Thorny new issue on the radar for U.S. expats regarding IRA accounts

[skatewash]

One point that's been mentioned here is establishing an address in a tax free state. If you file your taxes with your Thai address, no state is going to come after you. I use an Ohio address for investment banking purposes.

"... no state is going to come after you." I wish it were that simple. There are four greedy states (at least) that have been known to come after you: California, New Mexico, South Carolina, and Virginia.

The 4 Unfavorable States

If your current state of residence is New Mexico, Virginia, South Carolina or California, the news is not as good. The governments of these states view their taxpayers as a needed asset. They will fight to hold on to every penny of owed tax. When leaving these states, it is up to you to prove (to the satisfaction of the state), that you will not be returning. If you cannot sufficiently prove this, you will be required to file a state return alongside your federal expatriate return.

If you are planning to return to your home state at some point, you will probably not be able to prove otherwise. South Carolina and California are the most diligent when it comes to finding ties that suggest future residency. You will most likely have to file a state tax return if the state government can locate any of the following ties:

Telephne and/or utility bills

Voter registration

Library card

Mailing address

Association memberships

In state dependents

Property mortgage or lease

State drivers license

State investments or bank accounts

http://www.taxesforexpats.com/articles/expat-tax-rules/state-taxes-expat-tax-return.html

[hawker9000]

What happens to your IRA when the dollar crashe's ? Im hedging with physical Gold and silver and select gold and silver miners . the dark clouds are building .economy's sliding even after trillions in QE food shortages looming global warming sociopathic governments etc etc . transfer to a gold ira . gold is at just under 1300 that's lower then the average cost to mine and ounce of gold and the easy surface gold is gone no way for gold to go but up for the next few decades get a gold ira and sit back and relax your good .

The dollar crashing is tin foil hat, ridiculous nonsense. You've been listening to the village idiot, Glen Beck. Gold is and will continue to be a terrible investment. It is purely a speculative play and a bad one at that.

One point that's been mentioned here is establishing an address in a tax free state. If you file your taxes with your Thai address, no state is going to come after you. I use an Ohio address for investment banking purposes.

I actually hope (and have no reason to believe it does) it doesn't make any difference, but Florida is not actually a "tax-free" state. They don't tax income, but they DO have an "intangible property tax" (i.e., on investments, which would include things like IRA and 401K accounts as well as other investment assets). I'm NOT suggesting they'll come after you if you set up an address in state or give that address to your financial institutions - I really don't know. But if you're a "resident" of the state, you do owe the tax.

[thailiketoo]

What happens to your IRA when the dollar crashe's ? Im hedging with physical Gold and silver and select gold and silver miners . the dark clouds are building .economy's sliding even after trillions in QE food shortages looming global warming sociopathic governments etc etc . transfer to a gold ira . gold is at just under 1300 that's lower then the average cost to mine and ounce of gold and the easy surface gold is gone no way for gold to go but up for the next few decades get a gold ira and sit back and relax your good .

The dollar crashing is tin foil hat, ridiculous nonsense. You've been listening to the village idiot, Glen Beck. Gold is and will continue to be a terrible investment. It is purely a speculative play and a bad one at that.

One point that's been mentioned here is establishing an address in a tax free state. If you file your taxes with your Thai address, no state is going to come after you. I use an Ohio address for investment banking purposes.

I actually hope (and have no reason to believe it does) it doesn't make any difference, but Florida is not actually a "tax-free" state. They don't tax income, but they DO have an "intangible property tax" (i.e., on investments, which would include things like IRA and 401K accounts as well as other investment assets). I'm NOT suggesting they'll come after you if you set up an address in state or give that address to your financial institutions - I really don't know. But if you're a "resident" of the state, you do owe the tax.

Check Homestead exemption.

[skatewash]

I actually hope (and have no reason to believe it does) it doesn't make any difference, but Florida is not actually a "tax-free" state. They don't tax income, but they DO have an "intangible property tax" (i.e., on investments, which would include things like IRA and 401K accounts as well as other investment assets). I'm NOT suggesting they'll come after you if you set up an address in state or give that address to your financial institutions - I really don't know. But if you're a "resident" of the state, you do owe the tax.

The tax on intangible property (such as investments) in Florida was repealed in 2007, you no longer have to pay that tax. http://www.cga.ct.gov/2007/rpt/2007-r-0197.htm

[TallGuyJohninBKK]

One point that's been mentioned here is establishing an address in a tax free state. If you file your taxes with your Thai address, no state is going to come after you. I use an Ohio address for investment banking purposes.

"... no state is going to come after you." I wish it were that simple. There are four greedy states (at least) that have been known to come after you: California, New Mexico, South Carolina, and Virginia.

