Starting Savings account for 1 year old at local bank, but….

[solo7100]

….he’s a US citizen.

Once he hits 18 years old (or some age where it matters), will he be slammed with US taxes for some reason?

Mom is not US citizen, so another thought we had was open an account in her name, then at 18 years old (or some age when it matters), we give him the money. But would he be slammed with taxes just the same?

Just trying to find the best way to start and keep funding a savings for the little guy without him suffering the same fate as his US citizen dad (arg, taxes!).

Thoughts? Thanks,

[captainspoke]

No.

Interest here is trivial. I've never reported it for myself, and for the amounts a child might accumulate via a bank account, this is a total non-issue.

And even after 18, if you are supporting them (eg, college years), they can still be your dependent, even here--tho where I worked the child allowance (the 手当金 for that) stopped at 20.

[TokyoWart]

US taxes don't start at age 18 for US citizens; they really start at birth. We had to submit FBAR's reporting our kids' foreign bank accounts starting at around age 4 (when they had crossed the $10,000 reporting threshold) and submitted US tax returns for them in their names to keep the investment income off our tax return because they had a much lower tax bracket. You can report their investment income (interest, dividends, capital gains, etc.) on your own tax return but that income then also gets taxed at your US tax rate.

You can start a brokerage or bank account for your kids in Japan even at very young age but you will want to be careful to avoid any foreign domiciled mutual funds (e.g. the eMAXIS slim funds that get so much attention here) because they have a very difficult US tax reporting requirement immediately even when no tax is due. (Google "PFIC" to learn more.)

[captainspoke]

Well, there you have it...!

Is it a savings account that you have in mind, or an investment account/accounts at much higher thresholds?

[solo7100]

I suppose an investment vehicle, but if we go that route, it will automatically be in mom's name (since she is not an US citizen). I don't know enough about all that entails being a US citizen and the IRS, but from what I've gathered in this forum over the years...it's not something I'm prepared to engage in yet. Maybe one year, but not now.

Or, I just put it in a regular savings for now until that day comes and then switch over to investments. But alas, I would have lost all those years of compounding-ness.

[TJKansai]

US taxes don't start at age 18 for US citizens; they really start at birth. We had to submit FBAR's reporting our kids' foreign bank accounts starting at around age 4 (when they had crossed the $10,000 reporting threshold) and submitted US tax returns for them in their names to keep the investment income off our tax return because they had a much lower tax bracket. You can report their investment income (interest, dividends, capital gains, etc.) on your own tax return but that income then also gets taxed at your US tax rate.

You can start a brokerage or bank account for your kids in Japan even at very young age but you will want to be careful to avoid any foreign domiciled mutual funds (e.g. the eMAXIS slim funds that get so much attention here) because they have a very difficult US tax reporting requirement immediately even when no tax is due. (Google "PFIC" to learn more.)

There are some new rules out, but I am not savvy enough to make sense of them.

https://www.irs.gov/instructions/i8621# ... k100029865

[beanhead]

I suppose an investment vehicle, but if we go that route, it will automatically be in mom's name (since she is not an US citizen). I don't know enough about all that entails being a US citizen and the IRS, but from what I've gathered in this forum over the years...it's not something I'm prepared to engage in yet. Maybe one year, but not now.

Or, I just put it in a regular savings for now until that day comes and then switch over to investments. But alas, I would have lost all those years of compounding-ness.

Maybe invest as much as you can in your wife's name and then just give it to your son when he is older (or use for college fees?)