IRAs for non-citizens

I received an email from a reader about my earlier post about withdrawals from 401(k) accounts for non-citizens. I mentioned there that if a non-citizen leaves America, he/she should be able to roll over his/her 401(k) balance to an IRA. It turns out that things may be more complicated than that.

This is what I found out about IRAs for non-citizens at leading IRA providers. Since I am a customer of both Vanguard and Fidelity, I just sent emails to their customer service. For others, I have summarized what I found at their websites.

From Vanguard's email response:

Only foreign investors who have permanent residence in the United States and are not considered a nonresident alien (NRA) are able to invest in Vanguard funds.
Now, I opened an IRA with Vanguard back when I was a non-resident alien, so this response puzzled me. I checked their electronic application form, and sure enough, it allows "US citizens, Resident aliens, and Nonresident aliens" to apply. I think their customer service may be a little behind the times.

Fidelity's response was much clearer. They have no problems with non-resident aliens opening IRAs. Regarding distributions, this is what they had to say:

When a non-resident alien takes a distribution from a Fidelity Roth or Traditional IRA account, we will withhold foreign taxes in accordance with the treaty between the US and the country of residence. The highest rate of withholding for foreign taxes is 30%.
This response seems correct, except that it is not "foreign taxes" but federal taxes that are withheld.

T.Rowe Price
T.Rowe Price's application form allows only "US Citizens and US Resident Aliens" to apply. I guess they have no problems if a US Resident Alien who opens an IRA then leaves the country and stops being a Resident Alien.

TD Ameritrade
TD Ameritrade's online application form allows non-resident aliens to apply as long as they specify their "visa type".

E*Trade Financial
E*Trade allows "US residents with a Social Security Number" to open an IRA. This seems to follow IRS's definition of a US resident, so I guess most non-citizens will qualify.

If anybody has additional information about these IRA providers, or about any others, please let me know. I will add the information to this page.

Related links:

Our Net Worth over the years

I was inspired by a fascinating post by S.B. at Retire At 45, where he charts his net worth over the last ten years.

For the record, here is how our net worth has changed over the last 10 years. Like S.B., I have been using Quicken for more than 10 years now, so it was easy to generate this chart.

Some clarifications regarding this chart:

  • The net worth figure does not include cars or any other physical assets except our house.
  • For the house, I have used the value of the house as assessed by our city. In fact, the sudden jumps in our net worth in 2001 and 2005 are partly due to increases in the assessed value of our house.
  • As you can see, we started seriously paying attention to saving and investing only in 2001.
I found the following quote from the post by S.B. very inspiring:
Once the net worth begins to increase significantly, there is a tremendous temptation to alter the original plan and spend a lot of what has been accumulated. This is what all the advertisements and salespeople in life try to entice one to do. But I am sticking with the plan. I think back and remember why I started down this road. It was not to enjoy big houses and luxury vehicles and leather sofas. [But] it was about the freedom to pursue my own goals in life unshackled from the daily grind of earning a paycheck.

Social security: Retirement benefits

While everyone has heard that Social security benefits are subject to change in the coming years, it is important to know how the current plan works.

There are 4 components to social security benefits: retirement benefits for workers, retirement benefits for spouses, disability benefits, and survivor benefits. This post deals only with retirement benefits for workers.

Here are the basics of Social security retirement benefits under the current law:

  • You must have worked a minimum of 10 years to earn any retirement benefits.
  • The benefits are based on the average of the highest 35 years of your earnings, where the earnings in a year cannot exceed the "Social Security Wage Base" limit for each year ($97,500 for 2007).
  • If you worked for less than 35 years, the earnings for each year that you did not work will be counted as zero when calculating the average. (Note: this will have a serious impact for "early" retirees.)
  • To account for inflation, earnings of more than 2 years before the calculation year are indexed upward (using the national wage index) before using in the above calculation.
  • Those born after 1960 will be eligible for full retirement benefits at 67. You are eligible for reduced benefits at 62, but if you opt for this, it will reduce the payment amount for the rest of your life.
  • Payroll withholding for social Security is 6.20% of the gross wages, up to the Social Security Wage Base limit. The employer also contributes the same amount.
  • It is important to note that social security is not an investment program. Rather, it is a pay-as-you-go system that covers payments to current retirees out of the contributions by current workers. There is currently a surplus in the social security trust fund, but this is projected to end in 2018 when baby boomers fully load the system with retireees.
  • Social security is also not a "contractual right"; Congress may pass laws at any time that reduces benefits or suspends eligibility for anyone.

