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oysterworld 06-07-2018 12:46 AM

Quote:

Some U.S. domiciled funds are still pretty tax friendly, including funds that donít pay any dividends and most funds that invest in U.S. bonds
In addition :s8:

I was under the impression that Singaporean tax resident investors pay 30% on US-domiciled bond ETFs for US bonds' component (same as the withholding rate for dividend income for US-domiciled equity ETFs in respect of the US equities' component).Is this true (including the underlined bits)? You mentioned, however, that most funds that invest in US bonds are tax-friendly though? Which ETFs are these?


On a separate but somewhat related note, I chanced upon this - page 5 of the Deloitte ETFs 2015 publication mentions that 'Irish ETFís can benefit from the USA/Ireland double tax treaty which reduces withholding tax to zero
on interest and 15% on dividends' - this is available on the internet and is easily searchable by googling 'Deloitte ETFs 2015' . As such, I am looking at the CRPA ETF (domiciled in Ireland and listed on LSE) which holds bonds of US corporates (such as Verizon and BOA) amongst others. If I go with this ETF, presumably all the interest income from the US bonds would be zero then? How about the interest income from the non-US bonds (i.e. those issued by companies incorporated outside of the US such as in the eurozone or APAC) - is that subject to any withholding? A jurisdiction by jurisdiction analysis would be particularly onerous..

BBCWatcher 06-07-2018 06:16 AM

Quote:

Originally Posted by oysterworld (Post 115321530)
I have a question about my insurance situation: 36 y old, Singaporean male, earning more than 15K a month, 2 kids both below 5 y olds. I have the full integrated medishield plan (with full riders covering all deductibles and co-insurance, so I don't have to pay anything for hospital bills), and am wondering what other insurance options I should be looking at.

Just to point out something here, in principle you could buy some product from an insurance company that pays for the full cost of the repair or replacement of your smartphone if it’s lost, stolen, or damaged. But the cost to replace your smartphone is not a material financial burden, so that’d be pretty silly, wouldn’t it?

The same is true for anything else, including a hospital bill. Except with hospital bills you also have Medisave funds that can only be spent on medical care (and base insurance premiums). You have a pile of money, already, expressly designed and earmarked to pay hospital bills (and some other medical bills). It’s a really weird thing to do, and it’s so weird that the government (which barely regulates anything) just banned “zero dollar” riders. (The policy is being phased in.)

The only time this might make sense is if you are highly confident that you will incur gigantic medical bills above and beyond your Medisave resources and withdrawal limits that your rider will cover — that is, in essence, that you’re in poor health. But that doesn’t match what you write below....

Quote:

It seems to me that DII and Term does stand out. I am minded to take out DII for a sum of between 4-5K (the reason for the small sum is that I think the likelihood of payout is rather small) until age 55 (I do plan to retire latest by then).
OK, I don’t understand this logic either.

The likelihood of payout is fairly small — some single digit percentage. But that’s not an argument for possibly underinsuring. You’re earning $15K/month, which is a lot. That’s $180K/year or $3.6 million for the next 20 years, in 2018 dollars and not counting salary increments above the rate of inflation. OK, let’s suppose you suffer a disability starting from tomorrow that whacks that number down to zero for life. Would you and your household be OK with an income stream of $60K/year ($5K/month) level (no increase, so clawed away with inflation)(*) for about 18 years? That’s a lifestyle question, really, not a probability question.

A $1,750 mostly or fully Medisave payable hospital bill wouldn’t affect your lifestyle at all. Clearly the loss of $10K/month (and rising, because DII is ordinarily level nominal in its payout) would be a big financial whack. Would it be a too big/too catastrophic lifestyle whack? Your insurance behavior suggests it certainly would be intolerable, because you’re afraid of even one dollar of Medisave payable hospital bills, so afraid that you’re willing to spend cash to avoid that. Not that you should double down on over-insuring, but I’d step back and rethink your priorities here.

Quote:

Term would be the direct purchase term insurance to cut out agent fees and looking at the maximum 400K until age 65. Would appreciate any suggestions/views.
You base this decision fundamentally on the same approach, but answering a very slightly different question: what would be the lifestyle impact on your dependents in the event of your untimely passing (and the loss of $15K/month present dollars for the next 20 years or so)? Adding up all your assets, including your CPF balances (that you nominate to a survivor), would they be OK? They’d be sad, I expect, but would they be OK enough already, financially? Would they be able to keep the house and have enough for a “reasonable” lifestyle in the circumstances, keeping in mind that there aren’t too many paid employment opportunities for 5 year olds? If the answer is “No,” then add some term life insurance, enough until the answer is “Yes.” If $100K, or $250K, or $400K is enough to flip that no to a yes, there you go. If that’s still not enough, add some more.