The 4 Unfavorable States

If your current state of residence is New Mexico, Virginia, South Carolina or California, the news is not as good. The governments of these states view their taxpayers as a needed asset. They will fight to hold on to every penny of owed tax. When leaving these states, it is up to you to prove (to the satisfaction of the state), that you will not be returning. If you cannot sufficiently prove this, you will be required to file a state return alongside your federal expatriate return.

If you are planning to return to your home state at some point, you will probably not be able to prove otherwise. South Carolina and California are the most diligent when it comes to finding ties that suggest future residency. You will most likely have to file a state tax return if the state government can locate any of the following ties:

Telephne and/or utility bills

Voter registration

Library card

Mailing address

Association memberships

In state dependents

Property mortgage or lease

State drivers license

State investments or bank accounts

http://www.taxesforexpats.com/articles/expat-tax-rules/state-taxes-expat-tax-return.html

I think the basic point you're making is correct, and the prior poster is wrong:

A person can absolutely live 100% of the time in Thailand and file their federal taxes from a Thailand address, but still be liable for state income taxes depending on the tax policies of a particular state and their connections to that state.

For example, a person could live in Thailand full time and file their federal taxes from a Thailand address, but also own a house in California and receive rental income from that house. In that situation, depending on the extent of one's other California ties, the state could very well still consider you a CA resident for state income tax purposes.

The one difference I'd have with the excerpt you quote above is that California generally doesn't consider you a state resident for tax purposes just for ANY of the different items you/they have listed above. For example, just having a CA DL but no other connections to the state would not automatically make one considered a state resident for tax purposes. Same for solely maintaining a voter registration in the state. But, some combination of those different factors could well cause the state to consider you a state resident for tax purposes -- regardless of where one is physically living.

[TallGuyJohninBKK]

I am writing about what I know.... I have never experienced an abrupt closing of one of my accounts, regardless of institution. I have 2 IRA savings accts + CDs - 1. FedCU (not a bank) 2. CSchwab Brokerage (not a bank). CSchwab Bank is a seperate entity from the Brokerage Firm. I have had IRA accts. at CU (closed) plus bank (closed) - all have been and those now open fully covered by FDIC up to 250k.

An IRA is just a kind of (tax-deferred) package for holding a variety of potential investments -- stocks, mutual funds, ETFs, CDs, etc etc. And IRAs can be held at banks/credit unions or at brokerage houses.

As I understand it, the FDIC's $250,000 deposit insurance would cover an IRA if the IRA was held at an FDIC-insured bank or credit union and the IRA's holdings are some variety of FDIC-insured deposits such as CDs.

On the other hand, if an IRA is held by an SIPC-member broker-dealer and involves stocks, mutual funds, bonds, ETFs, etc., that's where the SIPC's protection comes into play: up to $500,000 per customer/per institution, including $250,000 for cash.

http://www.schwabmoneywise.com/public/moneywise/money_basics/account_types/fdic_insurance.html

http://www.sipc.org/for-investors/what-sipc-protects

SIPC protects stocks, bonds, Treasury securities, certificates of deposit, mutual funds, money market mutual funds and certain other investments as "securities."

But Fidelity, on their website, explains how/why the brokered CDs they offer are FDIC insured, because they're considered an obligation of the issuing bank, not Fidelity the brokerage.

Brokered certificates of deposit (brokered CDs)

Fidelity offers investors brokered CDs, which are issued by banks for the customers of brokerage firms. These CDs are usually issued in large denominations and the brokerage firm divides them into smaller denominations for resale to its customers. Because the deposits are obligations of the issuing bank, and not the brokerage firm, FDIC insurance applies.

https://www.fidelity.com/why-fidelity/safeguarding-your-accounts

Scottrade also summarizes what is covered by the FDIC vs SIPC:

Deposit accounts at Scottrade Bank and bank sweep assets participating in the Bank Deposit Program at Scottrade, Inc. are covered under FDIC insurance.

Money invested in stocks, bonds, mutual funds, municipal securities or life insurance policies are not covered under FDIC insurance.

Edited May 22, 2014 by TallGuyJohninBKK

[skatewash]

...

By my reckoning, if I converted $12,800 from an IRA to a Roth account in a given tax year, I'd likely be increasing my federal income tax amount owed for that year by better than $1000 (assuming a 10% or so federal income tax rate).

I've done IRA to Roth partial conversions, and there's a case to be made for doing so. But I can't quite envision a normal circumstance where doing that is not going to result in taxes being owed on the converted amount.

