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BBCWatcher

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Hmm, what are some of the advantages? I've only ever heard/read about the tax nightmares =:p
A U.S. citizen spouse can sponsor you for emigration to the United States, and it’s a pretty fabulous country in several (not all) ways. Taxes aren’t even particularly important.

In the meantime, she can usually do things like open a joint U.S. bank or U.S. credit union account with you, and get you a supplementary U.S. credit card. There are some fabulous offers.

She can do even better than you can with her U.S. tax advantaged retirement and educational savings accounts, assuming she otherwise qualifies, and therefore the whole household can benefit. And if she qualifies for U.S. Social Security, you might as well (spousal benefits). The spousal rules are quite complicated, though, but it’s sometimes possible.

She is treated equivalently to a Singaporean citizen for ABSD, which can come in handy if you’re allowed to be “decoupled” on the BTO then she buys another home in Singapore after the M.O.P. The rules are somewhat complicated for Singaporean citizens, but for ABSD purposes you look at the Singaporean citizen treatment in a given situation and she gets the same treatment.

Her IRAs, 401(k)s, and similar cannot be willed to anybody else. You inherit them as her legal spouse. You must waive that right for any other outcome.

One of my concerns is that having a joint account would require that entire account to be treated as a US account. I don't really mind reporting our finances to IRS but I'd rather not have to be perpetually on the lookout for whether certain transactions into/out of the joint account qualify as gifting or whatnot.
In my view you shouldn’t have a joint account without a good reason, but there are a couple occasions when it makes sense. It’s probably the only way you can get a U.S. bank or U.S. credit union account with a wonderful ATM/debit card that’s great for globe hopping, for example.

Ah, that really helps. In that case, would it be right for me to say that we can have two separate IBKR accounts under our respective names to buy US-domiciled assets under hers and non-US domiciled assets under mine, as long as the living spouse immediately liquidates all the holdings inherited from the deceased spouse?
That’ll work, but “immediately” is not a requirement. If you inherit U.S. funds, for example, you’ll end up paying the U.S. dividend tax rate of 30% for a little while. That’s fine, no big deal. In the other direction, she might have a PFIC form to fill out and a little higher tax rate in the tiny bit of capital gains that might occur between your death and the liquidation. No problem, that’s fine, too. And the survivor has to go through a process with IB to get the account transferred over anyway.

Also, are there any investment vehicles you would recommend for our situation (Vanguard retirement funds, etc.) over ETFs like VWRA & MBH?
Assuming you don’t elect to file a joint U.S. tax return with her (a reasonable assumption I think) unless and until you move to the U.S., by and large you just do what Singaporean citizen residents of Singapore would ordinarily do. So VWRA and MBH, as examples, are fine for you. She’ll presumably invest in ways that make sense for a U.S. citizen, including an IRA and possibly a 529 plan, the latter if you change your mind about children, and assuming she qualifies. (Qualifying for an IRA from overseas is a bit tricky, but it can sometimes be done even Married Filing Separately.)

She should be a little more careful than you about real estate. She has a US$250,000 capital gains exemption on a primary residence, so ponder how you both get that BTO. If you win the BTO lottery and get a particularly attractive flat that resells for a high price, and if she’s co-applicant, a bit of capital gains tax is possible for her. Unlikely still, but possible.

We will also be building up our SA to make the most of CPF Life (we are aware that the payouts will be taxable should we relocate to the US).
Only mildly taxed in your case because all of your accrued interest before becoming a U.S. person isn’t taxed. For her, if she is granted Singapore Permanent Residence, it’s just another foreign bank account, basically. The interest is U.S. taxable every year. She’ll also need to report the employer’s contribution as income, and evidently it’s earned income but not foreign excludable income. Which is sort of good, actually, if she needs that income to qualify for an IRA contribution.

If you can, that would be extremely helpful!
Some rainy day I’ll make a list, maybe in a separate thread.

Japan was actually where we had initially wanted to settle down during our working years but I didn't like their tax regime, and it's bad enough having to deal with all these cross-border tax compliance issues that I can't imagine getting a third country involved. If we were to retire in Japan, I would need to find work there for 1-3 years (I currently work as a Japanese/English translator), which should allow me to qualify for accelerated PR under their points system.
For retirement, especially by the time you want it, I’m skeptical. I wouldn’t make firm plans, to say the least.

