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

[TallGuyJohninBKK]

Partington, understand you have a particular and somewhat unique situation. My comments above were really aimed at the more generic U.S. citizen expats.

I don't know all the details of your situation, of course. But overall, getting a U.S. mailing address for an expat, even a non U.S. resident expat, isn't a problem at all. And if you had still-active U.S. brokerage or bank accounts, you probably could do an address change to that newly obtained U.S. address -- provided you were willing to pay each month to maintain it.

If you did have a still active U.S. bank or brokerage account, you could then certainly arrange through one or the other of those to ACH any distribution funds to the BKK Bank New York branch and then onward to a BKK Bank account in Thailand.

It's also possible, at pretty minimal cost, to obtain and maintain a U.S. phone number as well, through services like MagicJack or, until recently and perhaps again soon, Google Voice.

But if you had NO active U.S. brokerage or bank accounts right now, trying to start from scratch as a UK citizen living outside the U.S. would certainly be a challenge.

[partington]

Partington, understand you have a particular and somewhat unique situation. My comments above were really aimed at the more generic U.S. citizen expats.

I don't know all the details of your situation, of course. But overall, getting a U.S. mailing address for an expat, even a non U.S. resident expat, isn't a problem at all. And if you had still-active U.S. brokerage or bank accounts, you probably could do an address change to that newly obtained U.S. address -- provided you were willing to pay each month to maintain it.

If you did have a still active U.S. bank or brokerage account, you could then certainly arrange through one or the other of those to ACH any distribution funds to the BKK Bank New York branch and then onward to a BKK Bank account in Thailand.

It's also possible, at pretty minimal cost, to obtain and maintain a U.S. phone number as well, through services like MagicJack or, until recently and perhaps again soon, Google Voice.

But if you had NO active U.S. brokerage or bank accounts right now, trying to start from scratch as a UK citizen living outside the U.S. would certainly be a challenge.

OK, thanks - I won't further hijack the thread with my own over-specific concerns.

It's not a problem that can be solved by simply paying for a US mailing address however, take it from me. I obviously do still have a US IRA account, and in fact a credit union account, and a MagicJack number also .

Let's just say the IRS and my IRA provider and my credit union have all received official forms declaring my status as a non-resident,non-green card holding, non-citizen, and this was necessary to remain tax compliant.

These notifications can't be reneged by merely having a US contact address and would involve trying to deceive the IRS and IRA provider in a way which is certainly illegal!

[Gumballl]

I doubt a US banking institution is going to close an IRA account without a sufficient prior notice regardless of expat status. This doesn't mean one shouldn't be concerned - it means one should have a back up plan. A traditional IRA account is covered up to 250k by FDIC so I'm not sure why one would keep more than that in one account.

<snip> Brokerage accounts whether at a mutual fund house like Fidelity or Vanguard or at a bank, are not covered by FDIC insurance at all.

That's right; they are typically (if not always) covered by SIPC.

From the Vanguard Website:

Securities in your brokerage account are held in custody by Vanguard Brokerage Services, a division of Vanguard Marketing Corporation. Vanguard Marketing Corporation is a member of the Securities Investor Protection Corporation (SIPC), which protects securities customers of its members up to $500,000 (including $250,000 for claims for cash). Explanatory brochure available upon request or at sipc.org.

To offer greater protection and security, Vanguard Marketing Corporation has secured additional coverage from certain insurers at Lloyd's of London and London Company Insurers for eligible customers with an aggregate limit of $250 million, incorporating a customer limit of $49.5 million for securities and $1.75 million for cash. Coverage provided by SIPC and certain Lloyd's of London and London Company Insurers does not protect against loss of market value of securities. The policy provided by certain Lloyd's of London and London Company Insurers is subject to its own terms and conditions.

Edited May 24, 2014 by Gumballl

[JimGant]

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.

Well, some banks (but not all) could require an in-person application.... And you probably will be required to submit a W8BEN -- but that would not be a problem, since when you submit, you need not invoke Part II, "Claim of Tax Treaty Benefits," since no taxable events will take place until 10 years hence, when you're back in the UK (then, you submit a new W8BEN, with the UK/US treaty indicated).

This has some good info re CIP:

http://www.keytlaw.com/usrealestatelaw/open-us-bank-account/

Oh, you say you have a credit union account in the US? Do they offer IRA CD's? (And what does the W8BEN currently on-file say?)

[el jefe]

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.

I used the simple example of how this worked using the standard deduction. The benefits are even great if the taxpayer (TP) itemizes.

imo, more TP's are eligible for this than you think. I agree, anyone who is already collecting a pension or SS will probably not benefit. And if you're earning $10,000 (or $20k if MFJ) a year in interest you also will not benefit. But this will apply to many early retirees (up to age 70) who are living off of their investments. It also applies to just about every expat who is working here but has a Traditional IRA from a prior job in the US.

It doesn't really matter how "substantial" your Traditional IRA is. Each TP might be able to convert as much as $10k per year ($20k for MFJ) or more if they can itemize. Whatever the amount winds up to be, it's a taxable amount that was just converted to a tax-free amount, that will continue to grow tax-free forever. What's the downside?