Author Topic: Investments, Taxes & Real Estate Questions Related to Moving Abroad  (Read 865 times)

majandra22

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Hello all,

I have several questions related to investments, real estate and taxes so hopefully this is an acceptable thread to post in! I will provide my stats then list my questions:

Investments:

1 year contract position to end May 2018
Temp contract offers a 401k but no match.
Currently save 85% of income (~$3000/month)
Currently have $3500 in savings
Tuition to be paid in August = $5k / Jan 2018 = 5k
Sale of car should bring additional $6k
Moving abroad when contract ends- local income will be sufficient to cover all living expenses
Want to have about 5k in savings account when I leave, the rest in investments
Will be abroad ~10-12 years, then return to US in early 40's.
Hope to live on 50% or less of US salary and FIRE by 50 at latest.
I have never invested before so try to keep to laymen's terms for me :)

What is the best investment strategy for the money I will be making over the next 12 months? My idea was to save $1500 more to cover tuition, then max out a traditional IRA to be converted to a Roth once established abroad and under FEIE. Should the remaining money go into the 401k (to be rolled into traditional IRA next May), or into taxable accounts? My thinking was that to lower my AGI for 2017, put the rest into the 401k, then for the 5 months of 2018 pay tuition, focus on maxing out the Roth, and then taxable accounts which will give me more accessibility in case of any emergencies (since my income bracket will be much lower with earning much less when living abroad). I'd like to know if I'm on the right track with my thinking or if there is a better way to approach it...

Then...

10-12 years abroad total in several different countries
Most years local income covers living expenses but little opportunity for savings
1 year expect to save $20k tax-free in S. Korea
2-3 years expect to save $90-100 tax-free in United Arab Emirates

During all of these I will be out of the US more than 330 days a year and qualify for FEIE. In most years, hope to let investments grow without touching them. If needed, I would be able to start withdrawing some from the annual Roth conversions penalty-free after the 5 years periods. For the 3-4 years in places where good savings is possible, I hope to be able to invest the full amount and live off my husband's freelance income. The UAE will be the last position before returning to the US. What will be the best manner to invest this money? How will any investments affect my income for the FEIE?

And for the last set of questions..

Real Estate

House bought in approximately 1976 for 18K
Realtor says it should sell for around 115k
Father's income = 90-95k
Father's age: 61

I am currently living in one of my father's rental properties for free. I moved in in July of 2016. The original plan was to sell it when I move out, although he has been concerned about the capital gains and taxes for it having been a rental property since he purchased it. He has since commented that he has "given" me the house. I do not believe that this is official yet, but if his intentions are truly to pass the house on to me now, what is that best way for us to approach this financially? If he sells it outright he will lose a lot in capital gains and other taxes, but then he could gift me 14k per year that I would add to my taxable account (Vanguard index funds). Conversely, if I were to live in the house for 2 years after having it been gifted to me, I could avoid the capital gains when I sell. I've already been here a year and still plan another 10-12 months, but nothing official was done back in July 2016 to say he was giving it to me. Is there any way to adjust this, such as having him amend his 2016 taxes? I know that he no longer listed it as a rental property, but I'm not sure how he did claim it. Clearly I need to have this discussion with him but I wanted some feedback first so that I can present options he may not have thought of. On the other hand, I am the only child so I will likely end up owning this house (and the others) anyways, but my father is kind of tired of being landlord and with my plans to live abroad I do not have the interest. I'd rather he/I sell it now and invest the money so that it is compounding away over the next decade in case he ever needs it, and it can help me get to FI sooner. What are your thoughts?

rudimentsofgruel

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Re: Investments, Taxes & Real Estate Questions Related to Moving Abroad
« Reply #1 on: November 06, 2017, 02:33:39 PM »
Hi Majandra,

I see you've gotten as much response as I have on my expat questions.
I can't really answer everything, but I did want to warn you about the Roth conversion. From my rudimentary searches it seems like the Roth conversion is not covered by the FEIE, although it looks like you could still do a conversion up to the standard deduction (or your itemized deductions if you do that) and pay no taxes. I.e., it will be considered separate from your foreign income. Let me know if you find out something different.

Also, how much time are you planning to spend in each foreign country? If you are there long enough to become a tax resident (usually a half year or so, depending on country), you may be taxed in that country on your worldwide income, including your Roth conversion, but there may be other exclusions for that. That will vary by country too. For example, here in New Zealand, I'm granted a waiver on WW income for my first four years, so I'm going to blast away on that Roth conversion.