I've read about this, and the impression I got is that it's preferable for the US-spouse to file separately as long as his/her income is below the Foreign Earned Income Exclusion threshold.
Below the Form 2555 limit (Foreign Earned Income Exclusion, Foreign Housing Exclusion), and assuming limited other income, it doesn’t help or hurt. The typical scenario when a Section 6013 election makes sense is when the U.S. citizen spouse has a highish or higher taxable income (earned and/or passive) and the non-U.S. citizen spouse has earned income that fits within the Form 2555 exclusion and limited passive income. Alternatively, if the couple lives in a comparatively high income tax country, a joint filing could make sense since it doesn’t make sense to take the Form 2555 exclusion.

It’s complicated, in other words, and you can only bounce in and out of this election once. So it’s a tricky decision even when it’s favorable.
 

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@hiroki01-

I’m a US person married to a non-US person. You are already WAY ahead of us... when we first moved to Singapore 23 years ago, we had no clue about any of these things.

There are definite advantages to keeping most of your assets, accounts and tax filings as non-joint... one of the biggest ones is the nonresident alien tax shelter for your investments, up to the annual gift tax limit to a foreign spouse.

The Roth IRA is even better, but limited - you should max that out each year. Besides using unexcludable “income” from
employer MC to CPF for this, you can also use the presence test and shift the window to manipulate the exclusion. I used that for over a decade, and even corrected some returns to legalize past contributions.

One other pitfall of not having kids, your future wife may have to file as married filing separately. For us, we have kids, so I can file as head of household, which has some advantages. This won’t matter as much unless her salary is more substantial.
 

BBCWatcher

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There are definite advantages to keeping most of your assets, accounts and tax filings as non-joint... one of the biggest ones is the nonresident alien tax shelter for your investments, up to the annual gift tax limit to a foreign spouse.
To elaborate, after her Roth IRA and/or 529 plan choices (if/as available), she can transfer up to the annual gift limit to you for you to invest. As a Singaporean citizen residing in Singapore who isn't filing a joint U.S. tax return, you can pay a flat 15% dividend tax on U.S. stocks and zero capital gains tax, factors reflected in VWRA for example. Typically she can match your tax rate on the dividends, although "it depends." And she can beat you on the fund expense ratio. But she cannot beat you on the capital gains tax (outside of her Roth IRA and 529 plan). So, except for her U.S. tax advantaged accounts, your VWRA likely beats her VT, basically.

Also remember that there's a pretty long list of expenditures that aren't considered gifts. For example, if she buys household groceries, and you eat half (or even more) of them, I don't think that's classified as a gift from your wife to you. So it's common tax optimization practice for the American in the household to pay most or all of the ordinary household expenses -- the electric bill, etc. -- to allow the non-American spouse to do most of the saving/long-term investing. (I'm assuming a dual income household here.)

As a reminder, double check this information before relying on it.

The Roth IRA is even better, but limited - you should max that out each year. Besides using unexcludable “income” from
employer MC to CPF for this, you can also use the presence test and shift the window to manipulate the exclusion.
Yes, that technique might be getting a bit too clever, but it is possible -- post-COVID-19, anyway. We're getting into some "high art" here in terms of how to optimize. It's not necessary, though, if she is earning over her Foreign Earned Income Exclusion and Foreign Housing Exclusion limit, whereupon she'd have plenty of non-excluded earned income to make her eligible for a Roth IRA contribution -- a "backdoor" Roth IRA contribution if necessary.

....We're getting too deep in the weeds now, aren't we? ;)

One other pitfall of not having kids, your future wife may have to file as married filing separately. For us, we have kids, so I can file as head of household, which has some advantages. This won’t matter as much unless her salary is more substantial.
It can matter a little more since the Trump tax changes made Married Filing Separately even worse than it used to be, generally. But getting a Head of Household tax filing status is not anywhere near sufficient reason to have a child. :s22:
 

BBCWatcher

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Here's a relatively short list of U.S. financial accounts that can be useful to a U.S. citizen married to a non-U.S. person and living in Singapore, along with a couple other ideas. I'll number these, but there's no ranking implied here. These accounts must typically be opened with U.S. mailing addresses, although in a few cases a non-U.S. address can be added later.

1. One or a couple U.S. credit cards with zero foreign transaction fee and (preferably) zero annual fee, along with supplemental credit cards for the trusted foreign spouse (you). If she doesn't have a U.S. credit history then the Capital One Journey Student Credit Card should still be available to her. Despite the word "Student" in its name, it's also available to non-students. U.S. credit cards really ought to be set up for full balance "AutoPay" from a U.S. bank or U.S. credit union account.

