintaining an account with them as well. Vanguard may ask for proof of a permanent legal residential address by showing a utility bill or similar.

However, some long time customers appear to have been grandfathered in and designated as US persons even though they resided outside the US because they had established their account before enforcement was tightened post 911. Many NRAs appear to have been in the category but now with closure of the mutual fund platform, they are worried as new accounts on the brokerage platform are not available.

Vanguard isn't being clear about what will happen which may be a deliberate strategy to encourage people to move away so they reduce the cost to service those specialized and restricted (sales and withdrawals only) accounts, or perhaps they will simply issue checks if people don't move their money (though I find that unlikely but who knows).

[Else]

Wanted to raise the awareness eveywhere. As many places as possible. I'll be the bad guy.

https://www.reddit.com/r/Bogleheads/com ... nt_aliens/

viewtopic.php?t=433099

Venting is cathartic. Thanks for listening.

As a US citizen, I will say you are getting the same treatment as I did at Vanguard who explained to me that the reason they froze my account was because it's a business decision to lower costs for everyone else by not having to jump though the extra hurdles of compliance that international investors pose.

Now, when Vanguard decided to close it's mutual fund platform which also was a business decision, they are unable to open brokerage accounts for non-resident aliens without going through the legalities of which customers they can do that for. Understand that it is not just simply Vanguard's decision, but also is affected by other countries' regulations on whether foreign financial firms can open accounts for their residents or not.

In the contexts of those additional costs, you also have to consider how much revenue they would gain from your business. The answer is likely very, very little. So the business view is that you are a quite costly customer.

Vanguard identified me as a costly customer too, and I was denied service for that reason. I never felt that someone was coming for me or that I was targeted or treated unfairly. I honestly don't see why you do.

In any case, you know Schwab International will take your accounts. They really are not very expensive and a good value for the money. And Interactive Brokers will take taxable accounts.

Lastly, you could always find an advisor who would accept you as an NRA under AUM.

I mean you like Vanguard because costs are low, but you don't like what Vanguard does to keep costs low. That I think is true of many customers who find their customer service lacking. You are hardly alone.

The US is an Immigrant Country. I lived 25 years with a green card in the US, because Germany prohibited Dual citizenship. I never intended to return to Germany. I had studied, worked and owned property in the US. However,
my mother's health required me to stay longer in Germany. My personal circumstances changed and I decided to stay in Germany. I did not loose my credits for recieving social security payments in the future, nor I am I forced to close my 403b at TiaaCref. I have a long term investment strategy for my investments in my taxable Vanguard account ( customer for 18 years). Apparently Vanguard does not have a longterm horizon and commitment towards their clients. As a Vanguard client you better make sure where your personal relatiionships or jobs might take you. This could affect any Vanguard client. If you decide to invest with Vanguard, make sure you will live exclusively in the US for the rest of your life.

[typical.investor]

As a US citizen, I will say you are getting the same treatment as I did at Vanguard who explained to me that the reason they froze my account was because it's a business decision to lower costs for everyone else by not having to jump though the extra hurdles of compliance that international investors pose.

Now, when Vanguard decided to close it's mutual fund platform which also was a business decision, they are unable to open brokerage accounts for non-resident aliens without going through the legalities of which customers they can do that for. Understand that it is not just simply Vanguard's decision, but also is affected by other countries' regulations on whether foreign financial firms can open accounts for their residents or not.

In the contexts of those additional costs, you also have to consider how much revenue they would gain from your business. The answer is likely very, very little. So the business view is that you are a quite costly customer.

Vanguard identified me as a costly customer too, and I was denied service for that reason. I never felt that someone was coming for me or that I was targeted or treated unfairly. I honestly don't see why you do.

In any case, you know Schwab International will take your accounts. They really are not very expensive and a good value for the money. And Interactive Brokers will take taxable accounts.

Lastly, you could always find an advisor who would accept you as an NRA under AUM.

I mean you like Vanguard because costs are low, but you don't like what Vanguard does to keep costs low. That I think is true of many customers who find their customer service lacking. You are hardly alone.