I don't doubt your calculations for a minute on the taxes due in your situation upon the conversion you discuss (given your taxable income). On the other hand, if your taxable income is low enough (for instance, if the vast majority of your savings are in tax-advantaged accounts: 401(k), IRA, Roth IRA, etc, and very little of your income is taxable) you can take advantage of the standard deduction in the lowest tax brackets to convert your traditional IRAs into Roth IRAs tax-free on a yearly basis. Of course, the size of such conversions that you are able to do tax-free will vary with your taxable income in that particular year. The insight that I thought was brilliant in the article I posted is that some people with very low taxable incomes are not taking advantage of the traditional IRA to Roth IRA conversions that are available to them tax-free. If you can anticipate the taxable income you will have in a particular year, you can calculate the size of such a conversion such that it does not increase your tax liability at all. If you overshoot the size of your conversion you may find that you are liable for additional taxes due to the conversion, but there are tools such as https://turbotax.intuit.com/tax-tools/calculators/taxcaster/ that will allow you to anticipate your taxes (caveat: this calculator is based on 2013, rather than current year tax rates). You do need to accomplish the conversion before the end of the physical year, so it would make the most sense to do the conversion in December, when you are likely to be able to more accurately estimate your taxable income for the year.

Now, is this a normal circumstance? I don't know. It probably isn't very common (having substantial retirement assets in tax-deferred accounts, but very little current taxable income), but there are certainly groups who would fit into this category. Early retirees are a group that comes to mind. This is a boon to them, as they presumably have many years to accomplish the conversion, a year at a time, of a substantial part of their holdings from traditional IRAs into Roth IRAs. And really, who would take a pass on such tax savings?

[Langsuan Man]

The US govt social security website is not accessible from overseas as well.

Actually, that's not entirely accurate. Someone else had mentioned that previously and I thought it to be the case. I could not open an account with the SSA in Thailand.

However, when I was in the US recently, I visited a SSA office and created my online account through that office. When I returned to Thailand, I was able to access my SSA account online. I've only done it a couple of times, so no telling if it will keep working in the future. But so far so good.

So it's not that the US gov social security website is inaccessible overseas, it's just that you can't "open" a social security account online overseas. You can "access" your account once it's been established in the US.

I opened up both Medicare Part B and Social Security retirement from Thailand using a VPN, but most importantly only logging in during the hours of 7AM to 7PM Eastern Time. And even though I spend 4 months in the US during the summers I have never visited a Social Security Office

The only problem I did have was that if you apply online that date is the one that follows you from then on, for some reason both Medicare and Social Security are really picky on "date of application" , sometimes to your benefit, sometimes to your detriment

[HappyinNE]

I have a Regular IRA, a Roth IRA and a regular brokerage account with Schwab. I submitted a change of address in the US to Thailand and then Schwab wanted me to change to an International Account. I went through that and the only thing is I lost my Schwab Bank Account as they can not do international. However I use my regular brokerage account as a checking account and it has a debit card. I transfer money to Thailand via ATM as Schwab pays the fee and it just makes it easy for me. By the way a Thai Military Bank ATM allows 30,000 THB withdrawals.

I have a credit card with Unites States Automobile Association with my Thai address and have a banking account with them also. My only problem has been some vendors have the impression that the world consists of North America and you can not put in a non North American address in their verification systems. Intuit for example, I was today told by them to just lie about my address.

I do have another credit card with my sisters address in the US with Navy Federal Credit Union. I also have a savings account there. Never had a problem signing in for anything on line.

Two comments: Having an overseas account with Schwab requires that I withhold 10% on IRA withdrawals and Canadian dividends which were not taxed by Canada now are. I just put them in my taxable account and then can take the Canadian Tax as a Tax credit on my US Taxes.

[TallGuyJohninBKK]

I understand your general points above... but I'm not sure how broadly applicable that limited situation is going to be (having such a low taxable income that you're able to do Roth conversions and still avoid taxation on the converted funds).

I'm an early retiree, and I get no spendable income right now from my regular IRAs or my Roth accounts because I'm not yet age 59-1/2. But, neither also generates any taxable income for the time being, so that's good. But as a result, I have to rely on other current income sources such as a pension, CDs interest, and regular brokerage account earnings in order to pay for my living -- all of which are taxable.

I'm in a great position to do the gradual Roth conversion laddering that your post refers to over the coming years as I head toward the minimum age for IRA withdrawals. But in the meantime, I still need funds to live on, those are going to be taxable sources of income, and Roth conversions added onto those are certainly going to push me into taxable territory.

[hawker9000]

I actually hope (and have no reason to believe it does) it doesn't make any difference, but Florida is not actually a "tax-free" state. They don't tax income, but they DO have an "intangible property tax" (i.e., on investments, which would include things like IRA and 401K accounts as well as other investment assets). I'm NOT suggesting they'll come after you if you set up an address in state or give that address to your financial institutions - I really don't know. But if you're a "resident" of the state, you do owe the tax.

