Expat in Europe with limited investment options - what should I do?

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spacetsunami
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Joined: Wed Jun 07, 2023 1:39 pm

Expat in Europe with limited investment options - what should I do?

Post by spacetsunami »

I always thought I was pretty good with money, but I’m only now realizing that my definition of pretty good has just meant that I have never been in long-term debt and I live comfortably. In the past justified not doing more investing because I was incredibly dedicated to paying off student loans as fast as possible, and my parents’ investing skills are at the level of “our house is our investment.”

What seemed like an above average head start in investing compared to my peers has turned out to be a measly pittance. Add in a few years of taking time off to travel between jobs and up and moving to a new country. I feel like I’ve lost at the investing game. I know it’s never too late so I want to take the next steps to get back on track. For me, this means tying up the messy loose ends I left in the US now that I’m living abroad.

Below is my situation and the questions I think I need answered in order to make a decision regarding my US money situation:

Tax situation
  • US citizen nonresident
    • 34 yrs, resident in Italy since 2021
    • work for Italian company
  • Married to nonresident alien (Italian)
    • 35 yrs
    • works for European company
  • File Married Filing Separately
  • Filled out FTC on 2022 taxes, FEIE for 2021
  • One child, under 1 yr, dual Italian/American citizenship
  • Envision eventually moving back to the US within the next 5 years, but not 100% certain of this
Current US Investments/Bank situation:
  • Fidelity
    • Bought company stock at job 1, $11,00
    • Opened a 401k with job 2, $1,600
    • Money sitting in my account, uninvested, $2,000
  • ETrade
    • Bought company stock at job 2 in US, $2,000
  • Vanguard
    • Roth IRA (VFFVX) - opened in 2015, $5,700
  • Bank account with over $10,000 (from selling my car)
  • Using parent’s address for all accounts
More details (not sure this is relevant):
I do have an Italian bank account (less than €10k) and work pension plan (Italian) and my husband has several bank accounts. We keep our accounts completely separate and I have no authority over any accounts he has opened. He has one savings account with +€15K and has bought EFTs (SWDA and VWCE - they are separated because the latter is essentially savings for our kid).

Questions:
  • Should I roll both my stocks and 401k to my Roth IRA? When?
  • What should I do with the uninvested money siting in Fidelity?
  • What should I do with the +$10,000 in the bank? I’d like to invest it but the one upside of having it readily available is that I visit the US every year and it’s nice not having to pay with European credit cards
Thank you very much
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typical.investor
Posts: 5263
Joined: Mon Jun 11, 2018 3:17 am

Re: Expat in Europe with limited investment options - what should I do?

Post by typical.investor »

Hello and welcome.
spacetsunami wrote: Wed Jun 07, 2023 1:52 pm I always thought I was pretty good with money, but I’m only now realizing that my definition of pretty good has just meant that I have never been in long-term debt and I live comfortably. In the past justified not doing more investing because I was incredibly dedicated to paying off student loans as fast as possible, and my parents’ investing skills are at the level of “our house is our investment.”

What seemed like an above average head start in investing compared to my peers has turned out to be a measly pittance. Add in a few years of taking time off to travel between jobs and up and moving to a new country. I feel like I’ve lost at the investing game. I know it’s never too late so I want to take the next steps to get back on track. For me, this means tying up the messy loose ends I left in the US now that I’m living abroad.
At 34, it's far too early to say you've lost at the investing game. Working and raising a child abroad is a big task especially in a second language. You are on the right path now.

spacetsunami wrote: Wed Jun 07, 2023 1:52 pm Below is my situation and the questions I think I need answered in order to make a decision regarding my US money situation:

Tax situation
  • US citizen nonresident
    • 34 yrs, resident in Italy since 2021
    • work for Italian company
  • Married to nonresident alien (Italian)
    • 35 yrs
    • works for European company
  • File Married Filing Separately
  • Filled out FTC on 2022 taxes, FEIE for 2021
  • One child, under 1 yr, dual Italian/American citizenship
  • Envision eventually moving back to the US within the next 5 years, but not 100% certain of this
Just a little reminder here that since you gave up the FEIE in 2021, you can't claim it again for another five years without IRS written permission.

Also, be aware that the spouse's SWDA and VWCE will be a little problematic if he gets a green card as they are non-US domiciled funds and subject to harsh PFIC taxes. It's a thought for another day but one to be aware of.