The US is an Immigrant Country. I lived 25 years with a green card in the US, because Germany prohibited Dual citizenship. I never intended to return to Germany. I had studied, worked and owned property in the US. However,
my mother's health required me to stay longer in Germany. My personal circumstances changed and I decided to stay in Germany. I did not loose my credits for recieving social security payments in the future, nor I am I forced to close my 403b at TiaaCref. I have a long term investment strategy for my investments in my taxable Vanguard account ( customer for 18 years). Apparently Vanguard does not have a longterm horizon and commitment towards their clients. As a Vanguard client you better make sure where your personal relatiionships or jobs might take you. This could affect any Vanguard client. If you decide to invest with Vanguard, make sure you will live exclusively in the US for the rest of your life.

Well do understand that most US brokers have the same policy. This is as mutual funds by distribution agreement are reserved for sale to US residents. To have overseas customers, there is a compliance issue to make sure mutual funds are not sold. Also note that this was not really enforced prior to 911 I believe. But then enforcement of financial accounts tightened, some got grandfathered in, and here we are.

That Vanguard is exiting the mutual fund platform to save costs because everything can be done on the brokerage platforms really only affects those unable to open new accounts.

I would encourage people to either open Schwab or Interactive Brokers accounts before leaving the US. In the case of Schwab, one should do it at least six month before leaving so they can transfer to Schwab International later because in some countries you can not open a Schwab International account but you can switch a Schwab account to Schwab International.

I guess we can fault Vanguard for not seeing 911 and tightened financial enforcement coming and fault them (and other brokers) for not wanting to incur the higher compliance costs of international investors, [several responses to deleted comments removed by admin alex]. I am sorry but having to move your account to another firm really isn't that bad, and in the end Vanguard may allow for accounts to stay while being restricted to sales and withdrawals anyway.

[TedSwippet]

As a US citizen, I will say you are getting the same treatment as I did at Vanguard who explained to me that the reason they froze my account was because it's a business decision to lower costs for everyone else by not having to jump though the extra hurdles of compliance that international investors pose.
...
Vanguard identified me as a costly customer too, and I was denied service for that reason. I never felt that someone was coming for me or that I was targeted or treated unfairly. I honestly don't see why you do.

With respect, your privileged position as a US citizen gives you a different view and context to that of a nonresident alien. The US's financial system, and in particular its tax system, treats US citizens entirely differently to nonresident aliens.

You can move any IRA accounts you hold to IBKR; I cannot. You can receive withdrawals from your accounts without fighting Vanguard over 30% US tax withholding on both tIRA and Roth IRA withdrawals; I cannot. You can, if necessary (and admittedly as an extreme case), move back to the US temporarily in order to sort out or reorganise any brokerage limitations you run into; I cannot. You do not risk a possible 40% US estate tax on Vanguard holdings above a mere $60. And as a US citizen you do not bear anything like the same level of political risk that nonresident aliens bear when it comes to holding US IRA and 401k accounts.

In any case, you know Schwab International will take your accounts. They really are not very expensive and a good value for the money. And Interactive Brokers will take taxable accounts.

Under investigation. The process of opening and transferring an IRA as a nonresident alien is far from as (somewhat) straightforward as it is for a US citizen or green card holder. And as we have seen, so far Vanguard has not been exactly efficient in transferring to Schwab. Admittedly one anecdotal report so far, but as with all of this, not at all a good look for Vanguard.

I mean you like Vanguard because costs are low, but you don't like what Vanguard does to keep costs low. That I think is true of many customers who find their customer service lacking. You are hardly alone.

My assessment would be that Vanguard has now become too cheap. That is, it has cut too many costs. The overhead of handling nonresident aliens is not that great. They have done it for years, and other brokers (Schwab, IBKR) handle things just fine, so clearly it is not a huge cost.

Vanguard's atrocious lack of thought and communication on this topic is one of many, seen not just by nonresident aliens but also in other contexts widely by US based customers. I would be entirely happy to pay Vanguard some form of 'platform fee' for continued simple online access and tax reporting - UK based platforms operate in this way - and perhaps some US based investors would too. Vanguard does not offer that as an option.

Restricting my account to withdrawals or transfers out is honestly not my major concern. As you will know yourself, it makes rebalancing a bit trickier, but as someone not contributing to my IRA (well, beyond perhaps Roth conversions, but I guess they'll now stop - another unknown, of course), no new purchases of funds doesn't affect me.

What does though is the possibility of ever increasing bureaucracy and barriers to accessing my retirement money. No future web access? Everything only doable now by post/phone? Long delays on every transaction. Pointless and unnecessary US tax withholding. Barriers to sending money overseas (such as medallion signature guarantees, effectively unobtainable outside the US).

