*Official* BBCWatcher club

[Defying_Gravity]

Thabks BBCW for the assurance.

 

[wannabelazy]

I agreed with you up until this last bit, but this last bit doesn't seem quite right to me. In particular, you don't really want to measure CPF LIFE in terms of bequest value even for portfolio allocation decisions at age 65+, since that'll probably steer you in the wrong direction in terms of making a payout plan decision. But let me ponder that one and see if I have any better ideas.

Hi BBCW, wondering if you had any further thoughts on this. Still wondering how CPF life payouts fit into portfolio allocation decisions if not valued at bequest value.

Another question, if I remember correctly your prescribed portfolio allocation for equities based on Vanguard's target fund model is 70%, of which 20% would be local (e.g. ES3) and 80% global (e.g. IWDA). For the bonds bucket would it also be a similar local-global split? E.g. 20% MBH and 80% CORP.

Thank you for your insights as always!

 

[vegavega25]

BBC, what is a good way to transfer own funds in US$ sitting in a US bank account to own Singapore bank account into S$?

I know you strongly recommend holding S$ in Singapore and we had a back and forth about that a few months ago. But I don't think the question of the actual means got answered. Plus of course this time I am asking about converting to S$ along with transferring the money in.

 

[JuniorLion]

BBC, what is a good way to transfer own funds in US$ sitting in a US bank account to own Singapore bank account into S$?

I know you strongly recommend holding S$ in Singapore and we had a back and forth about that a few months ago. But I don't think the question of the actual means got answered. Plus of course this time I am asking about converting to S$ along with transferring the money in.

Use Interactive Brokers to do your currency conversion

 

[vegavega25]

Use Interactive Brokers to do your currency conversion

Ok.

And alternatives if I don't have an account with them?

 

[BBCWatcher]

And alternatives if I don't have an account with them?

It's best if you just spend those U.S. dollars at merchants that accept Visa, Mastercard, and/or American Express -- even merchants in Singapore. There are some superb U.S. issued credit cards (and a few debit cards) that handily beat any and every fund transfer system. The rebates/points more than pay for the currency conversion cost.

Failing that, Interactive Brokers is great, as mentioned.

Failing that, you can take a look at currency conversion/transfer specialists such as TransferWise, Currency Fair, and World First (examples) to see what they offer. I recommend choosing a destination bank account in Singapore at a bank that does not charge incoming telegraphic transfer (TT) fees, out of an abundance of caution. CIMB, Citibank, Bank of China, ICBC, and some others don't charge incoming TT fees.

But the bottom line is that there's really no point in moving funds between quality currencies, as long as you have reasonable ways to tap those funds for day-to-day spending and as long as those funds are working reasonably productively (earning interest, invested, etc.) Money isn't like your socks or your shoes that you have to "bring" with you wherever you go. Yes, OK, if you're short Singapore dollars and trying to make a big payment, such as a down payment on a home, then you might need a way to convert and transfer some funds. But otherwise, not so much.

 

[Boiboi321]

Hi BBCW, could I get your views on the ways of how I can (i) maximise the returns in my various CPF accounts and (ii) maximise the tax relief I can obtain for this year (through the topping up of parents (aged 59) CPF accounts, or otherwise)?

You could just rattle them off generally, and I’ll use them as a starting point to do my due d accordingly.

Thanks in advance!

 

[BBCWatcher]

Hi BBCW, could I get your views on the ways of how I can (i) maximise the returns in my various CPF accounts and (ii) maximise the tax relief I can obtain for this year (through the topping up of parents (aged 59) CPF accounts, or otherwise)?

Sure. The basic ways are:

1. If your Special Account is still below the Full Retirement Sum, and if you don't need at least some portion of your Ordinary Account balance for housing, then transfer at least some OA dollars into your SA, every month.

2. If you don't expect to reach the CPF Annual Limit, then you can top up your MediSave Account, up to the CPF Annual Limit or to the Basic Healthcare Sum, whichever comes first. Top ups to your own MediSave Account qualify for tax relief. MediSave dollars can be useful at any age, they earn 4% (and bonus interest if applicable), and when your MA has reached the BHS then the portion of your compulsory contributions that would ordinarily flow into MA will instead flow into your SA -- unless your SA has reached the FRS, in which case the MA portion will flow into your OA.

3. Topping up your own Special Account and/or a qualified family member's Special Account or Retirement Account can, yes, qualify for tax relief -- up to $7,000 (up to $14,000 total tax relief for you of this type). Read the rules carefully.