The value in a card like this is that it allows you and your spouse to spend at merchants that accept the major credit card without incurring foreign transaction fees. While there are some decent credit cards issued in Singapore, you're probably not going to beat even an average zero foreign transaction fee U.S. credit card.

2. A U.S. bank or U.S. credit union account. Lately I like Alliant Credit Union. She can open an account with them (checking and/or savings) then add you as a joint account holder. This account can support #1, and it also can help reduce or eliminate fees if you ever need to (legally) move U.S. dollars between brokers, for example. Or deposit a U.S. dollar paper check from the U.S. Alliant Credit Union issues a fantastic debit/ATM card linked to the account that has zero foreign transaction fee markup and that (get this) rebates fees that ATM operators charge.

3. A Schwab One account, also with their fabulous debit/ATM card linked to the brokerage account. (There is a Schwab Bank account she could also get, but that's less interesting and reportedly requires maintaining a U.S. mailing address on the account.) While this Schwab One account won't be for you, for her it's a pretty darn good choice -- for an IRA, notably. Beyond the brokerage account-linked debit/ATM card which works like that Alliant card, Schwab also has a pretty decent way to get funds into the account. Like Interactive Brokers, Schwab has a local account in Singapore where you can FAST or GIRO Singapore dollars which then pop up in your account, magically, as U.S. dollars. The conversion rate is decent.

4. Interactive Brokers. We all know about this one.

5. A TreasuryDirect account. She may or may not need this, but it doesn't hurt. This account allows her to buy U.S. Treasuries and U.S. Savings Bonds directly.

6. A couple official copies of her U.S. (I assume) birth certificate, one or both with apostille. Singapore isn't a Hague Convention (apostille) country, but the apostille can't hurt except for the minor fee involved to get it. An apostille helps making the document more widely accepted globally. If there are any other important civil records she wants to collect in the U.S., that'd be great. (For example, is she was married previously, prior marriage and divorce records.)

There is no U.S. marriage registry, by the way. If you and she get married here (in Singapore), there's nothing to do on the U.S. side in terms of filing any paper. A lot of people are surprised by that, but marriage is surprisingly relaxed in those terms. She just starts filing her U.S. tax returns as Married (not Single). And it's up to her whether she wants to change her name, but I'm not a fan if only because she then has to run around changing her name on accounts, her passport, licenses, etc., etc. I don't see the point, but of course it's her decision. Or you could change your name.

7. Voter registration, as mentioned. Then, while living in Singapore, every January she should send a new "FPCA" to re-register. (U.S. voters abroad need to re-register every year if they want to be on that year's voter rolls. U.S. federal elections are every 2 years, but I send mine every year since special elections to fill vacancies are possible.)

8. Any driver's license-related things she wants to do, legally of course. Caution on #7 and #8 that these acts might have state tax residency implications. If she happens to be staying in South Dakota, that's great, because South Dakota allows Americans living overseas to keep a South Dakota driver's license, or that's what I've read anyway.

9. If she wants to name a "Payable on Death" (PoD) beneficiary for any of her accounts, she can do that. Usually that can be done online, but in a few cases she might have to get a notarized statement or something like that.

10. If, post-COVID, she expects to travel a lot on business, and if she happens to be near the Canadian border, then she could look into getting a NEXUS card, one of the "trusted traveler" programs. NEXUS costs US$50, half the Global Entry program fee, and is slightly more useful because of Canadian entry privileges. Funny how that works. NEXUS card holders can then apply for an APEC Business Travel Card if they otherwise qualify. The U.S. variant of the APEC BTC isn't terrifically useful since it doesn't waive any visa requirements, but it does get you into the shorter immigration lines when you're traveling on business. Do we even remember what traveling is? ;)

11. I haven't investigated this idea fully, but if there's a low monthly cost prepaid U.S. SIM card that'll roam in Singapore, to receive SMSes (text messages), that could be useful for online account maintenance and such. Along with a Google Voice phone number, for example. "More research needed."

12. A few "Forever" international first class U.S. postage stamps -- a book of 10, for example. They're occasionally useful if you have to mail something to the U.S. and include return postage on a self-addressed return envelope. The "Forever" ones mean that they're valid for whatever the rate class is, forever.

That's a pretty good list. Maybe Celtosaxon and others have some more good ideas.
 
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hiroki01

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For her, if she is granted Singapore Permanent Residence, it’s just another foreign bank account, basically. The interest is U.S. taxable every year. She’ll also need to report the employer’s contribution as income, and evidently it’s earned income but not foreign excludable income. Which is sort of good, actually, if she needs that income to qualify for an IRA contribution.