Over the past decade, Vanguard has devolved steadily but inexorably from allowing virtually all features to nonresident aliens to now allowing virtually none. It is but one small step from here to absolutely none.

[typical.investor]

As a US citizen, I will say you are getting the same treatment as I did at Vanguard who explained to me that the reason they froze my account was because it's a business decision to lower costs for everyone else by not having to jump though the extra hurdles of compliance that international investors pose.
...
Vanguard identified me as a costly customer too, and I was denied service for that reason. I never felt that someone was coming for me or that I was targeted or treated unfairly. I honestly don't see why you do.

With respect, your privileged position as a US citizen gives you a different view and context to that of a nonresident alien. The US's financial system, and in particular its tax system, treats US citizens entirely differently to nonresident aliens.

You can move any IRA accounts you hold to IBKR; I cannot.

With all due respect, you have exactly the same options that I, as a US citizen had. At the time Vanguard froze my accounts due to my residency in a foreign country, I had one option - Schwab International. IBKR would not open an IRA for the residents of the country I was in, and so I was not able to move it there.

My comment was never about tax fairness and did not address the topic at all. [Response to deleted comments removed by admin Alex.] My post is simply meant to say that US citizens have no special privildge in regard to accounts at Vanguard. If you are not a current US resident, you can not open an account and Vanguard may choose to freeze your account. Rather than particular groups being targeted as that post clearly implies, I am simply stating that regulations make it more costly for brokers to handle foreign clientele (of any nationality including American) and Vanguard has expressed that is the reason behind their policy.

[Alex Frakt]

Temporary lock while we moderate an unfortunate tangent.

Thread reopened. Let's keep it to the facts and any new information on this issue please.

[TedSwippet]

With all due respect, you have exactly the same options that I, as a US citizen had. At the time Vanguard froze my accounts due to my residency in a foreign country, I had one option - Schwab International.

Unless you are also unable to hold any type of fund or ETF in Schwab, not at all exactly the same.

And for that matter, what is to prevent Schwab from a similar policy change that would "restrict" or even summarily close, nonresident accounts? Schwab has apparently been fine up to now, but then the same can be said of Vanguard. Totally fine, until suddenly not.

My comment was never about tax fairness and did not address the topic at all.

Well, okay. However, you've already seen from your own experience how brittle, fragile, and uncertain it can be to hold US accounts as a non-US resident. The problem is just magnified for nonresident aliens. The combination of US (and non-US) nonresident alien tax rules and regulations and broker or platform "policy" can leave even less room for manoeuvre than that available to US citizens. As a Venn diagram, the intersection point of possibilities inside these two is becoming smaller each year.

Vanguard isn't being clear about what will happen which may be a deliberate strategy to encourage people to move away so they reduce the cost to service those specialized and restricted (sales and withdrawals only) accounts, ...

Perhaps. However, I'm finding it difficult to square that with what Vanguard have come out with so far. The true reason behind the lack of any form of clarity is more likely to be because Vanguard has simply not thought it through at all. All of the "we'll update you as and when" responses to requests for information suggest strongly that they just do not yet have any plan beyond the vague intention that accounts will be "restricted".

From a user perspective, this lack of information is actually more damaging than if things were better solidified.

[bluejeansman]

And for that matter, what is to prevent Schwab from a similar policy change that would "restrict" or even summarily close, nonresident accounts? Schwab has apparently been fine up to now, but then the same can be said of Vanguard. Totally fine, until suddenly not.

Exactly.

I am actually still surprised with Vanguard's customer service going down recently. Being a non resident alien with a UK address has never been a problem in 20 years. I have often gushed here in this forum about Vanguard USA's customer service. I used to have just a taxable account with them. When Ameritrade kicked out UK NRAs in 2011, Vanguard gave me a home, allowed me to open a Roth IRA as an NRA and move funds from Ameritrade. When Fidelity USA insisted on 30% withholding on my Roth conversion in spite of having a valid W8-BEN, again Vanguard USA came to my rescue, allowing me to move the rollover IRA and permitting Roth Conversion in chunks over 6 years with 0% withholding. They even assigned a personal investment professional to handle my case and I remember he would call me periodically to check on things. It was called Vanguard Concierge Service. 2013-2014 time frame. The customer service in Vanguard USA was unparalleled.