4. If you're planning to make any top-ups, at this point I would head over to a CPF office with a paper check (or paper checks) since you still have time (as I write this) to get those top-ups credited within November, 2018. If you wait too long then you'll lose December's interest, since CPF's monthly interest calculations are based on the minimum balance within the month. So if the top-up is credited within November, then the interest on that top-up kicks in starting December 1. Then the extra month of interest compounds from there.

5. I don't think your parents have made a CPF LIFE payout plan decision yet, but in the unlikely event they have they have this year (2018) to make a decision whether to switch to the new Escalating Plan. I like the Escalating Plan (with a few exceptions) for reasons I've described frequently in other posts.

6. Make sure everyone has CPF nominations on file with CPF, including you. It's best if the beneficiary is one or more adults rather than children, since children who inherit CPF assets are subject to some public trustee fees.

7. I don't always agree with CPF's automatic decisions about the "opt-out" insurance coverages, such as DPS coverage. Check your online statement to see what premiums are being withdrawn, to make sure you agree with those decisions. Your parents can do the same with their statements.

8. If your employer offers special MediSave-related programs such as the Portable Medical Benefits Scheme (PMBS), I suggest signing up or at least investigating.

9. I would avoid the CPF Investment Scheme at the present time, except in special circumstances.

10. Related to point #1 above, do not accelerate repayment on a low cost (low interest rate) mortgage while it's still low cost. Some people bizarrely use 2.5% earning OA to pay off their 2% mortgage faster than scheduled, sometimes with a prepayment penalty. That's pretty crazy.

 

[haurus85]

Hi BBCWatcher

I'm curious though if your CPF plan will change for self-employed or Singaporeans not residing in Singapore now, thus limiting the automatic contribution levels down to self-contributions.

Would you agree that for these folks, it would be a different approach? Assuming that they plan to retire/return to Singapore if overseas?

 

[BBCWatcher]

I'm curious though if your CPF plan will change for self-employed or Singaporeans not residing in Singapore now, thus limiting the automatic contribution levels down to self-contributions.

Would you agree that for these folks, it would be a different approach? Assuming that they plan to retire/return to Singapore if overseas?

There are some differences, yes.

CPF is still quite attractive in such cases, but it's somewhat less attractive for overseas residents. For example, to my knowledge Singapore doesn't have any social insurance treaties or tax treaties with other countries that would exempt CPF from foreign taxes. So it would be treated just like any/every other offshore account from the point of view of most countries' tax rules. Those working and living in other countries might prudently decide to prioritize their residence country tax advantaged savings choices ahead of CPF. That's not to say that CPF ought to be ignored, but it might not be the higher priority.

Self-employed individuals in Singapore would be wise to leverage CPF well beyond what's required. It seems awfully unwise to me that the government mandates OA and SA contributions among individuals working for employers yet doesn't for self-employed individuals. Maybe the contribution rate(s) ought to be different between these two groups, but zero SA (in particular) sure seems like a bad idea. There is generous tax relief for self-employed individuals, so the basic CPF-related optimizations all work for the self-employed.

 

[boroangel]

HI BBCWatcher,

I am wondering if I want to consistently buy an index fund to track the US stock market, is it better to buy VTI or IWDA?

Also, if I am specifically looking to buy index on S & P 500 performance, which index fund would be best?

I use Charles Schwab as my brokerage.

 

[BBCWatcher]

I am wondering if I want to consistently buy an index fund to track the US stock market, is it better to buy VTI or IWDA?
Also, if I am specifically looking to buy index on S & P 500 performance, which index fund would be best?
I use Charles Schwab as my brokerage.

OK, assuming you're a non-U.S. person, and assuming you want to overweight U.S. listed stocks in your portfolio, it's best if you choose an Irish domiciled/London traded U.S. stock index fund. CSPX is such an example.

Schwab will allow you to buy/sell non-U.S. listed securities if you insist, but it's expensive and requires a phone call. So please don't use Schwab for that, and that means Schwab is not going to be the best way for a non-U.S. person to invest in CSPX.

If you don't mind the U.S. tax consequences (higher dividend withholding tax, assets subject to U.S. estate tax) then you can stick with Schwab and invest in one or more of their otherwise very attractive mutual funds, such as SWTSX. There are no commissions, no custody charges, and only a 0.03% annual expense ratio for SWTSX. You can invest as little as US$1 in SWTSX, and increments are minimum US$1. (Since it's a mutual fund any dollar amount is allowed; you don't have to round up/down to whole share units.)