Just to clarify: since CPF interest is not excludable under FEIE, does this mean that she would have to pay taxes on this interest out of pocket even though the interest is still locked away in her CPF account? Is there any reason why the employer's contribution specifically isn't excludable under FEIE?

On a related note, once her CPF Life payouts commence, can they be excluded under FEIE if she's still situated in Singapore or do those not count as earned income either?

As a Singaporean citizen residing in Singapore who isn't filing a joint U.S. tax return, you can pay a flat 15% dividend tax on U.S. stocks and zero capital gains tax, factors reflected in VWRA for example. Typically she can match your tax rate on the dividends, although "it depends." And she can beat you on the fund expense ratio. But she cannot beat you on the capital gains tax (outside of her Roth IRA and 529 plan). So, except for her U.S. tax advantaged accounts, your VWRA likely beats her VT, basically.

Yeah, that was the conclusion I arrived at after looking into what Roth IRAs are all about since I wasn't familiar with them. The main advantage they seem to offer is the elimination of capital gains tax for US people, which don't apply to Singaporeans in the first place.

Also, if we were to set up an IBKR account under her name, it would appear to be only good for the purchase of individual US stocks (not likely) or ETFs without Ireland-domiciled equivalents (e.g., some thematic/sector plays on NYSE), and even then it's not entirely clear if the capital gains tax incurred upon sale would outweigh the savings from the 30% tax on dividends. Maybe we should just do everything using my account then...?

Also remember that there's a pretty long list of expenditures that aren't considered gifts. For example, if she buys household groceries, and you eat half (or even more) of them, I don't think that's classified as a gift from your wife to you. So it's common tax optimization practice for the American in the household to pay most or all of the ordinary household expenses -- the electric bill, etc. -- to allow the non-American spouse to do most of the saving/long-term investing. (I'm assuming a dual income household here.)

Ah, that makes a lot of sense.

Yes, that technique might be getting a bit too clever, but it is possible -- post-COVID-19, anyway. We're getting into some "high art" here in terms of how to optimize. It's not necessary, though, if she is earning over her Foreign Earned Income Exclusion and Foreign Housing Exclusion limit, whereupon she'd have plenty of non-excluded earned income to make her eligible for a Roth IRA contribution -- a "backdoor" Roth IRA contribution if necessary.

The FEIE threshold is really high - that's like 13k SGD monthly income or something, so I doubt it. Do you (or celtosaxon) mind explaining how the creative method works?


But getting a Head of Household tax filing status is not anywhere near sufficient reason to have a child. :s22:

I agree :s13:


Also, BBCW, thank you SO much for your list of useful US financial accounts. I've bookmarked it and will read that again tomorrow to digest it :)
 

BBCWatcher

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Just to clarify: since CPF interest is not excludable under FEIE, does this mean that she would have to pay taxes on this interest out of pocket even though the interest is still locked away in her CPF account?
Passive income of all kinds is not earned income, thus the Foreign Earned Income Exclusion doesn’t apply to CPF interest. Yes, CPF interest is U.S. taxable, every year.

Is there any reason why the employer's contribution specifically isn't excludable under FEIE?
Because someone asked the IRS many years ago, and (as I interpret their response), they want the employer’s contribution treated as earned, non-excludable income, every year as earned. It doesn’t matter if she’s past the FEIE/FHE limit, but it may below.

On a related note, once her CPF Life payouts commence, can they be excluded under FEIE if she's still situated in Singapore or do those not count as earned income either?
Since both types of income (CPF interest, employer contributions — yes, for all subaccounts, including MediSave) are U.S. taxable every year along the way, the only part of a CPF LIFE payout stream that’s U.S. taxable is (are) the implicit forward returns within the annuity. And the IRS has an annuity formula to help her figure that out, which should work pretty well for at least two out of the three payout plans....

....But she may not need that formula. If you and she end up retiring in the U.S. for example then she may lose her Singapore Permanent Residence, whether voluntarily or not. Ex-citizens and -PRs who have not started CPF LIFE payouts cannot start them. Moreover, there’s no guarantee she’ll be granted SPR status — this is all speculation.

Yeah, that was the conclusion I arrived at after looking into what Roth IRAs are all about since I wasn't familiar with them. The main advantage they seem to offer is the elimination of capital gains tax for US people, which don't apply to Singaporeans in the first place.
No, all U.S. interest, dividend, and capital gains tax — and sometimes other countries’ taxes too owing to U.S. tax treaties — if she follows the rules. That beats you, a lot.