Also, since you claimed the FTC and not the FEIE, you are eligible to make IRA or ROTH contributions.
spacetsunami wrote: Wed Jun 07, 2023 1:52 pm Current US Investments/Bank situation:
  • Fidelity
    • Bought company stock at job 1, $11,00
    • Opened a 401k with job 2, $1,600
    • Money sitting in my account, uninvested, $2,000
  • ETrade
    • Bought company stock at job 2 in US, $2,000
  • Vanguard
    • Roth IRA (VFFVX) - opened in 2015, $5,700
  • Bank account with over $10,000 (from selling my car)
  • Using parent’s address for all accounts
More details (not sure this is relevant):
I do have an Italian bank account (less than €10k) and work pension plan (Italian) and my husband has several bank accounts. We keep our accounts completely separate and I have no authority over any accounts he has opened. He has one savings account with +€15K and has bought EFTs (SWDA and VWCE - they are separated because the latter is essentially savings for our kid).
You are aware of the FBAR filing requirement if your bank account goes over $10k right? https://www.fincen.gov/report-foreign-b ... l-accounts. Your child will have the same requirement as will your husband if he gets a green card. It's not difficult to file even if a little worrisome over giving out account numbers.

spacetsunami wrote: Wed Jun 07, 2023 1:52 pm Questions:
  • Should I roll both my stocks and 401k to my Roth IRA? When?
VFFVX is a great option, so it'd make sense to put the 401k into an IRA. I am not sure about how Italy might tax that income. If Italian rates are higher and you'd be subject to Italian taxes, then I'd wait till you are back in the US.

Is the company stock tax sheltered? That's the only way you could roll it over I think.
spacetsunami wrote: Wed Jun 07, 2023 1:52 pm
  • What should I do with the uninvested money siting in Fidelity?
Figure out your AA (asset allocation - US stocks, intl stocks and bonds) and then invest according to that. VFFVX is about 54% US stocks, 36% intl stocks and 10% bonds. So I'd just use 54% FSKAX (Fidelity Total Market Index Fund), 36% FTIHX (Fidelity Total International Index Fund) and 10% in a money market fund or cash in your Italian bank. And I'd try to hit that allocation over all of my accounts combined.

You can see funds here https://www.bogleheads.org/wiki/Fidelity
spacetsunami wrote: Wed Jun 07, 2023 1:52 pm
  • What should I do with the +$10,000 in the bank? I’d like to invest it but the one upside of having it readily available is that I visit the US every year and it’s nice not having to pay with European credit cards
Personally I would want to invest it even if only in a money market fund or short term CD which are paying well now. I personally would use your parent's US address to get a US credit card. Living overseas for a number of years, I experienced numerous times when I needed a US card. Usually it was on a site (airlines or even ordering food at a restaurant within Disneyland) that seemingly accepted foreign cards but had a bug that wouldn't accept a foreign zip code or something like that that prevented the transaction. And sometimes foreign card rejected charges for travel within the US - actually VISA would reject it and the bank would never see it and it was a hassle to figure out why it wasn't going through. I might look at the Fidelity cards since your money is already there.
EddyB
Posts: 2431
Joined: Fri May 24, 2013 3:43 pm

Re: Expat in Europe with limited investment options - what should I do?

Post by EddyB »

Lots of good advice from typical.investor, but I would note that a money market fund is likely potentially problematic, as it will either be a PFIC for US purposes or non-harmonized for Italian purposes. Similarly, to say that the Italian spouse’s UCITS investments would be problematic if he takes a green card is potentially true, but leaves one wondering what the reasonable alternative is. In the immediate term, though, both OP and spouse are below the $25,000 de minimis exclusion from PFIC treatment, so there’d be no immediate US issue (even if a green card was to be had immediately), and perhaps an EU fund does make more sense than it would in many other circumstances.

The treatment of events inside a Roth or traditional IRA is uncertain, but if your were to stay in Italy, the Roth wouldn’t (now) offer any advantages over an ordinary brokerage account at withdrawal (and is *possibly* disadvantaged). You’ll just have to take your best guess about the future.
TedSwippet
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Location: UK

Re: Expat in Europe with limited investment options - what should I do?

Post by TedSwippet »

EddyB wrote: Thu Jun 08, 2023 2:51 am Lots of good advice from typical.investor, but I would note that a money market fund is likely potentially problematic, as it will either be a PFIC for US purposes or non-harmonized for Italian purposes.
Just on this point, although a non-US domiciled money market fund will be a PFIC, and so potentially generate a bunch of extra US tax paperwork, if handled correctly it may not necessarily be an actual and real US tax sinkhole.

