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RonnieB1 29-11-2018 01:57 PM

She is paying some tax there from a small rental income. I will not be accompanying right now will still working here.

Thanks

derpboy 29-11-2018 06:15 PM

Hi BBCW what's your view on hdb loan vs bank loan if the downpayment is a non issue?

BBCWatcher 29-11-2018 06:34 PM

Quote:

Originally Posted by RonnieB1 (Post 117859778)
She is paying some tax there from a small rental income. I will not be accompanying right now will still working here.

OK, let me quickly recheck the IRA contribution rules....

Sorry, no, that doesn't work. She (or you, her spouse) must have U.S. taxable, non-excludable, earned income (income from work in the paid labor force). Passive income, such as rental income, doesn't qualify. Earned income is generally reported on IRS Form 1040 Line 7.

Your earned income does not count unless you are filing a joint U.S. tax return with her (Married Filing Jointly). You must also have enough earned income that is not excluded using IRS Form 2555 (the Foreign Earned Income Exclusion). And your combined Modified Adjusted Gross Income (MAGI) must be below certain limits to make a direct contribution into her Roth IRA. (There is a workaround to make indirect contributions if you exceed the MAGI limit; ask if that's the case.)

I'm sorry, but it sure seems like she needs to reverse this 2018 Roth IRA contribution (I assume it's tagged as 2018) quickly, including all accumulated interest, dividends, and capital gains associated with that contribution. She will also need to pay ordinary income tax on any interest, dividends, and capital gains.(*) Fully reversing this contribution in timely fashion will mean she avoids the penalty for making an improper contribution to an IRA.

To reiterate, this issue must be corrected. Nothing good will come from ignoring it.

(*) She is generally permitted to take a capital loss if there is a loss, and according to standard capital loss rules and limits. However, if her income is modest, especially if she's able to file as Head of Household, then she might not owe any tax.

Would you like to discuss this particular issue any further, or would you like to move on to other, viable ideas to boost her retirement savings and future retirement income?

BBCWatcher 29-11-2018 07:33 PM

Quote:

Originally Posted by derpboy (Post 117864114)
Hi BBCW what's your view on hdb loan vs bank loan if the downpayment is a non issue?

Wow, that's an interesting question.

First of all, the comparison is easier if the bank mortgage has no prepayment penalty, or at least if the prepayment penalty is reasonably avoidable. So please check those terms (and other terms) carefully. You shouldn't have to suffer with a mortgage that has prepayment penalties, at least not after the fixed rate period.

Obviously the bank mortgage rate is currently lower, so it wins on that score, for now. The 2.6% HDB loan is effectively fixed. (Technically it could increase, but market interest rates have to rise quite a substantial amount before that 2.6% will creep up.)

I think I'd approach the decision this way. If you (or even the "Bank of Mom/Dad" in a pinch) have substantial assets you could tap to accelerate repayment of the bank mortgage if (only if) interest rates were to increase to an "unacceptably" high level, then I think I'd pick the bank mortgage. Or at least if you've got a very reliable source of income -- maybe a stable civil service job? -- and you're doing a good job accumulating savings, including CPF savings, from that income, then a bank mortgage seems like a reasonable bet. You have the assets and/or reliable income (well above consumption needs) to defend well against rising interest rates. If that's not true, and if you have some uncertainties, then the 2.6% near-fixed rate is a better bet.

That doesn't mean you should accelerate repayment of a low interest rate mortgage. You shouldn't. Today's interest rates are certainly quite low.

I would be cautious about the relatively recent innovation of bank mortgages pegged to fixed deposit interest rates. Banks seem to be pretty transparently manipulating those rates to their advantage -- or at least it seems like that's what they're doing. I'm still more comfortable with SIBOR-linked mortgages. It's not that I'm opposed to "innovation" necessarily -- I think I would be quite comfortable with a mortgage interest rate that's linked to the market interest rate(s) on Singapore Government Securities, for example -- but the linkage should be to something that's genuinely market-based, not to some esoteric fixed deposit that the bank controls and really doesn't advertise to real depositors.