If you don’t like the premium cost for these coverages at these levels, then shift premium dollars from what never would be a calamity (a $1,750 highly Medisave payable hospital bill — the amount that’d be your bill if you have a “Saver,” “Lite,” or “Assist” rider instead of a zero dollar rider) into true calamity-mitigating insurance.

(*) Aviva offers a DII payout option that increases annually by a fixed percentage (3% as I recall) if/while payouts occur. The nominal payout amount starts at the same number, and over time that nominal number will be less valuable due to inflation. Nonetheless, this payout option tends to align with the risk better, and it’s worth considering. Naturally there’s a higher premium for this payout option.

maple96 06-07-2018 10:41 AM

Quote:

Originally Posted by oysterworld (Post 115321530)
I must say that this is a really fantastic thread. Kudos to BBCW for the great pointers.

I have a question about my insurance situation: 36 y old, Singaporean male, earning more than 15K a month, 2 kids both below 5 y olds. I have the full integrated medishield plan (with full riders covering all deductibles and co-insurance, so I don't have to pay anything for hospital bills), and am wondering what other insurance options I should be looking at.

It seems to me that DII and Term does stand out. I am minded to take out DII for a sum of between 4-5K (the reason for the small sum is that I think the likelihood of payout is rather small) until age 55 (I do plan to retire latest by then). Term would be the direct purchase term insurance to cut out agent fees and looking at the maximum 400K until age 65. Would appreciate any suggestions/views.

I beg to differ with BBCW's opinion.

Insurance plays with your psychology, your fear and greed when managing your risks. If u cannot manage it well, u will transfer more risks than is necessary, thereby donating more of your hard earned money to the insurers!

If or before u get hit with "severe disability", first u need to consider is medical cost (hospital, post treatment, long term care, death could occur). With isp with full riders, it covers more than just deductibles and coinsurance. I was lucky with full riders as I also get a sum of money to cover for medical costs not covered by the basic isp, especially my post treatment stretch beyond 90 days. What about multiple hospitalisations, my relative was moving in and out of hospital for treatment.

I have an additional rider for daily cash benefit, every day I was on hospitalisation leave, I was given more than 8 months! Disabled, but not sure if it qualifies for DII claim. That's another major consideration, uncertainties over possibility of claim for DII. I never had, never bother to read/research more cos I dun need it!

What about longer term care cost? These are as important as other costs for the family, for higher chances of recovery for u to take care of your family. Eldershield, Careshield, your Life or Term insurance, etc. What can help u?

If u can claim DII, then u should be able to claim eldershield, careshield, your term or life insurance, pa depending on nature of work, withdraw from medisave, withdraw CPF or CPF Life? What about your other funds/assets? U have a very high income, should have other assets, your house, etc by now ? Even if you have DII, will the payout be enough to cover just your medical cost and long term care?

If u pay 5k premium per year for DII till 55, that is about 20 years = 100K? As u said, likelihood of claim is another consideration.

If nothing happens when u reach 55, you will have more than 100k as your assets, not donated to the insurers. If something happens, do u have other insurance/assets mentioned above? You dependents might already have ability to take care of themselves in your later years.

Some food for thought!

(Note: I plan to terminate my 100% cover when older as it will be too expensive to maintain and gahmen gives higher subsidy)

tangent314 06-07-2018 11:39 AM

Quote:

Originally Posted by BBCWatcher (Post 115320031)
Some U.S. domiciled funds are still pretty tax friendly, including funds that donít pay any dividends and most funds that invest in U.S. bonds.


Hmm... so for bond funds, it doesn't matter if we choose one domiciled in the US, there will be no tax on the distributions?

BBCWatcher 06-07-2018 08:44 PM

Quote:

Originally Posted by tangent314 (Post 115326169)
Hmm... so for bond funds, it doesn't matter if we choose one domiciled in the US, there will be no tax on the distributions?

That appears to be correct, as long as the bonds are U.S. bonds. However, U.S. estate tax liabilities still seem to attach.

Please triple check that, of course.

BBCWatcher 06-07-2018 08:57 PM

Quote:

Originally Posted by maple96 (Post 115325168)
Insurance plays with your psychology, your fear and greed when managing your risks.