The PFIC mark-to-market rules are neutral on dividends, but punitive on gains: tax on unrealised capital gains annually, and at income tax rates. For money market funds specifically though, there shouldn't be any unrealised (or realised) capital gains for the US to punitively tax. That should make the outcome of a non-US domiciled PFIC money market fund come out the same as a US domiciled non-PFIC one.

The fiddliest part then will be ensuring that any non-US domiciled money market fund meets the PFIC requirement of being marketable and on a qualified exchange. Needless to say, only over-bureaucratically and yet at the same time vaguely defined by the IRS, but presumably any major EU exchange would qualify.

All entirely tiresome and annoying, but perhaps at least one potential way to thread the needle of US PFIC rules and Italian non-harmonised rules.
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typical.investor
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Re: Expat in Europe with limited investment options - what should I do?

Post by typical.investor »

EddyB wrote: Thu Jun 08, 2023 2:51 am Lots of good advice from typical.investor, but I would note that a money market fund is likely potentially problematic, as it will either be a PFIC for US purposes or non-harmonized for Italian purposes. Similarly, to say that the Italian spouse’s UCITS investments would be problematic if he takes a green card is potentially true, but leaves one wondering what the reasonable alternative is. In the immediate term, though, both OP and spouse are below the $25,000 de minimis exclusion from PFIC treatment, so there’d be no immediate US issue (even if a green card was to be had immediately), and perhaps an EU fund does make more sense than it would in many other circumstances.

The treatment of events inside a Roth or traditional IRA is uncertain, but if your were to stay in Italy, the Roth wouldn’t (now) offer any advantages over an ordinary brokerage account at withdrawal (and is *possibly* disadvantaged). You’ll just have to take your best guess about the future.
Actually, I was thinking a money market in the US at Fidelity for the US money and cash in the Italian bank (for liquidity). I know nothing about EU or Italian bonds or other fixed income.
EddyB
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Re: Expat in Europe with limited investment options - what should I do?

Post by EddyB »

typical.investor wrote: Thu Jun 08, 2023 4:14 am
EddyB wrote: Thu Jun 08, 2023 2:51 am Lots of good advice from typical.investor, but I would note that a money market fund is likely potentially problematic, as it will either be a PFIC for US purposes or non-harmonized for Italian purposes. Similarly, to say that the Italian spouse’s UCITS investments would be problematic if he takes a green card is potentially true, but leaves one wondering what the reasonable alternative is. In the immediate term, though, both OP and spouse are below the $25,000 de minimis exclusion from PFIC treatment, so there’d be no immediate US issue (even if a green card was to be had immediately), and perhaps an EU fund does make more sense than it would in many other circumstances.

The treatment of events inside a Roth or traditional IRA is uncertain, but if your were to stay in Italy, the Roth wouldn’t (now) offer any advantages over an ordinary brokerage account at withdrawal (and is *possibly* disadvantaged). You’ll just have to take your best guess about the future.
Actually, I was thinking a money market in the US at Fidelity for the US money and cash in the Italian bank (for liquidity). I know nothing about EU or Italian bonds or other fixed income.
Then the OP would have to pay Italian taxes on the uS money market fund at ordinary income rates rather than the preferred 26% rate that’s available if she uses a qualifying EU fund (or a bank account).
EddyB
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Joined: Fri May 24, 2013 3:43 pm

Re: Expat in Europe with limited investment options - what should I do?

Post by EddyB »

TedSwippet wrote: Thu Jun 08, 2023 3:51 am
EddyB wrote: Thu Jun 08, 2023 2:51 am Lots of good advice from typical.investor, but I would note that a money market fund is likely potentially problematic, as it will either be a PFIC for US purposes or non-harmonized for Italian purposes.
Just on this point, although a non-US domiciled money market fund will be a PFIC, and so potentially generate a bunch of extra US tax paperwork, if handled correctly it may not necessarily be an actual and real US tax sinkhole.
I’ve always avoided it, but understand the cost of having the paperwork done to be prohibitive for small investments (although as long as the OP stays below the de minimis limit, that wouldn’t be a problem). https://www.pwc.com/gx/en/services/peop ... ptions.pdf
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typical.investor
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Re: Expat in Europe with limited investment options - what should I do?

