Author Topic: Early Retirement in Thailand  (Read 3589 times)

ThaiDave

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Early Retirement in Thailand
« on: April 08, 2015, 09:30:20 AM »
Hello everyone,

I'm looking forward to hearing some sound advice from some like minded people saving for the same goals.  Basically I'm sort of in early retirement already, living very cheap and comfortably in northeast Thailand by teaching English (very stress free employment).  I have a job making $1100 a month plus extra part time work on the side.  For those living in the U.S. it may not seem like a lot, but for Thailand is definitely upper middle class.  I also have around 3 months vacation time per year to work on other projects and travel.

My saving goals started after I left college in 2011.  I graduated with a sum of $30000 in student loan debt, but immediately found a job making 50k a year in North Carolina.  I managed to pay back the $30000 in 3 years through extreme saving and sacrifices.  While with the company, I managed to build up 26k in my 401k plan and opened up a Vanguard IRA target retirement 2050 index fund (VFIX).  After 3 years of sitting in an average engineering job, I left the company to start a new life in Thailand.

Now I've been living here for about a year and managed to save 7k this year after expenses.  With annual expenses more or less $5000 per  year, I'd say I'm well on track to reaching my savings goals before I cash in on my Stock index funds and 401k. 

Now that I've given you some background, I'd like to bring up my main question.  It involves my employer 401k account and my index fund that I opened through Vanguard.  These 2 accounts make up 60% of my net worth, and the other 40% is cash in a couple American bank accounts and my Thai bank account.  Total worth of these 2 stock accounts are:

Mercer 401K Plan- $26,000
Vanguard Target Retirement 2050 fund- $11,000

My question is, should I convert my 401k plan over to my IRA Roth through Vanguard or leave it be?  I'm just 27 years old, but I could see myself making a great life over here with plenty of opportunity to open a business or some rental properties.  Obviously I'd have to consider the tax penalties for converting over the 401k to the Vanguard IRA Roth account, but it seems like the best idea for long term growth.  Basically my thought is that a larger principle ($37,000) will compound faster than two separate accounts making different ROI's (401k ROI is around 6% now and the Roth account is 8%).  Are there any professional security investors who could give me some good advice on how to approach this issue for my long term interests?

Thank You!
Dave

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Re: Early Retirement in Thailand
« Reply #1 on: April 08, 2015, 10:00:46 AM »
My question is, should I convert my 401k plan over to my IRA Roth through Vanguard or leave it be?  I'm just 27 years old, but I could see myself making a great life over here with plenty of opportunity to open a business or some rental properties.  Obviously I'd have to consider the tax penalties for converting over the 401k to the Vanguard IRA Roth account, but it seems like the best idea for long term growth.  Basically my thought is that a larger principle ($37,000) will compound faster than two separate accounts making different ROI's (401k ROI is around 6% now and the Roth account is 8%).  Are there any professional security investors who could give me some good advice on how to approach this issue for my long term interests?

Thank You!
Dave

There are no penalties for doing a 401k to traditional IRA and then traditional IRA to Roth IRA conversion. You just pay simple income tax on the amount converted. I'm not sure what your tax situation is, but you could possibly convert enough each year so that you didn't have to pay any taxes, or even just a very low rate--for example by converting enough just up to where the limit of your standard deductions and exemptions are.

If your 401k and IRA are invested in the same mutual fund, it doesn't matter which account you hold it in from an ROI perspective--they are the same. If your fees are higher in the 401k, then you should at least transfer it to an IRA at Vanguard to save on the fees.

GeorgiaCPA

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Re: Early Retirement in Thailand
« Reply #2 on: April 08, 2015, 11:10:04 AM »
Sounds like you are doing a great job - keep it up.

Assuming that you are not paying federal taxes on your income earned abroad:
http://www.irs.gov/Individuals/International-Taxpayers/Foreign-Earned-Income-Exclusion

you should definitely transfer some of your fund from a 401k to a Roth IRA.  Complete your tax return prior to the transfer, and then transfer over an amount where you will not have any tax liability.  Assuming no federal tax on foreign earnings you should be able to transfer over the amount of the standard deduction without any tax ($6,200 in 2014):
http://www.irs.gov/publications/p501/ar02.html#en_US_2014_publink1000289299

Amounts transferred above your exemptions would be taxable at the 10% tax rate (up to $9,075 and then you graduate to 15%).  Use this strategy over a couple of years and you should be able to transfer it all over with no taxes.