Also, if we were to set up an IBKR account under her name, it would appear to be only good for the purchase of individual US stocks (not likely) or ETFs without Ireland-domiciled equivalents (e.g., some thematic/sector plays on NYSE), and even then it's not entirely clear if the capital gains tax incurred upon sale would outweigh the savings from the 30% tax on dividends. Maybe we should just do everything using my account then...?
You beat her on a VWRA v. VT contest outside her tax advantaged accounts, as an example. For other stuff it depends on dividends v. capital gains, her effective tax rate versus your flat, and investment costs. Estate taxes don’t matter too much since (I believe) she can inherit from you with the estate tax effectively waived.

The FEIE threshold is really high - that's like 13k SGD monthly income or something, so I doubt it. Do you (or celtosaxon) mind explaining how the creative method works?
It only works (if it works) if she visits the U.S. in a certain pattern, but I’ll let Celtosaxon explain it.
 

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Regarding an ordinary U.S. checking & savings account, I recommend State Department Federal Credit Union, which is the same account used by State Department employees who work at overseas embassies.

There is no requirement to have a U.S. address. Anyone can join SDFCU for free by joining the American Consumer Council using “consumer” promo code. Their fees are very competitive. They will FedEx your debit card to any overseas address. No inbound wire fees. No foreign transaction fees. Their upper tier accounts offer ATM owner fee reimbursements up to monthly limits. They are part of both the co-op ATM and co-op shared branch networks. This can be very convenient when you are stateside, with access to brick and mortar branch services in just about any part of the country, even far flung places like Guam. They also have mobile deposit, so you can deposit U.S. checks from here using the camera on your phone - I’ve even deposited US demand drafts from DBS bank, it works beautifully.

On top of all that, SDFCU also offers a truly exceptional credit card with no annual fee, no foreign transaction fees and a full 2% cash back on everything, plus a $200 sign up bonus. The card includes free credit monitoring and alerts which is nice to have especially when you are abroad.
 
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keyboard_warrior

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2. With the possible exception of the STI stocks, you, a person planning to retire in Singapore, shouldn't be placing any bets on any specific other country's stock market(s). Just bet on the whole world, every month for the next 420+ months.

Any questions? ;)

The whole worlds economy is so greatly impacted by what happens in America. If they crash, the whole world crashes just as much, but don’t recover as quickly. And since spy500 trajectory is always up, isn’t it better to just bet on America?
 

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The FEIE threshold is really high - that's like 13k SGD monthly income or something, so I doubt it. Do you (or celtosaxon) mind explaining how the creative method works?

There are two tests to qualify for FEIE, either the bonafide residence test (where the full FEIE is applied) or the physical presence test, where you need only be physically present in foreign jurisdictions for 330 days in any 12 month period - but only the days that fall in the current tax year are counted for the FEIE.

You can choose any 12 month period so long as you were 330 days abroad within those dates. That period can spill into the year prior or spill over to the year following the current tax year. So what you do is work backwards, determine what exclusion you want, then figure how many days need to spill outside the current tax year and enter that 12 month period to get the desired exclusion.

Only a very small minority of tax experts know about this one!
 

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That must have been some time ago!

I also recall struggling to muster up even S$1k in monthly savings during my early years.

Looking back, several one-off life events caused me to have a negative annual savings rate for certain years, but other one-off events caused a few spikes. Averaging it all out, I’ve managed to stay above my target 50% savings rate going back to the beginning. But after home ownership, I’ve had to cheat a bit and count the principle portion of our mortgage payments as “savings” to stay above 50%. I think that is unavoidable, given how high the asset hurdle is for home ownership here.


Well, by that logic you would have piled into the Nikkei in the late 1980s, right? ;) Bad idea.

Don't make this complicated, because it isn't. You cannot predict the future, and "past performance is not indicative of future results." Just doggedly buy the world (VWRA or IWDA as examples), perhaps with a little dash of bonds/bond-likes (MBH, CPF MA/SA) and maybe with a pinch of the STI stocks (but only a pinch), and keep doing it every month for the next 420+ months(*), increasing your monthly buys as your career progression and windfalls allow. And cruise to a secure retirement. This formula isn't 100% guaranteed, because nothing is. But it's really, really super likely to work great, or even better than great.

(*) Starting 8 to 10 years before retirement you'd adjust this path, gradually reducing the stock portion.

Is it better to just place $10k in a mix of ETFs and then wait and see how it develops? I thought that monthly deposits even though $600/month would complicate matters.
 

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the only part of a CPF LIFE payout stream that’s U.S. taxable is (are) the implicit forward returns within the annuity. And the IRS has an annuity formula to help her figure that out, which should work pretty well for at least two out of the three payout plans....

