French wannabe Mustachian moving to the US

[FrenchStash]

Hi,

I am a 26 years old french automotive engineer from Paris, France. I will start a new position in Detroit area in the american subsidiary of my current company in July. Of course it is subject to Visa approval but my company seems quite confident about it. I discovered MMM's blog a month ago, the FIRE movement does not seem to get a lot of coverage in France, my friends just never heard about it.

Here's a few things about me:

• I have always been living like a mustachian without even knowing it (frugality, no car, only bike or public transportation, easy when you live in a big city)
• French educational system allowed me to get my Engineering Master Degree without taking a loan
• I have been working since I graduated in September 2016
• I saved around 50% of my income after tax in 2018, about 55-60% since January 2019.
• I currently have 9k€ in mixed shares/bonds funds, the interest rate is 3% which is the average in France. Very low compared to what you have in the US so I might transfer the money to the US.
• I also have 20k€ not invested on my regular account that I suppose I'm going to invest in Vanguard ETF once I arrive in the US

About my new position:

• Base Salary is 80k, bonuses average 5.5% of base
• Employer is Matching 401k up to 5%

I read quite a few articles and posts but I am from another continent and things are really different where I live right now so it can be quite confusing sometimes. I have a few questions:

• What should I exactly do regarding income tax, should I put maximum I can into 401k?
• Should I go for VTI/Betterment instead?

I saw that there is many helpful information here regarding which bank I should use or which network provider I should subscribe to, among many other interesting information: http://www.mrmoneymustache.com/mmm-recommends/
If you have any other advice, I will take any information I can get, I basically know nothing about life in the USA.

Thanks in advance.

[G-dog]

Welcome!  How soon do you move here?

Yes - max out your 401k.  At a minimum put in enough to get all of the employer match.

Your employer may offer a Heath Savings Account (HSA) option for your health insurance. These accounts have a triple tax benefit, and you can (usually) invest most of the money in the account.

Credit unions typically have better interest rates than banks, I recommend checking out your local credit union options once you arrive.  Wherever you open an account, you can have your paycheck directly deposited, and have most bills automatically paid from your account (or via credit card if you collect points).  The bank or credit union will be a good option for getting a credit card also.

You should work on establishing a credit rating here, I’m not sure how or if your credit rating in France will be considered here.

There is an order of investment post here somewhere, I will see if I can find it and link it here.

ETA: link to recommended investment order thread:
https://forum.mrmoneymustache.com/investor-alley/investment-order/

[Paul der Krake]

Do you have any assets in France? Read everything you can about taxes and PFICs.

[OtherJen]

Contribute to your 401K at least up to the match provided by the employer. You may want to see what your expenses will be this year and then up your 401K to the max if you can do so without struggling financially. If your employer's healthcare plan is high-deductible, though, max out your health savings account (HSA) first.

Metro Detroit has a fairly low cost of living, compared to many other metro areas in the USA. Our gross household income is between $75K and $80K per year and we live frugally and very comfortably well within our income. However, public transportation is lacking here, so you will need to plan for that (either select housing that will allow the use of a bike/public transportation or plan for a car).

[FrenchStash]

I will move in July!

There is indeed something like the HSA, in the Healthcare brochure I received, they actually call it a Flexible Spending Account and it is capped at 2500$ per year. However, it is written "Be sure to plan carefully when determining how much to contribute to either FSA. Any unused balance at the end of the plan year will be forfeited.", I do not think I'm going to max it then... The Healthcare plan max-deductible is 1000$ in network (6k out) for a single.

What I meant by asking if I should put maximum into 401k was actually if I  should put as much as I can, not just matching, but I did not realize that there is a cap.
I looked a bit deeper and if I am right, it seems that 401k and IRA/Roth IRA are capped like this:

• Around 20k/year for the 401k
• Around 6k for Roth IRA

I was wondering:

• Contributing to a traditional IRA is tax-deductible but it seems that as a single, it is only available for single with less than 74k, my gross income is above but my taxable income after 401k contribution should be around 50k if 20k cap for 401k doesn't include company matching (54k otherwise), does it mean I should go for traditional IRA instead of Roth?

I will indeed see how my expenses go in the US but I am pretty sure reaching the cap of both 401k and IRA will be achievable. I have always been used to live frugally, I have looked for houses/condo for rent on Zillow and there is a lot of Houses less than 5 miles from my future workplace, I will be able to commute by Bike, at least when it is not extremely low temperatures.

I have assets in France (9k€ in share/bonds funds at 2% interest after inflation at best) so I will definitely look taxes and PFICs up, though I'm thinking about transferring the money to the US because the interest rates are much higher.