Related posts:
Additional links:
  • This calculator from the social security website provides a quick estimate of social security retirement benefits.
  • Retire At 45 has a good analysis of the impact of early retirement on social security benefits.

Immigrants and Home buying

The real-estate boom in America in the last decade has been attributed to several factors: low interest rates, easy availability of credit, growth of the economy, and so on.

What's not often mentioned is the role that immigrants play in this.
Foreign-born populations have been rising in recent decades, as seen from the following charts.
Immigrants now account for nearly one-third of the nation's total population growth.

According to this article from MSN money, a lot of first-time home buyers during the boom were "immigrants who arrived in the 1990s" and "a lot of the children from the earlier waves of immigration". This is certainly true in my experience. Immigrants typically take 10 to 15 years after their arrival to buy their first homes in the United States. It can take that long to build up their incomes, assets, and familiarity with the US home-buying system.

The article states that young immigrants are much more likely to be homeowners than their native-born peers. One reason may be that immigrants place more importance on home ownership than natives, due to their desire for financial stability. Immigrants are also more likely to have multiple streams of income supporting one mortgage, most likely because many find it hard to afford a mortgage on a single income.

This has interesting implications on the impact of immigration (and immigration policy) on home prices.

On the other hand, the current problems with subprime lending also seems to be linked to poor immigrants buying houses they cannot afford. There is an interesting post at The Digerati Life that explores this more.

Early 401(k) withdrawals for non-citizens

JLP over at AllFinancialMatters has a post where he addresses a question about early withdrawals from a 401(k) plan. The person who asked the question is planning to return to India in a few years, and wonders whether it is worth contributing to his 401(k) plan at work. He stands to gain from the tax-deduction, tax-deferred growth and employer match, but may be subject to taxes and a 10% penalty for early withdrawal.

Concerns of this sort prevent many expatriates and immigrants from taking advantage of the best avenues available for investing for their future. Consider the complications involved in this situation:

  • If the person is a permanent resident (green card holder) when he leaves America, it is easy to address the question of Federal taxes. One can use a phased withdrawal approach to minimize taxes. The idea is to withdraw only enough money each year to reduce the impact of taxes upon withdrawal. It is also possible to reduce the 10% penalty for early withdrawal by rolling over the 401(k) to an IRA and then converting to a Roth IRA, subject to the restrictions for IRA rollover and Roth conversions.
  • However, what may end up costing him more is taxes due in India. India taxes its residents on their worldwide income, and a distribution from an IRA counts as income for him. Depending on his tax bracket in India, this can be quite expensive.
  • On the other hand, India provides a special "semi-resident" status for those who worked abroad and returned to India. When in this status, income from foreign sources, including distributions from retirement plans, are not taxed. Unfortunately, this status lasts only for a few years, so any phased-withdrawal strategy will have only a limited benefit.
  • For most people then, the best strategy may be to just leave their money in the 401(k) account, if this is allowed, or to roll over to an IRA and leave it there until they reach retirement age. Many IRA custodians, such as Vanguard and Fidelity, allow non-citizens to maintain their IRAs even if they are no longer living in the US. Nowadays, it is quite easy to manage these accounts online from anywhere in the world.
  • The above options, however, may not work for someone who is not a permanent resident (i.e. does not have a green card) when he leaves the US. This is because there is a flat 30% federal tax on IRA distributions to non-resident aliens. Even worse, the IRA custodian is required to withhold this 30% when the distribution is made. This harsh penalty may severely limit any benefit gained through tax-deferred growth and employer match on the 401(k) contributions.

This situation illustrates the kind of problems that prevent expatriates and immigrants from planning for their financial future. Faced with the uncertainties, many of them don't bother with their employers' retirement plans at all. This is unfortunate, because most of them end up staying in America longer than they ever planned on, and many never leave. For them, not contributing to the 401(k) would be a huge wasted opportunity.

Related posts:

Social security for Overseas retirees

American citizens who retire abroad are eligible for social security benefits.

Of course, everything about social security is subject to change in the coming years. But it is good to know that overseas retirees are not shortchanged on this (as is the case for Medicare, which I will cover in a separate post).

Here are the important facts about receiving social security payments while living outside the US:
  • If you are a US citizen, you are eligible for social security retirement benefits (provided you have worked for a minimum of 10 years), just as if you stayed in the US.
  • If you are not a US citizen, your eligibility to receive social security benefits depends on which country you are a citizen of. [If you are an Indian citizen, you are eligible to receive benefits provided you have lived in the US for at least 10 years or earned at least 40 credits under the social security system.]
  • Social Security payments may be deposited directly into your account at a US financial institution. This is the most convenient way to receive social security payments. They may also be directly deposited into accounts in some other countries. However, India is not one of them.
  • The Social Security benefits paid to a US citizen outside the US are taxed in the same manner as those paid to a US citizen living in the US. In addition, some foreign governments also tax US Social Security benefits. [Under the Indo-US Double Taxation Avoidance Agreement (DTAA), India does not tax social security payments.]