Insurance salespeople certainly do.

Quote:

If or before u get hit with "severe disability", first u need to consider is medical cost (hospital, post treatment, long term care, death could occur). With isp with full riders, it covers more than just deductibles and coinsurance. I was lucky with full riders as I also get a sum of money to cover for medical costs not covered by the basic isp, especially my post treatment stretch beyond 90 days.
Hang on a minute. First of all, base Integrated Shield plans do that, too. AIA's base Integrated Shield plan stretches back as far as 13 months and as far forward as 13 months pre-/post-hospitalization. Riders don't increase the coverage period pre-/post-hospitalization.

Second, there are different riders. The riders named "Lite," "Saver," or "Assist" (typically) cap out-of-pocket and Medisave payable costs per year, typically at $1,750. What on earth is wrong with that, in Medisave-equipped Singapore?

Quote:

What about multiple hospitalisations, my relative was moving in and out of hospital for treatment.
Base plans cover even that. Even the most basic riders cap annual costs.

These are not great arguments you're making.

Quote:

Disabled, but not sure if it qualifies for DII claim.
Of course you can claim on a DII policy in the scenario you describe. If you're partially or fully unable to work and earn an income, and after the waiting period (ranging from 2 to 6 months depending on what you choose -- choose the longest waiting period, I would advise), you can claim.

Quote:

What about longer term care cost? These are as important as other costs for the family, for higher chances of recovery for u to take care of your family. Eldershield, Careshield, your Life or Term insurance, etc. What can help u?
All of those policies only pay benefits if you are profoundly disabled, usually defined as an inability to perform 3 (or more) of 6 defined "Activities of Daily Living" (ADLs). That's a much, much narrower definition of disability than what DII policies have.

Yes, you really should study up on this.

Quote:

If u can claim DII, then u should be able to claim eldershield, careshield, your term or life insurance, pa depending on nature of work, withdraw from medisave, withdraw CPF or CPF Life?
No, absolutely not. There are many situations when DII will pay but 3-of-6 ADL policies won't. DII is always defined according to ability to work and earn an income. It's focused like a laser beam on the actual experienced risk you face: loss of income. It doesn't care why you've lost income due to disability, with very few exceptions. (Intentional self harm, e.g. a suicide attempt, is one of the very few exceptions.)

w1rbelw1nd 06-07-2018 11:30 PM

That's definitely not my understanding. US bond ETFs, for a non-US resident, is likely more liable for the 30% WHT than not, based on

1. My understanding on dividend why for US sourced distribution to non-US tax residents


2. This boglehead thread https://www.bogleheads.org/forum/viewtopic.php?t=250219

3. Limster shared something on it previously.


Quote:

Originally Posted by BBCWatcher (Post 115334597)
That appears to be correct, as long as the bonds are U.S. bonds. However, U.S. estate tax liabilities still seem to attach.

Please triple check that, of course.


BBCWatcher 07-07-2018 07:49 AM

This tax treatment changed rather recently, so you should check this again with more recent information. Fund managers wanted the ability to pass through the dividend/interest tax treatment of U.S. bonds to foreign investors, and Congress honored their request.

I’ve read through fund prospectuses recently, and they do seem to say this.

You could run this test quite easily and inexpensively. Just invest in Schwab’s TIPS fund (SWRSX), which you can do with as little as $1. (Try US$100, for example.) Make sure you have a W-8BEN on file. If you have an account with Schwab, great, you can do that directly with zero sales charge. (At other brokers there might be a sales charge depending on how they handle mutual funds.) Then wait for the next fund distribution and see what happens.

....And I’m confused, because the Bogleheads thread you linked to is saying the same thing I am. International (non-U.S.) bonds inside U.S. bond funds are different, and one commenter made the point that some brokers might possibly incorrectly withhold, which is always a possible risk. Brokers can sometimes make mistakes. Improper withholding is annoying but recoverable.

w1rbelw1nd 07-07-2018 11:20 AM

Quote:

Originally Posted by BBCWatcher (Post 115342012)
This tax treatment changed rather recently, so you should check this again with more recent information. Fund managers wanted the ability to pass through the dividend/interest tax treatment of U.S. bonds to foreign investors, and Congress honored their request.

Iíve read through fund prospectuses recently, and they do seem to say this.