The tax on intangible property (such as investments) in Florida was repealed in 2007, you no longer have to pay that tax. http://www.cga.ct.gov/2007/rpt/2007-r-0197.htm

Oops. I stand corrected. 'Lived there before that. 'Must be one of the few cases on record of a government actually doing away with a tax! Those interested in establishing FL residence might want to look into St. Brendan's Isle.

[Pib]

I will look into Schwab. I actually don't want to roll over, really a hassle, so I won't do unless forced, so I will continue to act the non-expat, but they are definitely a legit firm.

What is all the hassle you talk about in rolling over an IRA account ? You fill out a form and send it to them and poof your old IRA is now changed to a Roll Over IRA

Realize that his thread has moved on but my question is still valid

Couldn't agree more in that rolling over/transferring an IRA is not hard....or at least it hasn't been for me. I've done it twice within the last year. One transferring a small regular IRA from one company into a federal govt 401K type program (TSP). And two, transferring a beneficiary IRA between two companies. Fill out the forms required by your new IRA trustee, mail them in to the financial company you are moving the IRA to, kick back for approx 3 to 4 weeks for your new and old IRA companies to coordinate with each other/transfer the funds....done. The required forms were easy to complete. You may need to provide some paperwork to the company you are transferring the IRA "from" but usually you don't have to since the new IRA trustee will be mailing them the necessary forms....I didn't have to provide anything to the companies I was transferring the IRA's "from."

[maewang99]

There's a lot of stuff on this website topic that is way off base. I have a Schwab IRA which is below $US 500,000. I have no problems with Schwab other than a disagreement about holding my Thai securities using the "Gerlach & Co" nominee, because Chiangmai won't refund the corporate level; taxes on the divs. Other than that, I can call Schwab toll-free from Thailand, the address on my account has been a Thai address for more than 10 years and the telephone numbers on my account are Thai numbers. They even call me here sometimes to confirm a withdrawal/wire to Thailand. As for the nominee issue, it's real complicated but basically the Thai regulations, do not and cannot, provide remedy for this which also violates the Double Tax treaty with the USA, the Nondiscrimination Clause. An IRA is tax deferred under the US Code, but that does not change the fact that I am the beneficiary and under the Thai revenue law am no different from a Thai if I meet the 180 day test. But Thai Revenue is paperwork crazy, so the nominee thing precludes me from taking a credit on my Schwab-held Thai holdings. Instead of fighting them I 'adapted and overcame' by focusing on Filippino equities in my IRA, and holding mor ean dmore of my Thai equities with local brokers, in which case I get the full portion of Thai tax refunds, which is very nice indeed. As for worrying about Schwab closing my account, I don't get it at all.

[TallGuyJohninBKK]

For anyone who's actually read thru this thread, they'll have seen several references to Schwab supposedly NOT being among the various brokerages that have been causing account closing problems for U.S. expats. I don't believe anyone has reported anything to the contrary here.

Edited May 22, 2014 by TallGuyJohninBKK

[el jefe]

I understand your general points above... but I'm not sure how broadly applicable that limited situation is going to be (having such a low taxable income that you're able to do Roth conversions and still avoid taxation on the converted funds).

I'm an early retiree, and I get no spendable income right now from my regular IRAs or my Roth accounts because I'm not yet age 59-1/2. But, neither also generates any taxable income for the time being, so that's good. But as a result, I have to rely on other current income sources such as a pension, CDs interest, and regular brokerage account earnings in order to pay for my living -- all of which are taxable.

I'm in a great position to do the gradual Roth conversion laddering that your post refers to over the coming years as I head toward the minimum age for IRA withdrawals. But in the meantime, I still need funds to live on, those are going to be taxable sources of income, and Roth conversions added onto those are certainly going to push me into taxable territory.

We're totally off the subject but here is a simple explanation of how to do a Roth conversion and pay little to no income taxes:

Taxpayer and spouse are both under 59 1/2. Neither works. Only source of income is from investments. Let's assume they cannot itemize their deductions on their federal income tax return.

Using 2013 tax amounts, they are entitled to a $12,200 standard deduction and $7,800 in personal exemptions. Therefore they can offset the first $20,000 of income.

Income is solely from investments, mostly long term capital gains (LTCG) and qualified dividends (QD). The first $72,500 of LTCG and QD income is taxed at 0%. They have some control over the LTCG's. In late December they estimate their income and make sure they have close to the maximum in LTCG's to pay zero tax. On Dec 31, they sell and buy back investments to reset their basis (wash sales do not apply to gains) to reach the limit of the 0% bracket.