Finally, here's where I mention Disability Income Insurance. DII among other things helps continue servicing a private or HDB mortgage (and paying other essential household expenses) if you cannot work and earn an income due to disability. DII is super important for early and mid career workers especially. I most highly prefer DII over mortgage insurance, if you're considering that. DII hands you unrestricted cash if you're partially or fully unable to work due to disability, while mortgage insurance only pays your mortgage (at normal pace) in such events. Unrestricted cash wins, of course, because food, the electric bill, and so forth are also important.

derpboy 29-11-2018 09:14 PM

Quote:

Originally Posted by BBCWatcher (Post 117865325)
Obviously the bank mortgage rate is currently lower, so it wins on that score, for now. The 2.6% HDB loan is effectively fixed. (Technically it could increase, but market interest rates have to rise quite a substantial amount before that 2.6% will creep up.)

I think I'd approach the decision this way. If you (or even the "Bank of Mom/Dad" in a pinch) have substantial assets you could tap to accelerate repayment of the bank mortgage if (only if) interest rates were to increase to an "unacceptably" high level, then I think I'd pick the bank mortgage. Or at least if you've got a very reliable source of income -- maybe a stable civil service job? -- and you're doing a good job accumulating savings, including CPF savings, from that income, then a bank mortgage seems like a reasonable bet. You have the assets and/or reliable income (well above consumption needs) to defend well against rising interest rates. If that's not true, and if you have some uncertainties, then the 2.6% near-fixed rate is a better bet.

When you say the bank mortgage rate is currently lower, in light of the interest rates trending upwards, do you think it will reach a point where it will cross HDB loan's 2.6% anytime soon?

With that in mind would you recommend to opt for a shorter loan term when going for a bank mortgage to minimise the risk of volatile interest rates?

Also what are your thoughts on using CPF vs Cash for loan repayment? I am thinking with the assumption of a 5% investment return portfolio, it will be wiser to finance the loan with CPF even though one will be missing out on the 2.5%(or even 4% if you transfer to SA) given by CPF right?

BBCWatcher 30-11-2018 12:22 AM

Quote:

Originally Posted by derpboy (Post 117867123)
When you say the bank mortgage rate is currently lower, in light of the interest rates trending upwards, do you think it will reach a point where it will cross HDB loan's 2.6% anytime soon?

Nobody really knows except possibly a few central bankers, and even they can change their minds.

Quote:

With that in mind would you recommend to opt for a shorter loan term when going for a bank mortgage to minimise the risk of volatile interest rates?
No. You can always shorten a mortgage term any time you like if you simply accelerate repayment, assuming no prepayment penalties (the point I emphasized earlier). And you wouldn't/shouldn't accelerate when the interest rate is low. Of course it's possible the bank mortgage interest rate could fall, and wouldn't that be wonderful.

There's a caveat here. If you're the sort of person (or household) that finds it difficult to save -- if any "extra" dollar is going to be spent -- then maybe a mortgage effectively forces you to save, in the form of (hopefully) increasing home equity. In such circumstances you might consider a shorter term loan than the bank is willing to offer. However, if you're at least reasonably disciplined about saving and investing prudently, to build up wealth during your working career, then the longest term low interest mortgage (with no prepayment penalty so you can accelerate repayment if the interest rate ever gets unacceptably high) is great.

Quote:

Also what are your thoughts on using CPF vs Cash for loan repayment? I am thinking with the assumption of a 5% investment return portfolio, it will be wiser to finance the loan with CPF even though one will be missing out on the 2.5%(or even 4% if you transfer to SA) given by CPF right?
That's a really interesting question, too.

I don't think you necessarily hoard all OA as OA. You are allowed to decide precisely how many dollars you want to transfer into SA, and there's nothing magical about CPF's default allocations. One possible approach is to treat your OA as the mortgage servicing portion of your emergency reserve fund, meaning you keep OA equal to about 12 months (let's suppose) of mortgage payments. The rest then gets pushed into SA, and you service the mortgage with cash from salary/wages. When your SA hits the Full Retirement Sum, and OA starts filling up beyond the 12 month reserve, then you start servicing the mortgage with OA funds.

Of course others argue you use OA to service the mortgage (plus cash to top up if necessary, of course), and that's that.

I personally prefer nailing down basic foundational medical (MediSave) and retirement (SA) assets sooner rather than later, for both spouses/partners. The 4+% interest is really rather tempting. But this sort of decision is highly situational.