It has obviously gone down considerably. I find it difficult to accept the cost argument as the reason. It wasn't exactly expensive say 10 years ago. And I am sure Vanguard's business has grown considerably in the last decade. If cost is the reason, how is Schwab able to offer a home to non resident aliens that Vanguard is obviously unable to ? If anything it should be more difficult for Schwab to accommodate me. I go to Schwab with my Vanguard baggage, every penny of the TER fund expenses/fees I pay goes to Vanguard Not Schwab, Schwab probably makes 100 bucks from me per year. Yet they are willing to accommodate me.

or perhaps the KYC rules have changed recently and become more onerous and maybe Vanguard is one of the few who stick to the rules by the letter and it is getting more expensive for them to do this. Vanguard UK is the same. If you leave the UK, you have to pretty much move out of Vanguard. But other brokers / platforms are more lenient on the Exact Same Vanguard funds. So, either the other platforms - be it Schwab International or Hargreaves in UK are not as thorough as Vanguard in sticking to the rules OR Vanguard simply wants to take the easy way out.

Vanguard isn't being clear about what will happen which may be a deliberate strategy to encourage people to move away so they reduce the cost to service those specialized and restricted (sales and withdrawals only) accounts, ...

If true, that's a terrible way to treat customers, especially long standing ones. I would rather they just ordered NRAs to leave within N years. Simple brutally honest letter.

Perhaps. However, I'm finding it difficult to square that with what Vanguard have come out with so far. The true reason behind the lack of any form of clarity is more likely to be because Vanguard has simply not thought it through at all. All of the "we'll update you as and when" responses to requests for information suggest strongly that they just do not yet have any plan beyond the vague intention that accounts will be "restricted".
From a user perspective, this lack of information is actually more damaging than if things were better solidified.

I agree. I was going to write about malice/mediocrity, didnt know it was Hanlon's razor. Learnt something today. Thanks TedSwippet. Once again I dont blame the front line customer facing staff. The buck stops with management here for failing to articulate a coherent message to staff. They have let their staff down and some customers (NRAs) down. Probably change in leadership or perhaps growing pains. With the rise in passive investing, maybe they are finding it difficult to handle the growth in customer base.

[typical.investor]

With all due respect, you have exactly the same options that I, as a US citizen had. At the time Vanguard froze my accounts due to my residency in a foreign country, I had one option - Schwab International.

Unless you are also unable to hold any type of fund or ETF in Schwab, not at all exactly the same.

Sorry to be arguing with you Ted, but I dislike disinformation.

Nothing prevents you from holding funds and ETFs at Schwab. The link you cited says as much. There are restrictions on what can be bought in IRAs (by the US) as well as what funds UK residents can buy (by the UK), so transfer the funds in-kind in to your IRA at Schwab and hold them there. That is what I did with Vanguard mutual funds that I could not buy any more due to being resident outside the US.

The biggest limitation for Schwab International though is the number of countries they can accept. There are some countries whose residents Schwab International can not open accounts for. That is due to the restrictions that the country of residence places on its residents. I've been in that situation too where I couldn't open IRA accounts for my wife even though we had US taxable income and qualified to contribute.

And for that matter, what is to prevent Schwab from a similar policy change that would "restrict" or even summarily close, nonresident accounts? Schwab has apparently been fine up to now, but then the same can be said of Vanguard. Totally fine, until suddenly not.

Look Ted, this is just business. Lots of insurance companies are dropping homeowners insurance in CA or FL. Your choice is to go to one of the companies that do offer it or drop it. Who is to say that the new company won't drop it either? Retailers close stores in areas that aren't profitable. Where will they shop? Heck, it wasn't long ago that you Americans couldn't get health insurance if the company saw you as likely to be expensive. Welcome to America and it can suck sometimes but I find much of the anti-US rhetoric (like ones recently removed) in these threads to be quite over-the-top. No. I don't think the US reneged on the UK tax treaty as you alleged. I think the US imposed an exit tax on US permanent residents/citizens which by treaty the US is allowed to tax.

In any case, I agree international investing/taxation is a mess. The EU/UK offers accumulating funds which the US created PFIC taxation to deal with (overboard reaction in my opinion) so people couldn't av and the EU/UK have silly nannying rules on disclosure that need to be made. Tell me how anyone in the world can judge a fund's volatility by looking at the previous five years. If you can't buy a US ETF because the EU/UK sees that as vital information, then who is to blame?

There are myriad ways in which countries favor their own citizens - from property ownership to child custody to taxation and access to retirement accounts and having been on the short end of stick several times when living outside the US, I don't see the US as the world's greatest villain as commonly portrayed.