 

[boroangel]

I am not a US person but am a Singaporean working outside Singapore.

Just wondering what are your thoughts on VTI and if it is a bad idea to buy this index fund?

If I am using Charles Schwab, should I buy VTI or IWDA ?

 

[BBCWatcher]

I am not a US person but am a Singaporean working outside Singapore.

OK, that might change things a bit. In what country are you tax resident?

VTI is ordinarily subject to both the U.S. 30% dividend tax (on a withholding basis) and the U.S. estate tax. But it might be more attractive when you're a tax resident of another country that's not Singapore.

Just wondering what are your thoughts on VTI and if it is a bad idea to buy this index fund?

I'm not sure why you want to overweight (or underweight) U.S. listed stocks in particular. Any particular reason(s)?

If I am using Charles Schwab, should I buy VTI or IWDA ?

You should not buy IWDA via Schwab. To do so you'd need to pick up the phone and call Schwab for each purchase, and Schwab would charge you a minimum of US$100 for each purchase. Schwab is simply not a reasonable brokerage choice for stocks and other securities listed outside North America.

 

[Boiboi321]

Sure. The basic ways are:

...

Thanks BBCW! The information was very helpful. Could you also share your views on what are some things my parents (aged 59, still working, substantial sums in OA, RA not yet at Full Retirement Sum) could do to maximise their returns from their CPF funds, and / or maximise tax relief? Is, for example, transferring funds from their OA to their RA to obtain tax relief an option?

 

[boroangel]

OK, that might change things a bit. In what country are you tax resident?

VTI is ordinarily subject to both the U.S. 30% dividend tax (on a withholding basis) and the U.S. estate tax. But it might be more attractive when you're a tax resident of another country that's not Singapore.


I'm not sure why you want to overweight (or underweight) U.S. listed stocks in particular. Any particular reason(s)?


You should not buy IWDA via Schwab. To do so you'd need to pick up the phone and call Schwab for each purchase, and Schwab would charge you a minimum of US$100 for each purchase. Schwab is simply not a reasonable brokerage choice for stocks and other securities listed outside North America.

I am currently based in Middle East. Am singaporean and not US person, thanks for pointing out that the VTI is subject to 30% withholding tax, which I believe applies to me.

My US stocks are also subject to 30 per cent withholding tax for divs.

No particular reason why I am overweight on US stocks, I guess I just feel more optimistic on long term US stock market (10 to 15 years timeframe).

If I prefer to use Charles Schwab, which would be the most suitable ETF for me to track the S & P 500 on a low cost basis?

 

[BBCWatcher]

I am currently based in Middle East.

That’s not a country. But there are many Middle Eastern petroeconomies that have low or zero tax rates and few or zero tax treaties with the U.S., so if you’re a tax resident of one of those countries then it’d be more cost efficient to choose an Irish domiciled/London listed fund, and not through Schwab.

If I prefer to use Charles Schwab, which would be the most suitable ETF for me to track the S & P 500 on a low cost basis?

If you insist on Schwab (and the 30% dividend withholding rate, and U.S. estate taxability), and if you want the S&P 500 specifically, then I’d vote for SWPPX. It’s not an exchange traded fund; it’s a mutual fund. The expense ratio is a phenomenally low 0.03%, no sales charge, no commissions, no custody fees, and US$1/US$1 minimums and increments. If you insist on something exchange traded then VOO or IVV work.

 

[BBCWatcher]

Is, for example, transferring funds from their OA to their RA to obtain tax relief an option?

Sorry, no. And there are no tax reliefs available if their Retirement Accounts have reached the Full Retirement Sum.

Let’s assume either or both of them have Retirement Accounts below the Full Retirement Sum, so they qualify for tax relief themselves. But they don’t have cash available and would need to find some funds somewhere. There are a couple options:

1. If you or other family members are willing, you can collect some tax relief for making a ($7K) top-up, and you can also hand them cash that they then use to make a top-up ($7K). Yes, the same Retirement Account can receive multiple $7K top-ups that qualify for tax relief. The tax relief is determined on the depositor side — who actually makes the deposit — and awarded to the depositor. The depositor could be oneself (or a simulation thereof — somebody hands cash which is then deposited) or a qualified relative.