By the way, there are a couple things I didn't mention but which are additional considerations:

1. With a HDB loan, there's a "sweep" of your Ordinary Account funds when you pick up the keys. The money doesn't disappear, of course, but a lot of people don't like the sweep. The simplest way to avoid the "big sweep" is to transfer OA funds to SA. A more complicated solution is to use the CPF Investment Scheme (OA) as a temporary shield, although there is a cost to do that. Or just let some or all of the funds be swept.

2. If it's a close call, and if you're leaning toward a HDB loan, then keep in mind you can go with the HDB loan but later decide to refinance with a bank mortgage if interest rates fall.

klarklar 30-11-2018 07:27 AM

Hi BBCWatcher,

I received an email from Interactive Brokers regarding W-8 Re-certification.
There is one question which I do not know how to answer as a Singaporean.

The question is "Do you qualify for the benefits of a US income tax treaty?" I said no because under the list of countries to choose, none of the options has Singapore. I hope this does not result in me having to pay capital gains tax.

Anyone else encountered the same email?

BBCWatcher 30-11-2018 08:57 AM

Thatís the correct answer. As a non-U.S. person, you will thus be subject to the standard 30% dividend tax withholding rate on most (not quite all) U.S. listed securities.

Thereís no U.S. capital gains tax for non-U.S. persons selling U.S. listed stocks, bonds, and other securities, at least not as a general matter.

RonnieB1 30-11-2018 09:59 AM

will do
Thanks for the advise

RonnieB1 30-11-2018 10:07 AM

Hi BBC watcher
Please also let me know any viable options to boost her retirement funds

Thanks for all your help

ravi2653 01-12-2018 10:38 PM

Hi BBCW,

Need a small advice - I was planning to invest some of my annual SRS contribution into global/non-Singapore bond security or product that has reasonable costs. One of the options I looked in Lion Global All Season fund (conservative) - bond 70% , EQ 30%. I thought it will fit the bill but when I looked into the fund in detail, I noticed that ~50% of bond holdings are SG based (I.e. effectively 35% of total holdings) and itís a SGD denominated too. Will you still consider global bond security? Does the denominated currency plays a role in deciding whether a product is global or SG based?

Any other product that I can invest via SRS that is global in nature and have reasonable costs?

BBCWatcher 01-12-2018 11:10 PM

Quote:

Originally Posted by RonnieB1 (Post 117873880)
Please also let me know any viable options to boost her retirement funds

OK, once she starts earning income from work that's U.S. taxable and non-excluded -- presumably that'll start happening in 2019 -- then the two most common and powerful things she can do are:

1. Contribute $7,000 per year (current limit at her age) to her Roth IRA. If her income is too high to qualify to contribute under her filing status, then the so-called "backdoor Roth IRA" approach is usually viable.

2. If her employer offers a 401(k) plan, max it out, at least as much as she can afford. I think I'd recommend a Roth 401(k) if her employer offers it, but that's somewhat less common.

"Roth" means contributions are made on an after-tax basis, and qualified withdrawals are completely U.S. tax free. If retirement is going to be in Singapore, this works well. If retirement is going to be in a country that will tax a U.S. Roth account, then maybe the Traditional 401(k) / Traditional IRA is better (pre-tax contribution, taxed distribution).

If she's not sure, she can do both. Sometimes an employer makes this easy by not offering a Roth 401(k), so it could be a Traditional 401(k) at work and a Roth IRA in addition.

3. She ought to check her U.S. Social Security earnings history to see what she's got "in the bank." Depending on your citizenship and your future retirement country together, you may qualify for a spousal benefit when you reach retirement age based on her contributions into the U.S. system. If she doesn't qualify for retirement benefits based on her own earning history, then she may be able to count working time in one or more treaty countries, and vice versa, to collect benefits. (That's called "totalization.")

She doesn't really have much influence over how much those U.S. Social Security benefits will be, except to keep working and contributing. However, I mention them because they're important to know about, and their existence might allow her to be slightly more aggressive in her investment choices (but still age/risk appropriate) than she otherwise might be.

