RetireJapan

Firstly, I'm new to the forum and have been reading for a few weeks now. It's been a wealth of great information for me. I'm really glad to have found this site. Thanks to all for the comments and hard work!

My basic info:
--52 y.o. American
--Japanese spouse (working)
--2 High school children
--No outstanding debt
--6 months of Emergency Fund expenses saved

Currently:
--Just faxed my TD Ameritrade acct. application to begin investing.
--Have been reading: Millionaire Teacher by Hallam, JL Collins Stock Series and Bogleheads.org
--Opened Wise account (previously used GoRemit w/ Shinsei bank).
--Opened Nenkin net account (20 years of payments so far)
--Usually file US taxes (married filing jointly and claim the Foreign Earned Income Exclusion)

Questions / Advice:
I like the simple Bogle 3 fund approach to investing with index (ETF) and theoretically have 12 years until age 65 to invest in the market before starting to draw out. I would like to keep investing indefinitely (if possible) to pass my portfolio on to my spouse/kids.

Q1: What allocation percentage would you recommend?
US stock index / International stock index / Bond index?
I know the 100 minus your age rule for stock % (48% stock / 50% bond). Seems a little heavy on the bonds for me. However, I am quite behind in my retirement investing.
Q2: What funds would you recommend?
Vanguard VTI, VXUS, BND ?
TD Ameritrade version of the above?
Q3: Would it be beneficial to open an Ideco in cash savings?
I want to avoid the PFIC tax issues w/ US tax reporting. The Ideco would lower my Japanese taxes, correct? Or would it be better to avoid the Ideco and put that money into stocks/bonds with TDAmeritrade?
Q4: Options for Education savings for kids' university?
I'm pretty behind the ball and have only 2 years until the oldest begins school (possibly in the UK). Any short term saving options?
Q5: Is NISA an option for me as an American citizen or my Japanese wife? How about Jr Nisa for the kids?
Q6: Any other life plan steps I should be considering?

Thanks in advance for helping a beginner.

Welcome to the forum! I am a 58 yr old American. Others here will also have advice but in any case here's my take:

--Just faxed my TD Ameritrade acct. application to begin investing.

I hope they allow you to open it. I opened my TD Ameritrade account from here but I've recently heard that both Schwab and TD Ameritrade (which will become Schwab soon since they've already been bought) had stopped opening accounts for Americans in Japan. If they reject you the next place to try would be Fidelity.

--Usually file US taxes (married filing jointly and claim the Foreign Earned Income Exclusion)

For many people this means you don't have "earned income" for an IRA. That's inconvenient but not the end of the world in my opinion. Claiming FTC (Foreign tax Credit) instead can sometimes be better but often is not. Because you file jointly your wife has similar reporting obligations to you vis-a-vis things like PFIC's, FBAR's, etc.

Q1: What allocation percentage would you recommend?

Very personal decision. I am 100% equities but I am risk tolerant. Personally I think anything above 20% bonds for someone who is just 52 is too high in this interest rate environment but this decision comes down to your risk tolerance and the amount of resources you have available.

Q2: What funds would you recommend?
Vanguard VTI, VXUS, BND ?

Also a very personal choice but those three funds are a good example of a 3-fund portfolio and because they are ETF's they would be available to your from TD Ameritrade (or Schwab or Fidelity or other US brokerage firms).

Q3: Would it be beneficial to open an Ideco in cash savings?

I think this depends partly on your tax bracket and the higher it is the more likely it makes sense. My reading of the rules is that the cash equivalent account in IdeCo is not a PFIC but I am very confused by the PFIC regulations.

Q4: Options for Education savings for kids' university?

Probably easiest to use your taxable investment accounts. You are eligible to open a 529 if your US brokerage account allows it (you dont have to live in a given State to use that State's 529) but I have no idea how a 529 is treated under Japanese tax laws and I did not use this option for my kids. I used J-NISA accounts with individual stocks to avoid the PFIC issue. I probable would have been better off if I had just bought ETF's (VTI, VXUS, etc.) in my US brokerage accounts.

Q5: Is NISA an option for me as an American citizen or my Japanese wife? How about Jr Nisa for the kids?

Yes. Every member of my American-in-Japan family has a NISA. Because of PFIC those accounts just have individual stocks.