Related posts:

Related links:
  • AARP's FAQ about receiving social security benefits abroad
  • SSA publication on social security payments outside the US
  • India: Double taxation Avoidance agreements with other countries

My favorite books on Personal finance

Everyone who is interested in personal finance has a set of favorite books. Here is my obligatory list. I will list them in the order that I originally read them.

I believe that books are the best source for information about personal finance, because authors in general have no conflict of interest; their only interest is to sell books. Of course, this excludes people like Robert Kiyosaki who are trying to get you to buy their other products. Most other sources of information, such as planners, websites and magazines, usually have a conflict of interest; they have to please their corporate owners, advertisers or sponsors, so their advice may not be in your best interest.

With that out of the way, here is my list:

I read Personal Finance For Dummiesby Eric Tyson when I was in my early thirties, and remember immediately regretting not having read it in my twenties. It truly is the best and most readable introduction to personal finance ever, and covers a whole range of topics.

I next read The Only Investment Guide You'll Ever Needby Andrew Tobias. Most of it went over my head at the time; this stuff really takes a while to sink in. I never went back and read the book again, but I remember it as a good first book for investors.

My next book The Millionaire Next Door: The Surprising Secrets of America's Wealthyby Thomas J. Stanley and William D. Danko was a revelation. I can honestly say that it changed my thinking about money. Parts of the book are a little dated now, and some of the research methods used by the authors are questionable, but it was really an eye-opener for me.

Your Money or Your Life: Transforming Your Relationship with Money and Achieving Financial Independenceby Joe Dominguez and Vicki Robin was the next significant book I read. It truly is a revolutionary book and I found later that it inspired a lot of people to strive for financial independence. The book has its problems, including a heavy dose of environmentalism and left-wing politics, and extremely conservative investing advice. But its explanation of the true nature and cost of work is indeed profound. I was pleasantly surprised to find that it was named the most popular personal finance book by several bloggers.

I then read the updated edition of The Intelligent Investorby Benjamin Graham with annotations by Jason Zweig. This is a big book, considered the primer on value investing, based on nearly 100 years of US stock market data. Jason Zweig's contemporary updates make the book very readable, although his repeated references to Money magazine articles was annoying after a while.

The only other important investing book I have read is The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Riskby William Bernstein. This is a wonderful book, and covers everything one needs to know to put together a practical portfolio. Bill Bernstein is a physician by profession, but you will never guess that from his book. You will especially like this book if you are at least a bit mathematically inclined.

I will list two more books I have read that are usually recommended by many bloggers. While these books have great material, these books didn't do much for me, since I was familiar with much of their content by the time I read them. Maybe if I had read them earlier, my opinion might have been different. These are A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investingby Burton G. Malkiel and The Bogleheads' Guide to Investingby Taylor Larimore, Mel Lindauer, Michael LeBoeuf, and John C. Bogle.

An investing book I read and liked since I wrote the previous review is The Four Pillars of Investing: Lessons for Building a Winning Portfolioby William Bernstein. This is a comprehensive book about many aspects of investing that all investors should know about. Like Bernstein's other book, this book is especially suitable for those with some analytical background. I would now recommend this book for someone new to the financial world, but has already read an introductory book like the Personal Finance For Dummiesbook.

Net Worth update - March 2007: Up 7.7%

As of the end of last quarter, our Net Worth was $570,651.

Our Net Worth increased by $40,636 (or 7.7%) in this quarter. Of this, $20,216 is new contributions we made to our accounts (including employer match in 401k accounts), $2,495 is from increase in home equity due to mortgage payments we made, and the rest ($17,925) is due to investment income and unrealized gains in our accounts.

Most of our holdings are in tax-deferred retirement accounts. This is intentional, since I want to "front-load" our tax-deferred accounts, so as to make the most of the tax benefits.

It was only a few years ago that we got serious about saving and investing. I will post updates for every quarter from now so that I can track our progress towards accomplishing our goals.

Related links:

India and Dual citizenship

For those considering retirement to another country, the best immigration option is dual citizenship. The catch, of course, is that not many countries allow this.

Countries that allow dual citizenship, such as Australia and the US, allow their citizens to become citizens of other nations. For example, an Australian citizen can become a citizen of the US, while still keeping his or her Australian citizenship.