ThaiDave

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Re: Early Retirement in Thailand
« Reply #3 on: April 09, 2015, 12:35:14 AM »
Wow this information is very valuable.  You're awesome guys.  Maybe you could help me out again.  Since I've already filed around 11k on my income tax for the 2 months i worked for my company in the U.S. in 2014 and my foreign income is tax exempt, any further conversion from my 401k to IRA would be most likely taxed at 15%.  Since this is higher than the rate of return I'm currently getting on my indexed funds (~6-8%),I'll have to wait until next year to convert the $6200 on my 2015 taxes.  Does this sound logical or is this plan inefficient and flawed?  At that rate it would take me 4 years to convert my 401k over to my IRA Roth or just 2 years to convert my roth IRA to my 401k, depending on the fees for both funds and which way I decide to go. 

I have another question for Georgia CPA.  Should I keep filing income taxes while working in my tax emempt situation in Thailand for the sole benefit of collecting social security when I turn 65?  I've been working in the system since I was 16 paying social security, but if I stop now how will it affect me down the road?  If you think I should keep filing, would the minimum $6201 suffice or would it be better paying the 10% of 9075?  Again my income doesn't justify paying foreign income taxes.  This is only for social security purposes 35 years down the road.  Am I crazy for even thinking about this? 

Thanks again guys.
Dave

GeorgiaCPA

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Re: Early Retirement in Thailand
« Reply #4 on: April 09, 2015, 05:48:16 PM »
Dave,

Filing a tax return doesn't really affect your Social Security benefits, it is based on your contributions into the system.  Since you are living out of the country your income is not subject to FICA (if your income meets the requirements) so you will no longer be making FICA contributions.

When you prepare your taxes next year do it well ahead of April 15.  That way you can see what effect Roth transfers will have on your taxes before you make any conversion.  Once all of the 401K funds are transferred there may be no need to file a tax return, but you could always file a 1040EZ for free just in case you want to stay active with the IRS.

Also, as a US citizen you are required to file an FBAR if foreign account balances exceed $10,000 at any point during the year.  The penalties for non-compliance can be substantial:
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Report-of-Foreign-Bank-and-Financial-Accounts-FBAR

ThaiDave

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Re: Early Retirement in Thailand
« Reply #5 on: April 10, 2015, 12:47:57 AM »
Thank you yet again GeorgiaCPA.  I currently have a bank account with Krung Thai Bank, a Public Company Limited is state-owned bank under the license issued by the Ministry of Finance.  Its amounts do not exceed 10,000 dollars this year but under the following guidelines, I wonder if I am exempt from reporting this:

Exceptions to the Reporting Requirement
Certain foreign financial accounts jointly owned by spouses
United States persons included in a consolidated FBAR
Correspondent/Nostro accounts
Foreign financial accounts owned by a governmental entity
Foreign financial accounts owned by an international financial institution
Owners and beneficiaries of U.S. IRAs
Participants in and beneficiaries of tax-qualified retirement plans
Certain individuals with signature authority over, but no financial interest in, a foreign financial account
Trust beneficiaries (but only if a U.S. person reports the account on an FBAR filed on behalf of the trust)
Foreign financial accounts maintained on a United States military banking facility.

Can you go into more detail on what they mean by owners and beneficiaries of U.S. IRAs and Participants in and beneficiaries of tax qualified retirement plans?

Thanks again!

GeorgiaCPA

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Re: Early Retirement in Thailand
« Reply #6 on: April 10, 2015, 03:48:29 PM »
It looks as if IRA assets are held in a foreign financial account that there would be no requirement to file (i.e. an IRA held in the Cayman Islands).  Unless the balances in Krung Thai Bank are held in an IRA, they would meet the criteria for foreign financial accounts, but at this time they do not exceed the threshold requirements.  Depending on how much of a hassle it is to transfer funds between the US and Thailand, it might be easiest to make sure that foreign account balances never exceed $10,000.

Further definitions and details can be found in the Filing instructions:

http://www.fincen.gov/forms/files/FBAR%20Line%20Item%20Filing%20Instructions.pdf