Q6: Any other life plan steps I should be considering?

i don't have personal experience with this but I think most American expats with a foreign spouse who works and has financial assets find it better to file as married-filing-separately.
(https://www.hrblock.com/expat-tax-prepa ... en-status/)

Don't forget to file your FBAR.

TokyoWart,

Thanks for the quick replies. Sorry, I'm not too familiar with how this reply system / using quotes works.

I'll look into Fidelity if the TDAmeritrade application is denied. Haven't heard back from them yet.

Yes, married filing jointly using the FEIC doesn't allow me to have an IRA. I'm kind of disgruntled about this. I've never filed using FTC but maybe it's worth a closer look.

Only 20% allocation in bonds? Ok, seems low but understand it's a personal decision. Why do you consider yourself so "risk tolerant" if you don't mind me asking?

Cash equivalent account in Ideco is not a PFIC. Understood. Any ideas where I would find more details on this? PFIC rules are quite tricky to understand. Have seen info about this in Bogle wiki if I remember correctly.

You used J-Nisa accounts for your kids' education. I thought using individual stocks was a "no/no" for us, PFIC wise? Hmmm. Please explain. I need to investigate more about this.

You are also using NISA for your family. Again, I thought individual stocks weren't options for Americans (PFIC). But if I can open NISA accounts, that's great news, indeed!

File tax with MFS. Understood. I'll have a closer look into that also.
And yes, FBAR. Actually tried to file that online but due to computer issues I had problems with downloading the PDF to work on. Need to retry. The deadline for expats is extended past 4/15, right?

Great info, thanks so much.

Only 20% allocation in bonds? Ok, seems low but understand it's a personal decision. Why do you consider yourself so "risk tolerant" if you don't mind me asking

I have been an all-equity investor for 35+ years and feel that I won't panic in a downturn and I've oversaved to the point that a prolonged or even permanent decline in my portfolio value of 80% wouldn't really affect my retirement plans. I actually have 0% in bonds but some (<2%) of my US accounts are hard money loans to real estate investors and they are bond-like but with very short duration and a much higher interest rate.

You used J-Nisa accounts for your kids' education. I thought using individual stocks was a "no/no" for us, PFIC wise? Hmmm. Please explain. I need to investigate more about this.

Individual stocks are rarely counted as a PFIC. (https://www.investopedia.com/terms/p/pfic.asp) In any case the stocks we chose (companies like Yakult or Asahi) don't even come close on my reading of the definition. However, this does put you in the position of being a stock picker which is probably not as reliable an investing method as buying index funds. Our NISA accounts are at Nomura and although its fees are much higher than the online trio of Rakuten/Monex/SBI, Nomura does allow us to buy US stocks and ETF's from the US exchanges. I have not used that option very much because the exchange rate is very unfavorable.

And yes, FBAR. Actually tried to file that online but due to computer issues I had problems with downloading the PDF to work on. Need to retry. The deadline for expats is extended past 4/15, right?

The FBAR deadline is automatically extended each year to October something (15?) if you live outside of the USA.

TokyoWart wrote: ↑Mon Apr 19, 2021 4:58 am Individual stocks are rarely counted as a PFIC. (https://www.investopedia.com/terms/p/pfic.asp) In any case the stocks we chose (companies like Yakult or Asahi) don't even come close on my reading of the definition. However, this does put you in the position of being a stock picker which is probably not as reliable an investing method as buying index funds. Our NISA accounts are at Nomura and although its fees are much higher than the online trio of Rakuten/Monex/SBI, Nomura does allow us to buy US stocks and ETF's from the US exchanges. I have not used that option very much because the exchange rate is very unfavorable.

Do you know if IRS Revenue Procedure 2020-17 applies to NISA accounts? I'm trying to wrap my head around the reporting requirements for my new NISA account and that Revenue Procedure 2020-17 looks promising.

Teflon wrote: ↑Mon Apr 19, 2021 11:06 am

TokyoWart wrote: ↑Mon Apr 19, 2021 4:58 am Individual stocks are rarely counted as a PFIC. (https://www.investopedia.com/terms/p/pfic.asp) In any case the stocks we chose (companies like Yakult or Asahi) don't even come close on my reading of the definition. However, this does put you in the position of being a stock picker which is probably not as reliable an investing method as buying index funds. Our NISA accounts are at Nomura and although its fees are much higher than the online trio of Rakuten/Monex/SBI, Nomura does allow us to buy US stocks and ETF's from the US exchanges. I have not used that option very much because the exchange rate is very unfavorable.

