Case study: Overseas Edition

[squaredroot]

Case Study for First Time Attending – Overseas Edition

 

First of all, thanks to all of you for helping us get financially educated! It has been a great guide to help up shore up our finances.

 

As I start my journey into “attendinghood” (2 weeks from now) would like to have a financial checkup in regard to our current situation. Wanted to do present a case study analysis which I plan to keep updating regarding our financial picture. I will talk a little about our “overseas” situation below.

 

A little about us, DINK, both physicians with DW beginning 3-year fellowship. We are currently renting in a HCOL and both have W2s.

 

Here are the details:

 

Age: 29 Him, 29 Her

 

Emergency Fund: $12,000 (three months of living expenses)

 

Debt: $150K student loans at 6.8% to refinance soon (thanks WCI!)

 

Tax Filing Status: Married Filing Jointly, no kids

 

Tax Rate(Est.): 25% Federal, ~6% State, ~8% FICA

 

Desired Asset Allocation: 90/10 (BG -three fund portfolio)

 

Assets:

 

Taxable: $50k

 

66% Vanguard Total Stock Market (VTSMX)

 

26% Vanguard Total World Stock Market (VTWSX)

 

8% Vanguard Total Bond Stock Market (VBMFX)

 

Plan Flowchart:

 

1. Max out 403b/457/Roth/HSA


2. Payoff Loans within 3 years


3. Donor Advised Fund


4. 25% Downpayment for home


5. Taxable Account


6. 5-0.7 FTE in 2027 (10 years from now)

 

So, here’s the situation. We plan on moving overseas in the next 8-10 years where we will not be having USA income. It will be a significantly LCOL place and there we will continue working. However, we can only contribute to a taxable account at this point. This is the tricky part in terms of what to do for our retirement accounts. Would really appreciate the input.

 

Questions

 

1. Should we roll over 403b/457/Roth to a single account for simplicity once we’re overseas or let it keep compounding in their separate accounts? Should I weigh my contributions more to a taxable since it will become the bulk of my portfolio?

 

2. In terms of retirement planning, what does the tax implication mean for withdrawal for the retirement accounts overseas? Is it taxed as a 15% capital gains tax?

 

3. Is it advisable to contribute to an HSA if I’m going overseas? I will essentially have 8-10 years of contributions but I’m not sure if I can withdraw them afterwards.

 

4. We plan on pursuing a 0.5-0.7 FTE (thanks POF for the 4 physicians post) in 10 years, do the standard Montecarlo sims, SWR scenarios apply to someone who is overseas?

 

 

Thanks so much for your help and extremely grateful for helping us in the right direction. We are humbly open to suggestions or ideas. Looking forward to going to the financial literacy conference!

 

 

 

 

[Hatton]

Are you planning to renounce your us citizenship?  The money in your taxable account will taxed as a capital gain or deducted if a loss.  Dividends will be taxed favorably as well. if you keep your earned income low enough you pay no taxes on dividends or capital gains.  Physician on Fire has posted about this as have go curry cracker.  What country are we talking about.  The 4 physician assumptions would vary with the cost of living in different countries.

[squaredroot]

We are planning on Puerto Rico. Given it is a territory, it does not qualify for federal income tax.

 

So hypothetically speaking, I would file a US tax return from PR stating that my income is 0 since it is not taxable and there would be no taxes on dividend or capital gains?

 

Will definitely check the POF and the gocurrycracker posts

 

Thanks for the info!

[G]

I'm in the airport on my way home from Puerto Rico! I talked to a lot of locals, they are going to love having two doctors move there! The general consensus from the folks i chatted with is that the status quo is nonviable...hard to tell what the tax/nationality status will be. Honestly if you guys are living on 4k/mo (based on what you said about your e-fund and hopefully continue for a couple more years?) and only have 150k debt, with a double MD income, you're gonna be fine tuning a stellar situation in 2027. Might be a fun academic exercise of comparing 1) a high tax state, 2) low tax state (altho I bet this is the least likely), 3) status quo, 4) well off Latin America nation (Costa Rica) , and 5) less well off Latin America nation (Nicaragua).

Good luck and be sure to post an update in 11 years!

[DSM]

Few questions and suggestions:

Why Vanguard Total World Stock Market (VTWSX)? It has 55% US stocks which you already have via VTSMX? VTWSX also has a higher expense ratio. I would rather recommend Vanguard total international stock market.

You can do value/small cap tilt also if you plan to hold the asset longer.

Most people prefer muni bond(federal tax exempt) in a taxable account rather than total bond market fund.

[squaredroot]

G - PR is great! And I must agree that the whole nationality status is still up in the air, which it has been since the 1950's. For us that doesn't impact our moving decision too much.

As for the "academic study", for which I could gather in the IRS and the "Hacienda" Department of PR:

1. One of the highest marginally tax brackets in the US (no married deductions, limited itemized deductions, around 11)

2. 11.5% Sales Tax

3. 6.2% SS, 1.45% Medicare (if employed)

4. Filing Status: No federal state tax, but total tax rate similar to a State + Federal in the US

For which I can gather that we would be in choice A (high tax rate) scenario. What is interesting was how would the retirement planning (drawdown of funds) occur with two parallel but never intersecting tax systems. It would seem that my US earned income will drop to a 0 after 10 years which could offer flexibility in terms of drawdown for retirement?

 

DSM - Great suggestions and insight, will definitely change to International! Was also thinking of tilting towards small caps, definitely on our investing horizon.

Thanks for the help and will keep you posted!