Post by typical.investor »

EddyB wrote: Thu Jun 08, 2023 6:09 am
typical.investor wrote: Thu Jun 08, 2023 4:14 am
EddyB wrote: Thu Jun 08, 2023 2:51 am Lots of good advice from typical.investor, but I would note that a money market fund is likely potentially problematic, as it will either be a PFIC for US purposes or non-harmonized for Italian purposes. Similarly, to say that the Italian spouse’s UCITS investments would be problematic if he takes a green card is potentially true, but leaves one wondering what the reasonable alternative is. In the immediate term, though, both OP and spouse are below the $25,000 de minimis exclusion from PFIC treatment, so there’d be no immediate US issue (even if a green card was to be had immediately), and perhaps an EU fund does make more sense than it would in many other circumstances.

The treatment of events inside a Roth or traditional IRA is uncertain, but if your were to stay in Italy, the Roth wouldn’t (now) offer any advantages over an ordinary brokerage account at withdrawal (and is *possibly* disadvantaged). You’ll just have to take your best guess about the future.
Actually, I was thinking a money market in the US at Fidelity for the US money and cash in the Italian bank (for liquidity). I know nothing about EU or Italian bonds or other fixed income.
Then the OP would have to pay Italian taxes on the uS money market fund at ordinary income rates rather than the preferred 26% rate that’s available if she uses a qualifying EU fund (or a bank account).
Yeah, but the money is in the US and used for travel expenses.

If she uses a high yield bank account in the US, does she get a preferred Italian rate?

Anyway, yield is higher in the US isn’t it? So it doesn’t make sense to hold it in Italy even if the tax rate is lower, does it?

I always held some money in banks overseas and in the US for liquidity and convenience. It’s one less thing to do when a trip comes along.
EddyB
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Re: Expat in Europe with limited investment options - what should I do?

Post by EddyB »

typical.investor wrote: Thu Jun 08, 2023 6:17 am
EddyB wrote: Thu Jun 08, 2023 6:09 am
typical.investor wrote: Thu Jun 08, 2023 4:14 am
EddyB wrote: Thu Jun 08, 2023 2:51 am Lots of good advice from typical.investor, but I would note that a money market fund is likely potentially problematic, as it will either be a PFIC for US purposes or non-harmonized for Italian purposes. Similarly, to say that the Italian spouse’s UCITS investments would be problematic if he takes a green card is potentially true, but leaves one wondering what the reasonable alternative is. In the immediate term, though, both OP and spouse are below the $25,000 de minimis exclusion from PFIC treatment, so there’d be no immediate US issue (even if a green card was to be had immediately), and perhaps an EU fund does make more sense than it would in many other circumstances.

The treatment of events inside a Roth or traditional IRA is uncertain, but if your were to stay in Italy, the Roth wouldn’t (now) offer any advantages over an ordinary brokerage account at withdrawal (and is *possibly* disadvantaged). You’ll just have to take your best guess about the future.
Actually, I was thinking a money market in the US at Fidelity for the US money and cash in the Italian bank (for liquidity). I know nothing about EU or Italian bonds or other fixed income.
Then the OP would have to pay Italian taxes on the uS money market fund at ordinary income rates rather than the preferred 26% rate that’s available if she uses a qualifying EU fund (or a bank account).
Yeah, but the money is in the US and used for travel expenses.

If she uses a high yield bank account in the US, does she get a preferred Italian rate?

Anyway, yield is higher in the US isn’t it? So it doesn’t make sense to hold it in Italy even if the tax rate is lower, does it?

I always held some money in banks overseas and in the US for liquidity and convenience. It’s one less thing to do when a trip comes along.
If you can tell me what’s going to happen with exchange rates, maybe I could imagine really knowing what to do with cash. :-)

My personal, no doubt oversimplified view (as a US/Italian citizen resident in Italy but paid in dollars) is that the higher US interest rates just tell me it’s currently a more inflationary currency.

Some complications in using a money market fund rather than a bank account:

An investment into a money market fund is a purchase of property with currency. An Italian resident who buys units of a USD fund has to translate the cost to EUR using the spot rate. When they sell, they do the same with the proceeds. So if the USD climbs against the EUR between those two events, there’s a capital gain in EUR. It’a a capital gain in a non-harmonized fund, so it’s taxed at ordinary income rates.

The same problem exists in reverse for a US citizen who uses a non-USD account. Of course, for a US citizen resident in Italy, one can lose either way.

Maybe the OP can resolve not to sell while tax resident in Italy. Then there’s just the problem of paying ordinary rates on the interest. One probably can’t take the US FTC, because it’s US-source income, so one reverses the credit to Italy (for US taxes paid), but it still has the effect of limiting the maximum available FTC that can be used in the US for the year.

A bank account avoids the phantom currency gain issue and the interest qualifies for the preferred rate in Italy.

That’s how I understand it; no guarantee of accuracy is granted by this post.
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