A common misconception among those who read news in the Indian media is that India now allows dual citizenship. Unfortunately, this is not true. What India does allow (only for people who are Indian by descent) is a status called Overseas Citizen of India (OCI). Note that the word "dual" is missing.

India does not allow dual citizenship, and there doesn't seem to be any plan to allow this in the future either. If you hold an Indian passport and become the citizen of any other country, your Indian passport immediately becomes invalid. Yes, you can then apply for OCI status, but it is not at all the same as being an Indian citizen. It is roughly analogous to a permanent residency status.

Overseas citizens get the following benefits:

1. A lifelong multiple-entry visa for traveling to India.
2. Permission to stay indefinitely in India without having to "report" to any authorities.

For those considering retirement or a long stay in India, OCI is a good status to be in, and I am glad that this option is available.

By the way, one could argue that even the US does not allow dual citizenship. This is because when you become a naturalized American citizen, you are required to take an oath where you renounce your allegiance to all other nations.

Here is the exact text of the relevant portion of the oath:

I hereby declare, on oath, that I absolutely and entirely renounce and abjure all allegiance and fidelity to any foreign prince, potentate, state, or sovereignty of whom or which I have heretofore been a subject or citizen.

So even if India did allow you to keep your Indian passport, it would be difficult to claim with a clear conscience that you are a "dual" citizen when you have formally renounced all allegiance to India.

Related links:

Another reason to retire to India (NOT)

Maxim magazine is not the first place I would look to for retirement planning, but this article titled How to Quit Your Job and Live Like a King lists Manali, India as one of 4 places to "escape the rat race".

Located at the north end of India's famed Kullu valley, the area around Manali features Hindu temples, incredible hiking, and absolutely insane views of the adjoining Himalayan peaks.

According to the article, less than $4K gets you a bed at a local hostel and four meals a day for a whole year.

But what made me chuckle was the following:
Don't bother asking any local expats what brought them to Manali. It's the weed.

Not exactly what I had in mind when I started this blog, but fun to know nevertheless.

Financially smart: The Aroras

Nice profile of an immigrant Indian couple in this Money magazine story. They appear to have their priorities straight, know where they want to go, and have a plan to get there. I wish I had their insights when I was in my twenties.

Financial goals for retirement

My financial goals for our early retirement are to achieve the following by age 50:

  • House paid off
  • College saving account fully funded
  • Taxable accounts: $300K
  • Retirement accounts: $500K
  • Holdings in India: $100K

How did I arrive at these figures?

  • We want to pay off the house before even considering leaving our jobs. We are making early payments on our mortgage to reach this goal.
  • We want to fully find the college account before leaving our jobs as well. I estimate $60K for a 4-year college degree at a public university.
  • The taxable account target of $300K is intended for our early retirement years. This is based on a 4% yearly withdrawal resulting in $1000/month during the first year of our early retirement, with inflation-adjusted increases in subsequent years. This money will be held initially in dollars, but will be partially converted to Indian rupees as we get closer to retirement.
  • The retirement nest egg of $500K is intended to be used after we reach full retirement age. This should allow it to grow tax-deferred for about 15 years before we start withdrawals. This will be held in US dollars, with a significant portion in non-US equities. We should also be eligible for Social security and a pension at the time that we start withdrawing from these accounts.
  • The holdings in India of $100K are intended for initial setup expenses upon moving to India. This is partly in real estate, and the rest in safe fixed-term bank accounts.

All figures are in 2007 dollars. I expect to revise them in the future, depending on rate of inflation, currency exchange rate etc.

Related posts:

Other related links:

Retire-To-India plan

My plan is to consider retirement in two phases.

  • In our early fifties, we hope to have enough savings/investments to allow us to retire to India. For this early retirement phase, we intend to live off our taxable savings, without dipping into our retirement accounts, at a fraction of the cost of a normal retirement in the US.
  • For the regular retirement phase, in our mid-sixties, we will start withdrawals from our tax-deferred accounts. We should also qualify for Social security and Medicare at this age, assuming current rules. We should then really have the option of continuing to live in India, or returning to the US.

Under current conditions, it seems reasonable for us to expect to live on about $1000/month in India during the early retirement phase, not including initial moving and setup expenses. This would require about $300K in taxable accounts (assuming a withdrawal rate of 4%). All figures are in 2007 dollars.

Besides the usual uncertainties of inflation and cost-of-living increases (in both US and India) and investment returns, the other big risk in the above plan is the currency exchange rate. A weak US dollar (or a strong Indian rupee) will be a challenge for this plan, since most of my holdings are currently in US dollars.