Then I calculate the amount of interest and non-qualified dividends they have. Let's say that's $5,000. They can then convert $15,000 from a regular IRA to a Roth IRA bringing total income to $20,000 which will then be offset by the standard deduction and personal exemptions.

It's quite possible to have over $90,000 of AGI and still owe nothing in federal taxes, all while slowly converting regular IRA's to Roth IRA's. Please note though that this does not take state taxes into consideration. If you wait until you start withdrawing from your regular IRA, you are reducing the amount you can convert from your regular IRA to a Roth tax-free.

As a tax accountant, December is my busiest time of year, not Feb - April.

Please consult your tax adviser (hopefully not TurboTax) for more info.

[skatewash]

We're totally off the subject but here is a simple explanation of how to do a Roth conversion and pay little to no income taxes:

Taxpayer and spouse are both under 59 1/2. Neither works. Only source of income is from investments. Let's assume they cannot itemize their deductions on their federal income tax return.

Using 2013 tax amounts, they are entitled to a $12,200 standard deduction and $7,800 in personal exemptions. Therefore they can offset the first $20,000 of income.

Income is solely from investments, mostly long term capital gains (LTCG) and qualified dividends (QD). The first $72,500 of LTCG and QD income is taxed at 0%. They have some control over the LTCG's. In late December they estimate their income and make sure they have close to the maximum in LTCG's to pay zero tax. On Dec 31, they sell and buy back investments to reset their basis (wash sales do not apply to gains) to reach the limit of the 0% bracket.

Then I calculate the amount of interest and non-qualified dividends they have. Let's say that's $5,000. They can then convert $15,000 from a regular IRA to a Roth IRA bringing total income to $20,000 which will then be offset by the standard deduction and personal exemptions.

It's quite possible to have over $90,000 of AGI and still owe nothing in federal taxes, all while slowly converting regular IRA's to Roth IRA's. Please note though that this does not take state taxes into consideration. If you wait until you start withdrawing from your regular IRA, you are reducing the amount you can convert from your regular IRA to a Roth tax-free.

As a tax accountant, December is my busiest time of year, not Feb - April.

Please consult your tax adviser (hopefully not TurboTax) for more info.

Thank you, el jefe, for the concise and simple explanation of the process! I will be studying that reply and printing out a copy for my 2014 tax folder as I will have some work to do in December. I really appreciate the time you took to respond. I was completely unaware of the desirability of resetting the cost basis on a yearly basis like that. Probably because my tax adviser is TurboTax

[Pib]

Selling shares from an IRA and being able to rebuy shares in your IRA may not be doable for various reasons. So resetting shares basis in an IRA may not be doable...instead it's just a taxable sale/withdrawal which will need to be offset my other means if possible such as deductions, exemptions, stock losses in non-IRA assets. A person needs to consider their "entire" income and tax situation.

Sent from my Samsung S4

[CaptHaddock]

Income is solely from investments, mostly long term capital gains (LTCG) and qualified dividends (QD). The first $72,500 of LTCG and QD income is taxed at 0%. They have some control over the LTCG's. In late December they estimate their income and make sure they have close to the maximum in LTCG's to pay zero tax. On Dec 31, they sell and buy back investments to reset their basis (wash sales do not apply to gains) to reach the limit of the 0% bracket.

Then I calculate the amount of interest and non-qualified dividends they have. Let's say that's $5,000. They can then convert $15,000 from a regular IRA to a Roth IRA bringing total income to $20,000 which will then be offset by the standard deduction and personal exemptions.

It's quite possible to have over $90,000 of AGI and still owe nothing in federal taxes, all while slowly converting regular IRA's to Roth IRA's. Please note though that this does not take state taxes into consideration. If you wait until you start withdrawing from your regular IRA, you are reducing the amount you can convert from your regular IRA to a Roth tax-free.

This method would work in the unlikely event that 1) all of your income is only from LTCG and 2) you are content to convert a Roth amount only up to the limit of the standard deduction and personal exemption. Anyone with that amount of LTCG would almost certainly have other income and would also probably have a more substantial TIRA that he wants to convert prior to the tax torpedo that starts at age 70.5 (SS benefits and RMDs.) So, it's a contrived example of limited value in the real world situations that most of us face.

Edited May 23, 2014 by CaptHaddock

[TallGuyJohninBKK]

Income is solely from investments, mostly long term capital gains (LTCG) and qualified dividends (QD).

Not to mention, the above example seems to assume that the account holder has zero pension income and zero bank interest and CD earnings.

It also looks like it's assuming tax amounts related to a married and filing jointly couple.