You could run this test quite easily and inexpensively. Just invest in Schwabís TIPS fund (SWRSX), which you can do with as little as $1. (Try US$100, for example.) Make sure you have a W-8BEN on file. If you have an account with Schwab, great, you can do that directly with zero sales charge. (At other brokers there might be a sales charge depending on how they handle mutual funds.) Then wait for the next fund distribution and see what happens.

....And Iím confused, because the Bogleheads thread you linked to is saying the same thing I am. International (non-U.S.) bonds inside U.S. bond funds are different, and one commenter made the point that some brokers might possibly incorrectly withhold, which is always a possible risk. Brokers can sometimes make mistakes. Improper withholding is annoying but recoverable.

My understanding is that one has to go through a fairly tedious process of tax filing to get the it recovered. My guess is that there might be people who has a fetish of going through unchartered waters and get it waived, and potentially waste lots of time, effort and in the boglehead forum case, money to engage a CPA to do it.

Happy to try out once the first half a dozen of brave souls here prove that it is indeed a fruitful process.

Anyway, for the ease of the brave souls:


Quote:

This is broadly true for when no tax treaty exists, and perhaps the number is 25% or 15% under various tax treaties. However, I have recently learned that this is only half the story, according to an international tax accounting expert I hired. Brokerage firms tend to withhold the full amount (30% in your example), because they are liable if they don't and the tax laws are complex. The US government DOES NOT tax the vast majority of dividends paid by AGG or BND (~85% exempt respectively, and similar funds to different exemptions depending on holdings) when held by non-USA residents. The dividends are largely classified as "NRA Exempt Qualified Interest Income (QII)" and various fund companies publish this data for their funds every year. To get the refund, it seems NRA investors need to file with the IRS. Most probably do not ... extra cash for the IRS. Here is a link to the iShares 2017 NRA Exempt Qualified Interest Income report. https://www.ishares.com/us/literature/t ... 364636.pdf

If we accept that tax argument, then many bond funds are better owned by NRAs in the US market (from a total fee perspective, leaving aside inheritance tax risk and tax return hassle). Also, the US market has a better selection of funds and narrower bid/offer spreads. For example, compare AGG (US based) and IUAG (London based) from a total fee perspective (I used various assumptions for yield, QII and tax treaty, which can be modified to fit other cases).

Morning Sunshine 07-07-2018 12:53 PM

Mortgage Insurance

Hi BBCWatcher,

Is Mortgage insurance needed? If both husband and wife already have Life, Term and Disability Income Insurance (only the husband), would it better to increase the sum assured of any of these insurance policies instead of purchasing Mortgage Insurance? I am asking specifically for the case where only one spouse is in employment and the other is a home-maker.

And could you advise on which kind of Mortgage Insurance to take up? Fixed vs decreasing term vs others?

Thank you.

cfleee 07-07-2018 01:30 PM

Quote:

Originally Posted by BBCWatcher (Post 115342012)
This tax treatment changed rather recently, so you should check this again with more recent information. Fund managers wanted the ability to pass through the dividend/interest tax treatment of U.S. bonds to foreign investors, and Congress honored their request.

I was triggered recently into a googling spree after I read some blog post that highlighted that Stashaway claims that they will claim back some withholding taxes under the "Qualified Interest Income rule":

Quote:

Originally Posted by blog post
Itís not true that US bonds are subject to 30% with-holding tax. Investor can claim back taxes paid on ďQualified Interest IncomeĒ (QII) and government bondsís interest are usually 100% QII, therefore taxation is 0% after reclaim (and StashAway manages the reclaim).
[...]
Of course, as the StashAway team themselves acknowledged, all this is contingent upon the tax application being successful, as they havenít had a full tax cycle where they could actually implement this. In tax, nothing is certain until you actually get the tax refund in your hand, so I fully understand their reservations.

This seems to refer to certain tax relief provisions deriving from the American Jobs Creation Act of 2004, as extended, and more recently made permanent in the PATH Act of 2015. These provisions currently exist as Internal Revenue Code section 871(k) "Exemption for certain dividends of regulated investment companies" for non-resident alien individuals, i.e. for "Interest-related dividends" and "Short-term capital gain dividends" (and the corresponding section 881(e) for foreign corporations). I guess this is the recent change mentioned.

An 2015 ICI paper lobbying for this exact change described it as letting foreign investors receive the same tax treatment on interest and short-term capital gains through a U.S. fund, as if they made a direct investment in the underlying securities.

A 2016 Virginia Tax Review article explores the whole U.S. mutual fund tax situation in much more detail, and says that "U.S. source interest and capital gains" are covered but not any "foreign source income".