Quote:

Originally Posted by ravi2653 (Post 117901028)
Need a small advice - I was planning to invest some of my annual SRS contribution into global/non-Singapore bond security or product that has reasonable costs. One of the options I looked in Lion Global All Season fund (conservative) - bond 70% , EQ 30%. I thought it will fit the bill but when I looked into the fund in detail, I noticed that ~50% of bond holdings are SG based (I.e. effectively 35% of total holdings) and itís a SGD denominated too. Will you still consider global bond security? Does the denominated currency plays a role in deciding whether a product is global or SG based?

I don't like the conservative flavor of that fund unless you're getting at least near-ish retirement and you're retiring in Singapore.

Quote:

Any other product that I can invest via SRS that is global in nature and have reasonable costs?
Well, there's Lion Global's All Season twin, the other "flavor" of that fund that flips the ratios. But honestly the SRS choices for being globally well diversified at reasonable cost are very limited indeed. What you might have to do is to just do the best you can inside SRS and cancel out its Singapore overweighting using non-SRS investments. Or you might take the view that Singapore dollar denominated bonds are OK enough, because the Singapore dollar is managed as a loose peg to a trade weighted basket of currencies. So it's kind of, sort of like a global bond fund, albeit more Chinese and Asian than, say, CORP.

No perfect choices here, I'm afraid. It's just about balancing the trade-offs.

FinalDestiny... 02-12-2018 12:27 AM

Hmm, I just got to know about the existence of Treasury bills, which are short term SGS bonds ?

How does it usually fare against say, traditional Fixed Deposits ?

cplusplus 02-12-2018 12:49 AM

Hi BBCW, what do you suggest for someone who just started working and has around ~30k sitting in my multiplier account and investing $500 per month on POSB invest saver sti etf?

ftpofmpo 02-12-2018 05:24 PM

Quote:

Originally Posted by BBCWatcher (Post 117528251)
No, it has to be a real U.S. mobile number for Motiv Money, not a virtual one. There are some very low cost prepaid SIM cards available in the U.S., so that problem can be solved without too much expense.

I doubt Motiv Money will ship replacement cards (at normal expiration) outside of the U.S., but that particular problem could be solved with a virtual street address (albeit with some cost). The popular shipment forwarders can probably handle that, for example.

Youíve looked at Payoneer and the Transferwise Borderless Account, right?

Any chance you could stop in New York City long enough to get a New York City ID card (ďIDNYCĒ)? To get an IDNYC you would need your passport and almost any piece of official or semi-official postal mail sent to your (temporary) New York City address. (Itís a long list of acceptable postal mail pieces for proof of address.) Then youíd head over to Amalgamated Bank, just to pick a random example (with decent or better value accounts), which accepts IDNYC for account opening. Many other financial institutions in New York City do, too.

FYI, you can get an ITIN if youíve had any improper tax withholding, even if itís within the past couple years. (You have up to 3 years from the original filing deadline to request a refund.) By any chance has your broker (assuming you have one) over-withheld tax, even a dollar? For example, if youíve held a U.S. Treasury, but the broker mistakenly withheld U.S. tax on the interest, then you could file a 1040NR (along with a W-7) to claim a refund. Another exception is if Bank of America (your present financial institution) has ever asked for an ITIN. If youíve got a letter from BofA with those magic words, thatíd be helpful.

Some rainy day Iím going to try to figure out a reasonable way to trigger a legitimate need for an ITIN, but I havenít found a reasonable way yet. You might still get an ITIN from a casino if you have large enough gambling winnings (and if you ask), but there are also some reports that casinos are no longer issuing ITINs. Residents of Singapore are at a real disadvantage here because thereís no tax treaty, so that severely cuts down on the need for an ITIN.

Wells Fargo has branches in Las Vegas, and they might let you open an account even without an ITIN. Citibank might as well, particularly if youíve got a good relationship with Citibank in Singapore. Neither offers terrific accounts, though. Theyíve both got minimum balance requirements.

You could hunt for credit unions and smaller banks in Las Vegas that are known to be ďundocumented immigrant friendly.Ē Iím not coming up with any obvious candidates online, though. Iíd give Amalgamated a call since they have a branch in Las Vegas and have a reputation for good customer service.

Itís somewhat easier to open a business bank account if you have a U.S. LLC, but thatís a different animal.

This is a difficult nut to crack. :(

Hi Bbcwatcher, now that personal exemption for non-resident aliens have been repealed, anyone with income originating from US will have to file US taxes with the IRS and obtain an ITIN number?


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