Edited May 23, 2014 by TallGuyJohninBKK

[skatewash]

This method would work in the unlikely event that 1) of your income is only from LTCG and 2) you are content to convert a Roth amount only up to the limit of the standard deduction and personal exemption. Anyone with that amount of LTCG would almost certainly have other income and would also probably have a more substantial TIRA that he wants to convert prior to the tax torpedo that starts at age 70.5 (SS benefits and RMDs.) So, it's a contrived example of limited value in the real world situations that most of us face.

Both of those qualifications apply to my situation. I have a substantial TIRA that I wish to convert to RIRA, but also a strong aversion to paying taxes unnecessarily. I realize this more than likely means that I may have some dollars left in a TIRA by the time of mandated RMDs, but the notion of free conversions appeals to me. And I have 20 years before that particular tax torpedo hits. No pension, and don't expect SS benefits will be available to me when it's my time to start collecting. So for people who are in this contrived example, early retirees, for example, I think it's an avenue worth pursuing. The fact that it may not apply universally to everyone's situation doesn't negate the value of the idea in my mind.

[skatewash]

Income is solely from investments, mostly long term capital gains (LTCG) and qualified dividends (QD).

Not to mention, the above example seems to assume that the account holder has zero pension income and zero bank interest and CD earnings.

It also looks like it's assuming tax amounts related to a married and filing jointly couple.

True, I've no pension income, and my bank interest while not exactly zero may as well be. No CDs either. The tax amounts given were for a couple, which is not my situation. Still the ability to convert TIRA to RIRA at approximately $7,500 per year over the course of 20 years, or $150,000 tax free, is still a very appealing concept to me. I wish this avenue were available to more people, I think almost everyone pays too much taxes. It seems to me it would be foolish for me to pass up this opportunity merely because it doesn't accomplish a total TIRA to RIRA conversion.

[JimGant]

If they close my account not only will I get the 10% tax penalty for early withdrawal, but will also get the 30% flat tax they impose on lump sum withdrawals to foreign addresses, so I will lose 40% of the money at a stroke.

You'll certainly be given the chance to rollover to an IRA, thus avoiding the penalty and flat tax. Of course, you'll want to do a direct rollover, as, yes, if given a check to rollover yourself, it will be devoid of 30% (being a non resident alien) and you'll also have to make up that 30% from other sources when you open the new IRA, or the 10% penalty will also apply. No brainer. Also, no problem, as the chance of quickly showing you the door, and handing you a check, is not realistic.

[JimGant]

Selling shares from an IRA and being able to rebuy shares in your IRA may not be doable for various reasons. So resetting shares basis in an IRA may not be doable

Pib, el jefe certainly was not referring to resetting IRA basis, since that basis is, and remains, zero (except for after tax inputs into the IRA). Also, cap gains realized in an IRA are treated as ordinary income, not cap gains, for tax purposes. El jefe was referring to assets outside one's IRAs.

[partington]

If they close my account not only will I get the 10% tax penalty for early withdrawal, but will also get the 30% flat tax they impose on lump sum withdrawals to foreign addresses, so I will lose 40% of the money at a stroke.

You'll certainly be given the chance to rollover to an IRA, thus avoiding the penalty and flat tax. Of course, you'll want to do a direct rollover, as, yes, if given a check to rollover yourself, it will be devoid of 30% (being a non resident alien) and you'll also have to make up that 30% from other sources when you open the new IRA, or the 10% penalty will also apply. No brainer. Also, no problem, as the chance of quickly showing you the door, and handing you a check, is not realistic.

? Don't quite understand. It's already an IRA. If they close the account I have to find another provider that will open a new IRA account for a non-resident, non-citizen, in order to do the rollover.

But this is the potential problem that this thread is about - it is being reported that providers are no longer willing to open these accounts for non-residents, and in some cases are closing existing accounts on the grounds of non-residency.

Of course if this isn't true- no problem.

Vanguard IRA Services has evidently closed the door on American expatriates with retirement accounts valued at less than $500,000, according to a recent International Advisor article. Vanguard, along with eight other IRA custodians, including Scottrade, Fidelity, T.D. Ameritrade, Morgan Stanley and Merrill Lynch, is no longer accepting applications for self-directed IRA plans when the IRA owner is an expat (a U.S. citizen living abroad) and when the account in question is valued at $500,000 or less.

It is unclear whether Vanguard is forcing current expat IRA clients to move elsewhere, as are some of the aforementioned custodians, or whether Vanguard is only denying expats incoming or new IRAs. What’s certain is that U.S. expats the world over are scrambling to find an IRA custodian that is willing to manage expat retirement accounts.

Edited May 23, 2014 by partington

[JimGant]

Don't quite understand. It's already an IRA. If they close the account I have to find another provider that will open a new IRA account for a non-resident, non-citizen, in order to do the rollover.

But this is the potential problem that this thread is about - it is being reported that providers are no longer willing to open these accounts for non-residents, and in some cases are closing existing accounts on the grounds of non-residency.