The 2 out of 3 must be Standard & Escalating. Works out pretty well from a tax standpoint or just a better match up with the tax code? The annuity formula is the one that determines how much basis can be counted in each payment? It seems like there is more than one method that can be used though, right? I’m also concerned about the future tax impact from CPF. Staying in the bottom two tax brackets helps keep qualified dividends and long term capital gains exempt. Also, the more income you realize, the more taxable social security becomes, and the more Medicare premiums rise.

It only works (if it works) if she visits the U.S. in a certain pattern, but I’ll let Celtosaxon explain it.

That is the other way to get some unexcluded dollars for a Roth contribution, technically, the income earned while on a business trip to the U.S. cannot be excluded by FEIE. But you can’t always control that one. If I remember right, the formula to apportion the income is total days in U.S. you worked while on business, divided by total working days for the year. You’ve got to attach your calculations, there is no form for this.
 

BBCWatcher

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Regarding an ordinary U.S. checking & savings account, I recommend State Department Federal Credit Union, which is the same account used by State Department employees who work at overseas embassies.
That's another good one, and I'll add PenFed to this particular pile as well since they have some good offers from time to time. Alliant, SDFCU, and PenFed all cater to highly internationally mobile Americans, so they have that in common. I believe Alliant started as the credit union serving United Airlines employees and family members.

However, the goal is probably to have an institution that actually offers its good deal(s) also to a "non-resident alien" spouse as joint account holder. All three of these probably do, but you never know, so "shop around."

The whole worlds economy is so greatly impacted by what happens in America. If they crash, the whole world crashes just as much, but don’t recover as quickly. And since spy500 trajectory is always up, isn’t it better to just bet on America?
First of all, buying a S&P 500 stock index fund is not "betting on America," not any more than buying Thai Beverage (Y92) stock on the Singapore Stock Exchange is "betting on Singapore." Substantially global stock markets are not equivalent to national economies. The U.S. S&P 500 is a bet on the top 505 stocks listed and traded on U.S. exchanges (that's the U.S. part), and the vast majority are global multi-national companies. Wall Street is just a marketplace, mostly virtual and electronic, that happens to be in...well, in New Jersey these days. ;)

Second, the S&P 500 isn't always up. It can go down and stay down for rather long periods of time. The most (in)famous historical example started on October 29, 1929. The S&P 500 index (retro-calculated, estimated) fell about 86% by 1932, and it wasn't until 1954 -- a quarter century later -- that it passed its 1929 peak. Dollar cost averaging investors did well even through that period (assuming they could keep dollar cost averaging reasonably well), but a few market timers literally committed suicide.

I do not recommend trying to time markets, and that includes deciding to change a well-considered investment strategy when a particular index is near or setting new, all-time highs. Many, many people are posting about their "epiphanies" right now, and it's disturbing. If you were going to have your S&P 500 "epiphany," the time to do that was back in March, 2020, not now.

Stay the course if it's a reasonable course. Something just over half of VWRA is the U.S. S&P 500, so you're in absolutely no danger of "missing out" on a U.S. S&P 500 bull run, however long it goes (or not), with simple global stock index fund investing.

I would also point out that it's not much of the S&P 500 index that's soaring. It's a very small number of titanic-cap stocks that are experiencing one heck of a bull run since March.

There are two tests to qualify for FEIE, either the bonafide residence test (where the full FEIE is applied) or the physical presence test, where you need only be physically present in foreign jurisdictions for 330 days in any 12 month period - but only the days that fall in the current tax year are counted for the FEIE.

You can choose any 12 month period so long as you were 330 days abroad within those dates. That period can spill into the year prior or spill over to the year following the current tax year. So what you do is work backwards, determine what exclusion you want, then figure how many days need to spill outside the current tax year and enter that 12 month period to get the desired exclusion.

Only a very small minority of tax experts know about this one!
OK, a couple points:

1. This is what's known as an "aggressive" tax position, to some extent anyway. It appears to be OK to me if you're carefully and correctly bracketing physical presence in the U.S. versus time spent outside the U.S., but I disagree with the most aggressive positions (only taking a partial calendar from among days spent outside the U.S.) and don't think that's tenable. I have seen one tax specialist make that latter argument, and maybe there are others. But I'm not persuaded, and many tax specialists also aren't persuaded.