Quote:

None of a RICís foreign source
income is recharcaterized. In particular, the definition of qualified interest
income is limited to U.S. source interest income ó the statute does not
recharacterize foreign source dividends (including similar income such as
Subpart F inclusions and passive foreign investment company inclusions),
interest, swap income, or foreign currency gains.
[...]
Consequently, a distribution of a RICís foreign source interest, foreign
source dividends, or swap income is taxed as an ordinary U.S. source
dividend, even though had a foreign shareholder earned the income directly
it would have been exempt from U.S. tax.
I guess the key here is having a broker that will either (i) not withhold entirely, which seems rather unlikely, (ii) withhold and then reclassify next March on Form 1042-S so that you can do tax filing on Form 1040-NR to obtain a refund, or (iii) somehow handle the refund process for you?

Clearstream says that "only the final beneficial owner is allowed to claim such refund directly from the IRS". I can't tell whether this is something only necessary while the tax treatment was non-permanent, or if it's still necessary because it takes time for the funds to report the QII percentages.

Now to see what's the cheapest way to test this out... I'm assuming it would need to be a brokerage located in the U.S. to get a Form 1042-S?

BBCWatcher 07-07-2018 03:17 PM

Quote:

Originally Posted by Morning Sunshine (Post 115345859)
Is Mortgage insurance needed? If both husband and wife already have Life, Term and Disability Income Insurance (only the husband), would it better to increase the sum assured of any of these insurance policies instead of purchasing Mortgage Insurance?

I donít think you need mortgage insurance if you and your suvivors are already well insured. However, I could see how mortgage insurance would be useful if the premium is attractive. As your mortgage is gradually paid off, a mortgage insurance policy will automatically adjust its payout since thereís progressively less outstanding debt. And thatís not a bad thing. So you can mix it with term life insurance to fine tune your coverage and (hopefully) get some more value out of each premium dollar.

Quote:

And could you advise on which kind of Mortgage Insurance to take up? Fixed vs decreasing term vs others?
Got some product names youíd like me to look at?

peipei1 08-07-2018 06:27 PM

Hey BBC, how many downturns market crashes you went through? What were your thoughts then? Your portfolio years gains literally burnt to zero and even negative? Did your asset allocation lessen or even mitigate the pain?

If the market continue to grow past this August, we will be in the longest bull run in history. US's Donny 2 scopes is stirring things, have you planned for emergency exit? I hear economic data is lagging statistics and moreover the reliability of current US and China government to give true data is in question!

BBCWatcher 08-07-2018 08:52 PM

Quote:

Originally Posted by peipei1 (Post 115369730)
Hey BBC, how many downturns market crashes you went through? What were your thoughts then?

Sure. The Global Financial Crisis was the biggest and a genuine crash.

Thoughts? The biggest one was, ďWow, this is epic.Ē Then I thought about what I might buy, and I did a little extra buying.

What works for me fairly well is to consider what Iíd do if Fairprice had a once-a-decade low sale price on laundry detergent, to pick a random example. ďStock upĒ is the sensible response. People seem to understand this in supermarkets. Why not in stock markets? Itís the same thing.

Quote:

Your portfolio years gains literally burnt to zero and even negative?
I assume that was true for a few years at the beginning, sure.

Quote:

US's Donny 2 scopes is stirring things, have you planned for emergency exit?
I havenít fundamentally changed my saving/investing program in many years. I continue to accumulate stocks. But that also means Iím somewhat on the sidelines since cash has piled up a little faster than I expected, a happy problem to have. Iíll need to make an adjustment at some point, but it wonít be a big one.

Quote:

I hear economic data is lagging statistics and moreover the reliability of current US and China government to give true data is in question!
U.S. data are quite reliable. I agree the data from mainland China are not, but thatís nothing new.

BBCWatcher 08-07-2018 09:00 PM

I’ve mentioned a few times that I haven’t found any better travel medical insurance value than Bupa Global’s “Basic” policy. If you travel more than a couple times outside Singapore each year, especially to moderate or high medical cost countries, then Bupa’s “Basic” annual plan should work quite well for you.

If you’re a new Bupa customer then you’ll pay approximately 100 British pounds for an annual policy (for one adult). However, if you search online you should be able to find a coupon code to reduce that price a bit. Also, renewals tend to be discounted about 25%.

As always, please read the policy fine print carefully. Bupa is pretty good about keeping the exclusions to a minimum, but there are a few.

Has anybody found anything better?


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