I guess I don't see every bank in the US, most of which offer IRA CDs, turning away non residents who want to open a rollover IRA. That "non resident aliens" participate in IRAs is certainly not a cause for alarm bells at the IRS -- since they've already addressed the tax situation by dictating the 30% at the source withholding (vice 20% for residents). So, a simple IRA CD for a non resident alien seems, IMO, an option that is not going away. Now brokerages have gotten antsy about non residents and related red tape -- since their products can be considerably more complex. But, my money says you'll have many rollover options, should it come to that. Which, hopefully, it won't.

[JimGant]

I wish this avenue were available to more people, I think almost everyone pays too much taxes. It seems to me it would be foolish for me to pass up this opportunity merely because it doesn't accomplish a total TIRA to RIRA conversion.

Another variable to keep your eye on is -- converting too little to Roth, or cashing out too little -- may make for a big surprise come Required Minimum Distribution (RMD) day.

Using el jefe's example for 2013, the marginal tax rate increases from 15% to 25% at $72,500 Taxable Income, married filing jointly. Now if you've got only $60,000 in TI *before* cashing/converting your IRA, do a little spreadsheet work to see if maybe cashing/converting up to $12,500 IRA money today, and paying 15% in taxes, makes sense -- because if you don't, come age 70.5, most of what you could have paid 15% in taxes on -- will now fall into the 25% bracket.

Of course, many variables here -- including the time value of money of tax deferral (but which, believe me, ain't equivalent to a 10% discount). Also, of course, projecting asset values at age 70.5. And, if your current IRA pot is smallish, RMD may not push you into the 25% bracket, even without offloading at 15%.

Haven't expatted yet? Well, state taxes may mean wait until you're here before cashing in that IRA, even considering that potential 10% savings.

Anyway, some neat tricks for saving taxes on this thread. However, for most reading this, we have pensions and other income that preclude us from taking full advantage. Nevertheless, there are some other ways to reduce taxation on IRA withdrawals, albeit not as slick.

[Pinot]

I have a Regular IRA, a Roth IRA and a regular brokerage account with Schwab. I submitted a change of address in the US to Thailand and then Schwab wanted me to change to an International Account. I went through that and the only thing is I lost my Schwab Bank Account as they can not do international. However I use my regular brokerage account as a checking account and it has a debit card. I transfer money to Thailand via ATM as Schwab pays the fee and it just makes it easy for me. By the way a Thai Military Bank ATM allows 30,000 THB withdrawals.

I have a credit card with Unites States Automobile Association with my Thai address and have a banking account with them also. My only problem has been some vendors have the impression that the world consists of North America and you can not put in a non North American address in their verification systems. Intuit for example, I was today told by them to just lie about my address.

I do have another credit card with my sisters address in the US with Navy Federal Credit Union. I also have a savings account there. Never had a problem signing in for anything on line.

Two comments: Having an overseas account with Schwab requires that I withhold 10% on IRA withdrawals and Canadian dividends which were not taxed by Canada now are. I just put them in my taxable account and then can take the Canadian Tax as a Tax credit on my US Taxes.

This is good information for Thai Schwab customers. You don't need a bank account if you can pull directly from the trading account AND have free ATM withdrawals. Becoming an International customer would seem like the way to go now. You will not be able to own Mutual funds in an International account but there are so many ETFs covering that, it won't make any difference.

Thanks for the input.

[TallGuyJohninBKK]

Don't quite understand. It's already an IRA. If they close the account I have to find another provider that will open a new IRA account for a non-resident, non-citizen, in order to do the rollover.

But this is the potential problem that this thread is about - it is being reported that providers are no longer willing to open these accounts for non-residents, and in some cases are closing existing accounts on the grounds of non-residency.

I guess I don't see every bank in the US, most of which offer IRA CDs, turning away non residents who want to open a rollover IRA. That "non resident aliens" participate in IRAs is certainly not a cause for alarm bells at the IRS -- since they've already addressed the tax situation by dictating the 30% at the source withholding (vice 20% for residents). So, a simple IRA CD for a non resident alien seems, IMO, an option that is not going away. Now brokerages have gotten antsy about non residents and related red tape -- since their products can be considerably more complex. But, my money says you'll have many rollover options, should it come to that. Which, hopefully, it won't.

There have been "reports" of some brokerages engaging in account closures for expats... But I think a good question to keep in mind is, in those cases, were the account holders contributing to the end result by doing things to advertise to the brokerage that they were in fact not residing in the U.S.? I suspect, in most cases, they probably were, such as using a foreign address on their account profile info. So my answer to that is... DON'T DO IT!