2. You don't actually need to take an aggressive tax position, or even to use the FEIE's physical presence test, to qualify for a full Roth IRA contribution, assuming CPF contributions are made. The IRA contribution limit for those under age 50 is US$6,000 per year (2020 figure, and it should stay at US$6,000 for a while). Let's call that S$8,200, which is about right at the current exchange rate as I write this. The employer's contribution to CPF is 17% (full rate, after the lower contribution rate PRs have for the first 2 years), so take S$8,200, divide by 17%, and you get S$48,236. That's just a shade over S$4,000/month. So if your gross wages (pre-employee CPF contributions) are about S$4,000/month or higher, that should be enough earned, non-excluded income to cover a US$6,000 Roth IRA contribution.

It otherwise doesn't make any sense to attempt to shift any more earned income from excluded to non-excluded since the U.S. effective tax rate will be higher on that income in all likelihood. You just need enough to cover the IRA, and roughly S$4,000/month of employment income in Singapore should get the job done as a standalone matter. And it could be less than that with variable/bonus pay in the mix.

Continuing a bit deeper into these weeds, you can still take the Foreign Tax Credit on non-excluded income. The FTC is a complicated calculation, but the basic idea as I understand it is that any U.S. income tax owed on the non-excluded income can be reduced to some extent based on the (lower) income tax paid to IRAS on that same category of income, based on the average foreign (Singaporean in this case) tax rate across this income.
 

BBCWatcher

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Is it better to just place $10k in a mix of ETFs and then wait and see how it develops? I thought that monthly deposits even though $600/month would complicate matters.
I don't understand your question. If you're working and earning an income, you receive an income flow, typically monthly. Typically a portion of that income flow, plus excess windfalls, would go toward your long-term savings. Most people don't get to tell their employers (or their self-employed selves) "Hey, I'll take that next 6 months of income as a lump sum, thanks."

The 2 out of 3 must be Standard & Escalating. Works out pretty well from a tax standpoint or just a better match up with the tax code?
I haven't run those particular numbers and really don't see the need since all the rules on both sides of the Pacific Ocean are subject to change. I've just barely glanced at the IRS's annuity-related calculation rules, that's all. My impression is that it's an easier calculation to run when it's a "pure" annuity: pay this premium, get this stream. The Basic Plan is likely not what the IRS would use as a typical annuity example, so it's likely to be harder to calculate. But not impossible.

The annuity formula is the one that determines how much basis can be counted in each payment? It seems like there is more than one method that can be used though, right?
Yes, but I think there's only one method available for CPF LIFE. At least, it was pretty clear when I skimmed through the instructions that only one of the IRS's annuity calculation methods applies. I can't remember which one offhand.

I’m also concerned about the future tax impact from CPF. Staying in the bottom two tax brackets helps keep qualified dividends and long term capital gains exempt. Also, the more income you realize, the more taxable social security becomes, and the more Medicare premiums rise.
Yes, agreed, but these are probably good versus great differences. And I tend not to worry about good versus great choices, especially far future ones.

Medicare premiums are quite interesting. I think it's highly likely Medicare premiums are going to be quite different in the future both in terms of rates and rules. Also, it's an open question whether I'll even pay Medicare premiums since that's really only for age 65+ residence in the U.S. (Free Medicare Part A, sure, I'll take it.)

That is the other way to get some unexcluded dollars for a Roth contribution, technically, the income earned while on a business trip to the U.S. cannot be excluded by FEIE. But you can’t always control that one. If I remember right, the formula to apportion the income is total days in U.S. you worked while on business, divided by total working days for the year. You’ve got to attach your calculations, there is no form for this.
Yes, that's my understanding as well. COVID-19 may have blown a hole in those particular plans for some.
 

hiroki01

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Thanks BBCW and Celtosaxon for the FEIE/Roth IRA discussion! That was incredibly helpful.

From what you've said, CPF employer contributions certainly sound like the easiest source of unexcludable income for contributions to Roth IRA. I've been reading up on IRA contribution limits according to tax filing status and it appears that if a US expat is Married Filing Separately, he/she is not eligible for IRA contributions if his/her annual gross income is above $10k?
https://www.investopedia.com/retirement/ira-contribution-limits/

Am I missing anything? Otherwise, that makes all of this rather pointless unless my spouse files as head of household or we file jointly. It seems that the income excluded under FEIE would need to be added back for computation of MAGI.
 

