Author Topic: Investment order for no taxes  (Read 1530 times)

CollegeRaven

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Investment order for no taxes
« on: December 29, 2017, 07:27:33 PM »
Hi everyone!

So I find myself in a curious situation whence my country where I have citizenship has no capital gains/ dividend taxes. I'm currently living in the US and will probably be doing so for the next 20 years (I'm 20). As long as I don't remit money below a above a certain amount when transferring it home, I essentially pay no taxes on any investments (in my country).

So, I'm currently not sure if I should be investing in the market back home first and if so to how much? And pretty much how it disturbs any investment order I need to follow.

boarder42

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Re: Investment order for no taxes
« Reply #1 on: December 30, 2017, 09:39:28 AM »
There is not close to enough information here too answer any of your questions

CollegeRaven

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Re: Investment order for no taxes
« Reply #2 on: December 30, 2017, 11:28:15 AM »
What information should I include?

maizeman

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Re: Investment order for no taxes
« Reply #3 on: December 30, 2017, 11:44:37 AM »
Here is a list of information it might be useful for you to gather or think about (whether or not you want to share it all with us).

What is your annual income now and are you in a field where it will stay roughly constant or one where it will increase rapidly over the next two decades? What tax deferred accounts from the regular investment order post do you have access to? Do you plan to FIRE in the USA within the next 20 years or work for the next twenty years? When you leave the USA at 40, do you plan to return to your home country or move to a 3rd location? Do you have any interest in acquiring US citizenship (which would mean paying taxes on worldwide income from that point onward)? How much money can you remit home every year before having to pay taxes? If you're comfortable doing so, what is the identity of your home country? If you're not comfortable doing so, you could instead give the approx. percent of total world equity markets accounted for by your home country's stock exchanges (the smaller and less diversified a country's equity markets, the greater the risk you take on from a strong home country bias in investing).

http://www.visualcapitalist.com/all-of-the-worlds-stock-exchanges-by-size/

CollegeRaven

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Re: Investment order for no taxes
« Reply #4 on: December 30, 2017, 02:01:53 PM »
What is your annual income now and are you in a field where it will stay roughly constant or one where it will increase rapidly over the next two decades?

I'm currently a college student so my income is pretty low (~11k per year) but all of my basic expenses are taken care of, thereby all of my income is disposable.

My current field(s) are physics and molecular biology and I haven't picked any grad school yet but I'm probably doing either medschool or bioengineering (my parents have decided to pay for it so I won't have student loans...It's their decision and I don't have a say in it)

Average starting salaries for those is:

Bioengineering $51,480
Physician.          $51,000


Of course, the physician salary soon eclipses the bioengineering one but from my calculations my net worth increase is around the same after 20 years (15 earning years for bioengineering and 10 for physician).



 What tax deferred accounts from the regular investment order post do you have access to?

As I'm still a student, I assume I don't have access to any


Do you plan to FIRE in the USA within the next 20 years or work for the next twenty years?

Most likely work as either of those fields are things I really want to do

When you leave the USA at 40, do you plan to return to your home country or move to a 3rd location?

Probably home as from what I know, right now $30k is more than enough to support an average upper middle class non mustachian family there.

 Do you have any interest in acquiring US citizenship (which would mean paying taxes on worldwide income from that point onward)?

Right now, it depends


How much money can you remit home every year before having to pay taxes?

Around 10k of income is tax free and any further is taxed at a rate of 15%.

World Equity proportion

...my home country's equity is ~.01%

maizeman

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Re: Investment order for no taxes
« Reply #5 on: December 30, 2017, 02:47:38 PM »
Gotcha. Knowing the max you can send each year without paying taxes is $10k actually makes this a lot simpler.

So as I see it, the biggest question mark is about whether or not you want to get and retain US citizenship. If you do, having money in tax deferred accounts here in the US is worth a lot, if not, it'll just add complications down the road.

As an undergrad with income of $11k/year, you almost certainly won't owe any taxes on investments here in the USA either. However if your goal is to ultimately to make a relatively high salary (MD, or a PhD in a medical field), ultimately you will be subject to taxes on capital gains and dividends.

The sad news is that, while you're a US resident, you'll almost certainly also owe US taxes on investments in your home country once you hit the income thresholds where you'd own US taxes on investments held in the US (https://www.irs.gov/businesses/income-from-abroad-is-taxable). However, the good news is that, as a noncitizen, you'll be able to get out of paying US taxes once you move and give up residency.

Assuming you don't decide you'd like to get citizenship in the US, and you'll end up retiring with savings of ~$750,000 in 20 years (supports $30,000/year at a 4% withdrawal rate), and you're sure you'll want to FIRE in your home country and not some third country, my order of savings would be:

1) Significant emergency fund in the USA <-- because things can come up suddenly and trying to get money back from overseas can take days or weeks.
2) Use up your tax free max of $10k/year of income sent back home each year.
3) Invest any surplus (which you probably won't have now, but certainly will have between now and when you turn 40) in a total world stock market ETF like VT (https://advisors.vanguard.com/VGApp/iip/site/advisor/investments/productoverview?fundId=3141).

Regardless, the thing to remember is that you're ahead of the game by thinking about this so early, and you're going to do fine. The most important thing is to focus on optimizing your lifestyle for happiness right now as an undergraduate and later grad/med student, and then not succumbing to lifestyle inflation once you're out of school and your income goes up dramatically. I didn't start thinking about FIRE until I was about 25 and well into my PhD program, and as far as I can tell so far it hasn't set back my FIRE schedule at all.

...my home country's equity is ~.01%

Well that rules out my own pet idea that you had come over Hong Kong.