But I think Jim's main point above is that while the reports of some closures have talked about brokerages, I don't believe we've heard/seen any of that coming from banks and credit unions, which also can host IRAs, admittedly not with stock holdings. But at least, if worse came to worse, a person would still have the option of rolling over via that route, rather than liquidating and taking a huge tax hit on a distribution.

And honestly, I can't see the situation arising where NO brokerage option would be available to expats. I suspect and believe, while some choices may be foreclosed, there are likely going to be others available, especially if one approaches it in a sensible way.

[skatewash]

Another variable to keep your eye on is -- converting too little to Roth, or cashing out too little -- may make for a big surprise come Required Minimum Distribution (RMD) day.

Using el jefe's example for 2013, the marginal tax rate increases from 15% to 25% at $72,500 Taxable Income, married filing jointly. Now if you've got only $60,000 in TI *before* cashing/converting your IRA, do a little spreadsheet work to see if maybe cashing/converting up to $12,500 IRA money today, and paying 15% in taxes, makes sense -- because if you don't, come age 70.5, most of what you could have paid 15% in taxes on -- will now fall into the 25% bracket.

Of course, many variables here -- including the time value of money of tax deferral (but which, believe me, ain't equivalent to a 10% discount). Also, of course, projecting asset values at age 70.5. And, if your current IRA pot is smallish, RMD may not push you into the 25% bracket, even without offloading at 15%.

Good point about the conversions available at the relatively low 15% tax rate now, before RMD hits. Will have to consider this and factor it into the decision on how much to convert per year. But I know it will be a struggle to convince myself to pay taxes now to avoid higher taxes later. I'm loath to voluntarily pay additional taxes now based on an expectation that the current tax laws will remain unchanged in the future. Not only do I not expect to get any Social Security, but it wouldn't surprise me if the rules suddenly became less favorable in the future regarding retirement accounts. It would be nice if those who made decisions based on the current law where grandfathered in under any new less favorable laws, but I can easily see being nice sacrificed on the altar of needing more revenue. Being at the very tail end of the baby boom generation means you just might get stuck with the dinner check because you're the last one left at the table ;-)

Edited May 24, 2014 by skatewash

[partington]

Don't quite understand. It's already an IRA. If they close the account I have to find another provider that will open a new IRA account for a non-resident, non-citizen, in order to do the rollover.

But this is the potential problem that this thread is about - it is being reported that providers are no longer willing to open these accounts for non-residents, and in some cases are closing existing accounts on the grounds of non-residency.

I guess I don't see every bank in the US, most of which offer IRA CDs, turning away non residents who want to open a rollover IRA. That "non resident aliens" participate in IRAs is certainly not a cause for alarm bells at the IRS -- since they've already addressed the tax situation by dictating the 30% at the source withholding (vice 20% for residents). So, a simple IRA CD for a non resident alien seems, IMO, an option that is not going away. Now brokerages have gotten antsy about non residents and related red tape -- since their products can be considerably more complex. But, my money says you'll have many rollover options, should it come to that. Which, hopefully, it won't.

There have been "reports" of some brokerages engaging in account closures for expats... But I think a good question to keep in mind is, in those cases, were the account holders contributing to the end result by doing things to advertise to the brokerage that they were in fact not residing in the U.S.? I suspect, in most cases, they probably were, such as using a foreign address on their account profile info. So my answer to that is... DON'T DO IT!

But I think Jim's main point above is that while the reports of some closures have talked about brokerages, I don't believe we've heard/seen any of that coming from banks and credit unions, which also can host IRAs, admittedly not with stock holdings. But at least, if worse came to worse, a person would still have the option of rolling over via that route, rather than liquidating and taking a huge tax hit on a distribution.

And honestly, I can't see the situation arising where NO brokerage option would be available to expats. I suspect and believe, while some choices may be foreclosed, there are likely going to be others available, especially if one approaches it in a sensible way.

At the risk of seeming to be obsessed by my own particular situation: I am a non-citizen, with no permission to reside in the US, who left the US permanently 5 years ago.

There is no possibility of pretending I have a US address, or keeping quiet about my non-residency, as in order for the IRA provider to maintain contact with me I needed to give them real contact details. Moreover since distributions would eventually and unavoidably need to be made to the UK , using tax treaty agreements, they would have to know that is where I reside.

Also 5 years ago when I made specific enquiries, in order to make the decision whether to leave the money in the US or take a loss and withdraw it, the IRA provider gave me every assurance that a foreign address would not be a problem, so I saw no reason to attempt to pretend I had remained in the US.

I hope you are right about the possibility of opening an IRA account with a US bank. Everything I have ever read in the last 3 years however leads me to believe that it is nearly impossible for non-citizens, who are non-residents to open any kind of account with a bank in the US from abroad.