I am sure that this plan will require some careful monitoring and tweaking as times goes by. But as they say, having any plan is better than having none at all.

Related posts:

Immigrants and Personal finance

Most of the current discussion about immigrants in America focuses on illegal immigration. Not much attention is paid to the large number of legal, professional immigrants in a variety of fields.

These "first-generation" immigrants come to America looking for better opportunities. They fall into many categories:

  • Many of them enter the country as students and then join the workforce after graduating.
  • Some come here to work on "temporary" visas, but then manage to extend their stay legally.
  • Some have special skills, or are in high-demand fields (like nursing) that allow them to find work even before they arrive in the country.
  • A few are sponsored by siblings and in-laws who are already here, and come over to join the family business, or to find new careers for themselves.
Many of these first-generation immigrants are successful professionals like me, but there are a number of reasons we are at a disadvantage when it comes to planning our financial future.

  • Unlike many native-born (who typically have their parents to advise them on money matters), we have no mentors to help us with the basics of saving and investing money.
  • We lack the financial safety net that many native-born have in their parents and families. "Moving in with the parents" is not an option for us!
  • Some immigrants live for years as expatriates, expecting that they will be returning to their home countries within a few years, even as their stay is extended again and again. They never get around to making any long-term financial plans.
  • Some immigrants spend many years in America with an uncertain future, due to long delays with the immigration and naturalization process. It is tough to save and invest for the future when you don't even know how long you will be able to stay in the country.
  • Many immigrants are ignorant or naive about the importance of financial planning. They are often the first to fall for unscrupulous advisers or financial scams.
  • Many have unrealistic expectations about their income prospects or investment returns, and do not realize the importance of saving/investing early.
  • Many immigrants have to provide financial help to their parents and other family members that they left behind. This can be a significant drain on their finances.
  • Finally, unlike many native-born, we generally receive little or no inheritance from our parents.
On the upside, things are not all that bad:
  • Many native-born are in the same boat as us, since most parents in America do not teach their children about managing their finances.
  • Immigrants usually come from cultures with strong work ethics, and have a better appreciation for the notion of saving for a rainy day.
  • In spite of all the challenges, many immigrants do succeed remarkably in accumulating wealth, both as entrepreneurs and professionals.

Why retire in India?

Why do we want to retire in India?

There are two parts to my answer. The first is that my wife and I want to retire early. More precisely, we want to be financially independent, and free to do what we want to do, without being tied down to our corporate jobs.

The second part is driven by the fact that traditional estimates for the amount of money needed to retire early in the US tell us that we have a very slim chance of achieving this in my early fifties. Our best bet is to consider moving, at least temporarily, in our retirement to a low-cost country where our savings will take us farther.

The obvious choice for me is India, since it is the country of my birth, and the country I know best after the US. This may seem somewhat ironic, because I emigrated from India in my early twenties to the US looking for better opportunities. I indeed found them in the US, and I am very happy to be living in America. But somehow, spending some or all of our retirement years in India seems like the right thing to do.

Why? Let me list some specifics:

  • Incomes in the US are still among the world's highest. America is a great place to live and work when you are young and healthy. Once you stop working, however, it starts to look less attractive, financially speaking. Without a high income to offset the expenses, you are going to need a considerable nest egg to support a comfortable retirement.
  • India on the other hand is a bargain for those with a modest amount in retirement savings. In many places in India currently, a retired couple can live quite well on $1000 a month. Thanks to the bigger labor pool, it is easy to find household and other help in India. This is especially of importance to retirees.
  • Health care is quite affordable in India, compared to the outrageously high prices in the US. The quality of care of course is not the same, but this is something you can control when you pick a place to retire. Long-term care (nursing home care), too, is quite affordable in India.
  • Most of my (and my wife's) extended family is in India, and this will give us a chance to be in touch with them like we have never been able to do in my adult life. However, our desire to retire in India is not primarily driven by a desire to "return" to India. For example, we have no desire to work or raise children in India.

Related posts:


I am Nigel, a fortysomething engineer living in the US. I am a first-generation immigrant and a naturalized US citizen.

I started this site to organize information related to planning for my retirement. At this point, I am not sure about what our eventual retirement plans would be. My initial estimates of the amount needed for retiring in the US, coupled with my desire for early retirement, lead me to believe that "Retiring to India" may be my best option.

This is going to be a collection of articles about the numerous topics relevant to retirement planning, especially for someone thinking of retiring overseas. I hope to keep the artilcles up-to-date as I learn more about each topic.

I hope that this will be useful to anyone considering spending all or part of their retirement abroad.

Comments? Thoughts? Please write me using the link on the main page.