Do you know if IRS Revenue Procedure 2020-17 applies to NISA accounts? I'm trying to wrap my head around the reporting requirements for my new NISA account and that Revenue Procedure 2020-17 looks promising.

I do not know the answer to your question but I would doubt it applies. A trust account is one held by a third party on behalf of a beneficiary. That doesn't describe a NISA account to my interpretation because you hold the NISA account and it is in your name at the brokerage firm (the brokerage is a custodian but it is not your trustee). Also, one of the conditions mentioned in that rule is:

Only contributions with respect to income earned from the performance of personal services are permitted.

which is not true of NISA accounts (there's no income requirement to creating or contributing to the account). Again, I don't know the answer for sure but I doubt that this applies to a NISA.

runmanTX wrote: ↑Fri Apr 16, 2021 1:53 pm...
And yes, FBAR. Actually tried to file that online but due to computer issues I had problems with downloading the PDF to work on.
...

I've just done my FBAR, using the online submission. Total time filling out the fields and submitting was about 10-12 minutes.

Another 10min to print (a) the downloaded PDF of it, (b) the confirmation--web page, and (c) the confirmation email. Next step will be to clip all that together and drop it in the file with my 2020 return, and then put that whole file box away for another year.

Details: I only have a couple bank accounts. To prep in advance, you need the bank name(s), address(es) including postal code, account number(s), type of account (=bank), and the max value of the account in 2020 converted to US$. And there's no penalty for over-reporting, so I added $1000 to each figure.

I did have last year's printout to review in advance, and to copy bank names and addresses. So a first-timer might take 20min instead of 10, plus getting the bank addresses in advance.

It may be a little confusing on the first screenful of the online form, but you have to scroll down to begin filling in your information and details. Also, at part II you click on a + sign to add fields for more accounts. And if you only have bank accounts, anything after part II you can scroll on by to the end, where you click to electronically sign the form, submit it, and then get a chance to download it as a PDF. You get a confirmation page after you submit (I print this, but probably not necessary), and an immediate confirmation email (which I also print).

I wish doing taxes was this easy!

TokyoWart wrote: ↑Mon Apr 19, 2021 11:23 am I do not know the answer to your question but I would doubt it applies. A trust account is one held by a third party on behalf of a beneficiary. That doesn't describe a NISA account to my interpretation because you hold the NISA account and it is in your name at the brokerage firm (the brokerage is a custodian but it is not your trustee). Also, one of the conditions mentioned in that rule is:

Only contributions with respect to income earned from the performance of personal services are permitted.

which is not true of NISA accounts (there's no income requirement to creating or contributing to the account). Again, I don't know the answer for sure but I doubt that this applies to a NISA.

Ah, you are right! That's great. So as long as NISA is considered an ordinary brokerage account and not a foreign trust by the IRS, then reporting it should be fairly straight forward and RP 2020-17 offers no benefit in that case. Do you report the capital gains on the stocks in your NISA account every year or is that only reported when you sell them?

Do you report the capital gains on the stocks in your NISA account every year or is that only reported when you sell them?

Like everywhere else, I only report the capital gain when I sell the stock in a NISA. I've rolled over my NISA's each year so the only time I actually had a transaction to report was when NTT bought DoCoMo and I had to give up the stock.

TokyoWart wrote: ↑Mon Apr 19, 2021 11:40 pm

Do you report the capital gains on the stocks in your NISA account every year or is that only reported when you sell them?

Like everywhere else, I only report the capital gain when I sell the stock in a NISA. I've rolled over my NISA's each year so the only time I actually had a transaction to report was when NTT bought DoCoMo and I had to give up the stock.

That's good to know, thanks. Then I will only report the account on my FBAR until I sell something. I don't think it will ever get large enough to report on FATCA but I'll be keeping an eye on it just in case. My NISA account is already down 4000 yen since opening it on April 1st and I'm expecting a rebound any day now.