2. They are eligible to withdraw any surplus Special Account and Ordinary Account funds, and that withdrawn cash can then be spun around and deposited in the Retirement Account. Unfortunately withdrawals come from the Special Account first, which is earning a very attractive 4%. So that’s not the first place to look for cash, unless and until it’s absolutely needed. (It is possible to raise a “Special Account shield” which could be beneficial if making a large withdrawal, but that’s a bit exotic.)

If they want to top up their MediSave Accounts they can, and with tax relief when they are the ones recorded as making the top ups. (If somebody hands them cash to do that, that still works, as long as they are making the deposits into their own accounts.) MA top-ups must fit within both the CPF Annual Limit and the Basic Healthcare Sum. If they’re earning less than $102,000/year (gross, including commissions, bonuses, 13th month, etc.) then they should have some room below the CPF Annual Limit. The Basic Healthcare Sum (BHS) is currently $54,500 (2018) and will increase on January 1, 2019.

 

[RonnieB1]

Moving back to US

Hi BBC Watcher

I am in awe of your local and US financial knowledge
Would appreciate your thoughts
My Wife US person ( I am not) will be moving back to the US soon.
She is 50 and is a housewife. She was working in the US previously but stopped 12 years ago.
How can I help her invest for her retirement in the US.
I started a target dated fund with Vanguard with a Roth IRA but obviously it is sorely inadequate. I am hoping to ramp up her retirement fund but am sorely loss on how.

 

[BBCWatcher]

My Wife US person ( I am not) will be moving back to the US soon.

Are you accompanying her on this move?

She is 50 and is a housewife. She was working in the US previously but stopped 12 years ago.
How can I help her invest for her retirement in the US.
I started a target dated fund with Vanguard with a Roth IRA but obviously it is sorely inadequate. I am hoping to ramp up her retirement fund but am sorely loss on how.

OK, I'm a little puzzled about the Roth IRA. Did she fairly recently open (and contribute to) the Roth IRA, or was her last contribution made 12 years ago, when she was working in the United States?

The reason I ask is that there are certain rules you must follow with IRAs, and one of those important rules is that you must have U.S. taxable and non-excluded income within a particular year in order to make a qualified contribution for that year. So I'm concerned about her basic eligibility to make a contribution, or for you to make a contribution on her behalf. Vanguard and other fund custodians don't police contribution eligibility -- she's supposed to do that, and the IRS certainly does, easily. (The IRS receives reports at least annually from IRA custodians.)

OK, let's assume the "worst case" for sake of argument, and let's suppose that she is ineligible to make (or to have her spouse make on her behalf) an IRA contribution. What then? Well, good news! If it's a 2018 contribution (a contribution she made, or you made on her behalf, that's tagged for tax year 2018), it can be fully reversed -- no harm, no foul. The entire 2018 contribution plus all gains must be withdrawn before October 15, 2019 (very latest date, with conditions) to avoid a penalty. It's better to make that correction now, to get it out of the way, but that's the absolute latest possible date, and only if you follow certain other rules. Any gains are taxed at ordinary income tax rates applicable to those gains, but that's not too bad. (She might even be in the 0% tax bracket anyway.)

Unfortunately it's too late to avoid a penalty for any excess IRA contributions for 2017 and prior. This particular deadline is quite strict.

OK, what happens if she is ineligible to make an IRA contribution (or have her spouse make one on her behalf) and she doesn't (or cannot) fix this problem with a withdrawal? A 6% penalty applies every year on whatever the net excess amount is to that point. Ouch! But that's not too bad if she starts working in 2019 in the U.S., becomes eligible to make an IRA contribution for 2019, and doesn't actually make a contribution. Then what she was qualified to contribute is deducted from the carryforward excess, and the 6% penalty is assessed on the new excess (which could be zero, so no further penalty then). If the penalty goes unpaid then, like any other unpaid tax, interest and penalties accrue according to the standard IRS rates.

So I'll stop there for now until I get some clarification on this IRA that I'm concerned about. You can see why I'm concerned! But no cause to panic just yet since this is correctable in some fashion, or perhaps the problem doesn't exist.

The "ostrich" strategy -- pretending this problem doesn't exist, if it exists -- is a really bad idea. The IRS will catch this, inevitably. It's a simple matter of comparing two numbers (qualified income versus contribution), and their computers will eventually do that. The only difference is that if she waits for the IRS to find this problem then she'll just end up paying a higher amount to settle the unpaid tax. So it's best to tidy up any such problems now, if they exist.