Author Topic: What is the best way to save if you do not pay taxes?  (Read 3324 times)

MayDay

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What is the best way to save if you do not pay taxes?
« on: October 16, 2014, 06:38:03 PM »
My sister is a US citizen, living and working in a foreign country for a non-profit, under a diplomat visa. 

She pays no US income taxes and no income tax in the country she lives (Mexico).

Currently her employer contributes 15% of her salary to a 403b with Vanguard, invested in their target retirement 2050 fund.  She contributes an additional 7ish% of her salary. 

I just helped her set up a Roth with vanguard, and she fully funded it for 2014, and will do a monthly payroll deduction to fully fund it going forward.  This is obviously her best savings vehicle as shears no tax now, and no tax later. 

My main question is about the 403b.  She will probably spend some of her retirement in Mexico or another south or Central American country.  Then as she gets more towards elderly she will likely come back to the US.  Of course she is only 28 now, so things could change wildly. 

So, should she up her 403b contribution, where she is investing tax free money, but will have to pay income taxes on it if she takes he income in the US?  Or should she put it in a brokerage account, and possibly have to pay Mexican income tax now, but never have to pay US income tax?  Or is it a total crapshoot since it depends heavily in where she lives during retirement?

And another variable might be whether she would have to pay Mexican Capitol gains tax, or US Capitol gains, or neither, on a brokerage account.  She doesn't know, and a quick google was not helpful.  Does anyone have a clue where to even look for this information? 

johnintaiwan

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Re: What is the best way to save if you do not pay taxes?
« Reply #1 on: October 16, 2014, 07:00:00 PM »
I dont think she is allowed to open an IRA without income earned in the US. That is my situation. I live abroad and am not allowed to invest in IRAs since I dont have any income earned in the US. But maybe the diplomat visa changes things?

MayDay

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Re: What is the best way to save if you do not pay taxes?
« Reply #2 on: October 16, 2014, 07:30:35 PM »
I dont think she is allowed to open an IRA without income earned in the US. That is my situation. I live abroad and am not allowed to invest in IRAs since I dont have any income earned in the US. But maybe the diplomat visa changes things?

I have no clue and neither does she, but vanguard let her open the IRA and put the money in yesterday.  Possibly a big oops, as I suppose vanguard doesn't care whether she is breaking the rules or not. 

I'm the one who advised her to open the Roth, I figured if it wasn't allowed vanguard would tell her.  Which in retrospect was dumb on my part.  I probably sound like a total idiot, but it just never occurred to me that she couldn't open one.

Kaspian

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Re: What is the best way to save if you do not pay taxes?
« Reply #3 on: October 20, 2014, 02:15:45 PM »
I dont think she is allowed to open an IRA without income earned in the US. That is my situation. I live abroad and am not allowed to invest in IRAs since I dont have any income earned in the US. But maybe the diplomat visa changes things?

I have no clue and neither does she, but vanguard let her open the IRA and put the money in yesterday.  Possibly a big oops, as I suppose vanguard doesn't care whether she is breaking the rules or not. 

I'm the one who advised her to open the Roth, I figured if it wasn't allowed vanguard would tell her.  Which in retrospect was dumb on my part.  I probably sound like a total idiot, but it just never occurred to me that she couldn't open one.

Not how it works in Canada.  If you screw up by buying investment vehicles you weren't supposed to, overcontributing, etc., it's not the bank's responsibility to stop you.  It's the individual who is supposed to know the rules and who will ultimately get their hand slapped by the revenue agency.

pka222

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Re: What is the best way to save if you do not pay taxes?
« Reply #4 on: October 20, 2014, 05:06:18 PM »
I'm an expat- not earning in the US either - I invest in non-tax deferred accounts with Vanguard - I figure when I take it out I'll be in a low tax bracket - I'd be keen to find out if I can use a tax advantaged account somehow- but I think the answer is no

Left

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Re: What is the best way to save if you do not pay taxes?
« Reply #5 on: October 20, 2014, 09:03:38 PM »
got a question that doesn't apply to me but thought to ask anyways.

But if someone has taxable investments in the US, can they put the dividends into a roth? Doesn't dividends count as "income" in the US and thus qualify? Just wondering what happens when you get enough in a taxable account earning enough to trigger income tax above 15%, can it put into roths/iras to reduce the tax burden?

edit: wasn't thinking when I posted, this is probably another topic so pm me so to not hijack thread?

Overseas Stache

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Re: What is the best way to save if you do not pay taxes?
« Reply #6 on: October 21, 2014, 02:29:39 AM »
Hi Mayday,
It seems like you have screwed up. I work overseas and have no taxable income in the USA, so I researched this exact problem. I am no tax expert but according to my research if you have no earned income you can not invest in any retirement account. So the Roth IRA is a no go. She will get caught with the penalty later. It kinda makes sense because why would the government let you invest tax free dollars and get them out tax free as well? The only option is to invest in a taxable account.