[OtherJen]

I will move in July!

There is indeed something like the HSA, in the Healthcare brochure I received, they actually call it a Flexible Spending Account and it is capped at 2500$ per year. However, it is written "Be sure to plan carefully when determining how much to contribute to either FSA. Any unused balance at the end of the plan year will be forfeited.", I do not think I'm going to max it then... The Healthcare plan max-deductible is 1000$ in network (6k out) for a single.

Okay, then you won't be eligible for a HSA (something very different). I don't think you'd see much benefit from a FSA. A lot of people seem to use them for things like childcare expenses or a planned medical expense (e.g., elective surgery) within the year.

[G-dog]

An FSA is completely different from an HSA. 

An HSA is tied to a High Deductible medical insurance plan. 

An FSA is a separate account where you can divert some money from your paycheck for expected health and medical costs. It is a way to give yourself a 0% interest loan if you have a larger known medical expense (not covered by insurance).  For example, a co-worker wanted to get LASIK, so she set up an FSA.  When the account was credited (at the beginning of the next calendar year) - she had the surgery, and got the reimbursement.  The FSA amount was deducted (proportionately) from all of her paychecks for the year.  It's great when you have known medical expenses. The watch out for the FSA is that if you do not use all of the remaining funds are forfeited (there is a window of time in the next year to get the previous year's expense reimbursements processed).  I never used an FSA, but my med expenses have been unpredictable and low - so not worth the hassle to me.

If you can max out your 401(k) - I would do so.  It helps reduce your taxable income.  Your company may have both traditional and Roth 401(k) options
If you do plan to retire early - the Roth IRA is more accessible (you can withdrawn contributions without penalty at any age). 

Vanguard is a favorite company for many of us - typically lowest fees (e.g., expense ratio), well established, trustworthy.  Many other companies have higher fees (and fees beyond expense ratio), though some do have funds with comparably low fees like Vanguard.

[Dave1442397]

This is an example of what you can use an FSA for:

https://www.wageworks.com/employees/support-center/healthcare-fsa-eligible-expenses-table/

We are a family of three, one of whom is on monthly prescriptions. We use the FSA for deductibles, eye exams/contacts, and prescription co-pays. We put $1200 a year into the account and usually have eligible expenses right around that amount.

One thing to be careful about when picking a place to live in Detroit is car insurance (if you buy a car). There are plenty of articles out there about it, such as this one: https://www.4autoinsurancequote.com/blog/expensive-detroit-insurance/

[OtherJen]

This is an example of what you can use an FSA for:

https://www.wageworks.com/employees/support-center/healthcare-fsa-eligible-expenses-table/

We are a family of three, one of whom is on monthly prescriptions. We use the FSA for deductibles, eye exams/contacts, and prescription co-pays. We put $1200 a year into the account and usually have eligible expenses right around that amount.

One thing to be careful about when picking a place to live in Detroit is car insurance (if you buy a car). There are plenty of articles out there about it, such as this one: https://www.4autoinsurancequote.com/blog/expensive-detroit-insurance/

True about the car insurance. Rates depend on zip code, gender, age, financial status, and driving record, and Michigan's rates are notoriously the worst in the USA. You're 26 so age isn't a factor, at least.

[AMandM]

Bienvenue aux Etats-Unis!

Is this a permanent move?  And if not, are there restrictions on transferring assets between France and the US?
Will your US income be subject to French income tax? Because then the advice about US tax strategies may not apply.

[reeshau]

I have assets in France (9k€ in share/bonds funds at 2% interest after inflation at best) so I will definitely look taxes and PFICs up, though I'm thinking about transferring the money to the US because the interest rates are much higher.

Don't forget to think in terms of the exchange rate when making this kind of decision.  The rate of EUR->USD is about 6% lower than last year.  If you transfer now, and rates went back up to that point, that would eat up some or all of your excess returns.  Of course, nothing says last year's rates are nominal; the exchange rate does seem quite sensitive at the moment to the relative rates set by the central banks; the US seemed high, ready to rest, and the ECB seemed ready to rise, but then called it off for this year.  Who knows what will come next?

A smarter way to think about it is what your future spending needs are.  You will be earning USD for some time; if you plan on returning to France later, whatever you earn in the US will be subject to the FX game.  You might do more to set your mind at ease, even with a lower  nominal rate of return, to have some money ready for your return that does not have to play this game.  It is a hedge, rather than just savings.  Of course, if rates get to extremes (I have seen $0.80 per Euro, up to $1.45) then you might make a move to take advantage of that.  I am playing just the opposite game, now earning EUR, but plans to eventually return to the US.