[TedSwippet]

No. I don't think the US reneged on the UK tax treaty as you alleged. I think the US imposed an exit tax on US permanent residents/citizens which by treaty the US is allowed to tax.

The notion that the US exit tax is a treaty override is not mine. It is expressed in several academic papers on the subject. For example:

Expatriation Tax – Renouncing a Tax Treaty by Oz Halabi :: SSRN - University of Michigan Law School

Tax treaties are agreements negotiated and signed by countries in order to provide countries useful tools to avoid double taxation and prevent tax evasion. After such an agreement is signed, countries should respect and obey its rules. However, countries currently still use the Exit Tax tool although the tool might override a tax treaty they are bound to respect. By using the Exit Tax tool, countries violate not only the tax treaty between them and the new residence country but also treaties signed with third party countries that have no relation to the taxpayer change in residency. These third party countries were not the abandoned or the absorbed country and nonetheless they are affected by the Exit Tax regime of the abandoned country.

The US's version of the exit tax also has both human rights and US constitutional issues:

Human Rights Law and the Taxation Consequences for Renouncing Citizenship by William Thomas Worster :: SSRN - University of Missouri at Kansas City - School of Law

This Paper has assessed whether taxes imposed on expatriation (renunciation of citizenship), sometimes referred to as “exit taxes,” are in compliance with international human rights law.
...
The second question is whether the U.S. exit tax can be justified as an acceptable derogation from the right to renounce nationality. The right to expatriate tracks the right to leave generally in permitting exceptions. This right may be limited as is necessary in a democratic society in order to protect national security, public order, public health or morals, and the rights and freedoms of others. Unfortunately, while the imposition of exit taxes does chill the exercise of the right to expatriate, these taxes cannot be justified under any of these goals, and thus are certainly not necessary. Therefore, the taxes imposed on persons exercising their right to renounce their nationality infringe human rights.

The Expatriation Tax, Deferrals, Mark to Market, the Macomber Conundrum and Doubtful Constitutionality by Henry Ordower :: SSRN - Saint Louis University - School of Law

Congress enacted the expatriation tax to capture those increases in wealth at the moment of expatriation while the U.S. still has jurisdiction over the taxpayer. Yet, requiring an expatriating individual to pay a tax on increases in wealth that accrued while the individual was subject to the U.S. income tax – largely unrealized appreciation in value -- is problematic in a realization-based tax system like the U.S. has. Even if taxation is permissible, taxing expatriation is a barrier to emigration and in that it treats emigrating taxpayers differently and less favorably from all other U.S. taxpayers. Expatriation is not an event of realization and longstanding U.S. Supreme Court precedent determined that absent realization, gain is not income. This article addresses that constitutional conundrum ...

[Badinvestor]

The US is an Immigrant Country.

It seems to me that this is less true today than thirty or forty years ago. The US still attracts lots of poor Latin Americans, but it is hard for me to imagine that someone from the EU would remain here in old age given the difference in health care systems.

A funny memory: in 2008, when the big exit tax changes came in, I thought that immigrants who might return home should not contribute to IRAs or 401(k)s. It seemed pretty obvious back then. That is also something that makes the US less of an immigrant country than it used to be. Plus, each year the $2 million figure in the test for having to pay exit tax looks smaller and smaller as the dollar loses value.

[Else]

The US is an Immigrant Country.

It seems to me that this is less true today than thirty or forty years ago. The US still attracts lots of poor Latin Americans, but it is hard for me to imagine that someone from the EU would remain here in old age given the difference in health care systems.

What is worse about the american health care system? I spent about equal parts of my adult life in the US and Germany. American health care is by far superior. The technology alone is at least 10 years behind in Germany. Covid vaccination was a complete failure in the EU. It took 18 month longer to get vaccinated than my american friends. My insurance payments more than doubled in Germany compared to US.
But we are derailing this thread. My point and oppinion is: the majority of expats do not leave the US to evade taxes or to profit from better health care. They leave for job related or family reasons.

[Alex Frakt]

Locked.

From the forum policies:

"Non-actionable or Trolling Topics

If readers can't do anything with the content of a topic other than argue about it, it does not belong here. Examples include:

- US or world economic, political, tax, health care and climate policies"

There appear to be too many inflammatory posts in this thread for it to stay on track. When there is new info on this subject, go ahead and start a new thread.