BBCWatcher

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From what you've said, CPF employer contributions certainly sound like the easiest source of unexcludable income for contributions to Roth IRA. I've been reading up on IRA contribution limits according to tax filing status and it appears that if a US expat is Married Filing Separately, he/she is not eligible for IRA contributions if his/her annual gross income is above $10k?
https://www.investopedia.com/retirement/ira-contribution-limits/

Am I missing anything?
Yes. ;)

You're correct that there's an income limit to make a direct contribution to most IRAs, including Roth IRAs. However, there's no income limit to make a contribution to a nondeductible Traditional IRA. Then there's no income limit to convert a Traditional IRA to a Roth IRA. So here's one example of the sequence:

1. Make a nondeductible contribution to a Traditional IRA. Let's suppose you do that in October, when you're quite sure you'll have enough earned, non-excluded income to cover the contribution.

2. Buy a 4 week U.S. T-bill using those Traditional IRA funds.

3. When the T-bill matures, convert the Traditional IRA account balance to a Roth IRA.

4. Invest the Roth IRA funds in whatever long-term funds you prefer, such as a low cost global stock index fund.

When you file your tax return, you will pay tax on the slight bit of interest that the T-bill generated, and that's it.

This maneuver is called a "Backdoor Roth IRA." One important caveat is that it doesn't work well if you have/retain a Traditional IRA. It only really works well if you don't have a Traditional IRA and only really use one for these purposes. 401(k) plans are not Traditional IRAs, please note.

Otherwise, that makes all of this rather pointless unless my spouse files as head of household or we file jointly.
No, "Head of Household" is a different filing status from "Married Filing Jointly." She should be eligible to file "Head of Household" if she has a U.S. citizen child -- that's not a joint filing with you. The Section 6013 election I referred to is so that you and she have a "Married Filing Jointly" tax return. Generally speaking MFJ is the most favorable tax filing status for the American spouse, but that doesn't mean it makes sense for the household as a whole.

It seems that the income excluded under FEIE would need to be added back for computation of MAGI.
Yes, that's right.
 

celtosaxon

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However, there's no income limit to make a contribution to a nondeductible Traditional IRA. Then there's no income limit to convert a Traditional IRA to a Roth IRA.

This maneuver is called a "Backdoor Roth IRA." One important caveat is that it doesn't work well if you have/retain a Traditional IRA. It only really works well if you don't have a Traditional IRA and only really use one for these purposes. 401(k) plans are not Traditional IRAs, please note.

Specifically, if your future wife has any preexisting deductible contributions or 401(k) rollovers in a Traditional IRA today, the backdoor Roth could end up creating taxable event during the conversion. However, this may not be a big deal depending on her overall tax situation. If she happens to be employed by a company that offers access to a 401(k) she could use the “advanced backdoor Roth” of rolling Traditional IRA funds back to a 401(k) before deploying this maneuver. Then there would be no tax issues. Some companies also allow you to maintain a 401(k) account after you cease employment.
 
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celtosaxon

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Regarding the aggressive tax position of shifting the physical presence window. I am guessing the reason why you say this is because the intention behind having this window is to cater for situations where only a partial tax year applies to a taxpayer. I’m certainly not an expert on tax law, but seems like the view of the IRS would depend on the benefits being gained from such a maneuver, specifically whether any immediate abnormal tax benefits were gained.

I only found this technique after making illegal contributions for many years while fully excluding my income with FEIE. This method was the only way I could find to correct the problem (other than paying a penalty). The IRS accepted my correction, even though I stated explicitly what I changed and why. I guess that still may not guarantee anything in case of an audit, but statute of limitations has long past by now.
 
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celtosaxon

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Medicare premiums are quite interesting. I think it's highly likely Medicare premiums are going to be quite different in the future both in terms of rates and rules. Also, it's an open question whether I'll even pay Medicare premiums since that's really only for age 65+ residence in the U.S. (Free Medicare Part A, sure, I'll take it.)

Medicare Part B is always a question for those who don’t know if they will be in the U.S. when they need to use it. I think there is a chance in the future they could extend coverage overseas like Tricare has done for the military. For someone that paid into it and is paying the premium in retirement... it’s only common sense they should be covered everywhere. That is one of the issues that American Citizens Abroad is lobbying for, along with residency based taxation (less hope for that one, but we can always dream).

I do plan to pay Part B premiums even if living abroad at 65. The premiums really ratchet up if you don’t. Besides, I can’t really know for sure where I might be in retirement, it may depend where my kids decide to live and work in the future. In my view, Singapore is only a good retirement option if you have family here or in the early/active years of retirement, as a hub for traveling the region.
 

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That’s a different situation, really, since you were trying to extricate yourself from a fairly bad situation. So it made sense to advance the strongest position you had available and to tell the IRS that’s what you were doing. I’m glad they didn’t raise an objection.
 
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