Ep 56: Financial Planning Challenges In The Cross-border Space
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In this guest episode, Belle Osvath, CFP, and I discuss the financial challenges immigrants and foreign nationals on work visas face in the U.S.
I was a guest on the Smarter Planner Podcast hosted by Belle. The conversation was so good that, with her permission, we are letting you, our audience, have a listen.
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Belle Osvath, CFP (00:00)
Welcome back to the Smarter Planner Podcast.
I'm your host, Belle Osvath
This is an episode you won't want to miss, so stay tuned and you're sure to become a Smarter Planner.
Today, I'm speaking with Jane Mepham, CFP and founder of Elgon Financial Advisors, which specializes in helping high-earning immigrants and foreign nationals make the most of their financial resources. She is also co-host of the International Money Cafe podcast, which focuses on cross-border finances, taxes, and compliance. Jane, thank you for being here.
Jane Mepham, CFP (01:16)
Thank you for that lovely welcome.
Belle Osvath, CFP (01:18)
So you're here to talk about planning for people with roots outside of America, which is a rather large demographic. Can you talk about that group of people and how they're different than those of us who are maybe more rooted here?
Jane Mepham, CFP (01:34)
Excellent. And that's a great question to start with. Stats show that there's about maybe close to 50 million people in the U.S. who were born outside. And all these people are at different stages of what I like to call their immigrant journey. So you have people that came here, they're now naturalized citizens. So they probably have citizenships from two countries or in their country doesn't allow dual citizenship.
They've already lost their home country citizenship, but they still have assets in family back home. And then you have the second group, which came here on what we call immigrant visas. An immigrant visa allows you to become a permanent resident, commonly known as a green card. You can then decide if you want to become a citizen and that's another part of your journey. And then you have the third group, which I work a lot with. These are people who've come to the U S on non-immigrant work visas. So let's say H1Bs, O1s, E3s, those kind of visas.
And with this group, the intent is, according to the law, is that they're only here for a while and then they'll go back. But based on the visa that you're on, you could become a green card holder. And again, that's a whole list of processes that you need to go through. Does that answer your question?
Belle Osvath, CFP (02:56)
Yeah, and as you're speaking, it really made me think there has got to be a totally different approach to financial planning with these people because it's a big question mark whether they're going to stay. Whether or not they'll keep accounts here. Are they sending money back home? Basic things like banking have to be a little bit more complex because of how long have they been here? Where are their paychecks going? mean, just even the basics seem like for me, I'm like, I don't even know how any of that stuff works.
Jane Mepham, CFP (03:24)
Right. That's a question that I deal with all the time. Part of it is I've been on the same journey. So these are questions that I've dealt with. I was once on the H-1B visa. My spouse was on an L-1 visa from a different country. So we've kind of dealt with all that. And as we went through the process, what I realized is there's a lot of us in this situation and people don't know where to start.
Now, a big part of it is you also have those that came to the US on student visas who end up on the work visa. that's like, I guess it's all part of the same group. Let's just talk about like non-immigrant visas to start with. They may have come here, most likely came here as students. That means they're probably like college students. So their values are already all formed, their cultural background. Most of them are most likely first generation, like
Okay, we're sending you Jane to America, go pursue your American dream. And then of course, we expect you to help us back. And that's the cultural stuff that I talk about. And then you have those are the ones that came here straight from their home countries on the immigrant visas. The age range is usually like 25 to maybe 50. So that really is the time when they probably are making the most amount of money, but also when they have a lot of...transitions. And so you're right, there's a whole lot that goes into it. And then of course, you put them into a whole new financial system. And so I tend to do a lot of education when I start working with these people just to explain, okay, I know where you're coming from. I know what they call it back home. It's not really what we call it. So a lot of education before we can even figure out the complexities of the financial situation.
Belle Osvath, CFP (05:10)
Yeah, I can imagine this has got to be a lot for someone to navigate. Not only are you changing countries, but you're changing the entire financial system. Do most people find you right at the beginning or are they already having trouble by the time you start working with them? You could probably get so far and then especially when it comes to any kind of tax planning or retirement savings like that has to be a big question mark.
Jane Mepham, CFP (05:32)
When I started out initially, most people found me after they'd already been here. The other thing that tends to happen is when people are thinking about coming here, finances and taxes is the last thing they're thinking about. It's more, okay, I got a job. Where am I going to live? Apartment? I don't know. I've had about credit cards and that type of thing. But lately people have started finding me before they get here.
And that really is the best option. If you find me, we'll do an educational session before you even get here. And that will make such a huge difference. So I think just talking a lot more about it is the ideal situation is find me before you get here. But if not, okay, once you get here, find me and we'll go from there.
Belle Osvath, CFP (06:23)
Do you collaborate with other advisors who maybe have clients they've been working with, that they've been managing the money, but then when it comes to actually doing planning, it's a different ball game because these people aren't planning to stay here or if they are planning, it's more tentative or they're sending money home. How do you interact with other advisors that are dealing with these problems?
Jane Mepham, CFP (06:43)
I was just at the XYPN, live conference this past weekend. I gave a presentation with Arielle Tucker. She's a cross border planner like me, but she's based overseas. And what was so interesting about our session was she's talking more about people that have already left the U S you know, U S likes paths outside, which is what she's doing.
And I'm talking more about people coming in to the country and what we explained to the group and I think that was probably one of the major takeaways is if you're not sure, let's put it that way, of how to deal with some of this, the best thing to do is reach out to a cross border planner. It'll probably save you hours and hours of research and you're sure you're going to find the right information. So to your point, I do this a lot where people will reach out and say, okay, this is the current situation. I try to be as active as I can, but not always on like, you know, the FPA boards, the XYPN and Facebook groups, just answering questions from advisors. I'm also a member of a couple different networks that just work with cross boarder planners and it really helps because you can bring all these questions to the group and maybe somebody else has.
worked with a situation like that, or you can help each other out. But it really is a space where I think advice that collaboration is so, so key because on top of that, you have all these other professionals that we want to work with in the space.
I have great relationships with a lot of immigration lawyers, cross-border planners, because every one of these situations probably needs a different set of skill sets, which I'm usually the first person to say, I don't have that, but let's hope so and so, they might be able to help.
Belle Osvath, CFP (08:35)
I think you're right. mean, it's got to be different for every country, right? How they do things with their banking and, and, especially. Can you give me an example of someone that you've helped navigate taxes?
Jane Mepham, CFP (08:43)
Think of a country, and I'll come to a specific example where they call a checking account. They don't call it a checking account. Even where I come from, I'm from Kenya. We call it a current account. Just that alone is already a huge difference. Or the financial system is so different.
They don't trust the system. And so they're coming in here with the same mindset. And so you have to start by educating them to understand this is a different system. Some of the clients that I work with, thinking I recently concluded ⁓ an engagement with somebody from Mexico, very different system, even though we're sort of close to each other.
Whatever products they have, and we probably can't talk about that, some of them are not suitable. And I'll explain what I mean for somebody who's a tax resident here.
Pretty much almost all my clients, and not everybody is an immigrant, but all the ones that are coming from different countries, we're dealing with ⁓ a lot of those issues, just the language, me doing a lot of education around what things are called over there and what it means here and how do we bridge the two.
Belle Osvath, CFP (10:01)
What about when it comes to retirement accounts? Because if you put money in an IRA here or ROTH IRA
Jane Mepham, CFP (10:06)
I'm dealing with that right now. What I've said to other advisors, all these things we have in the US are really designed to work in the US within the US tax code. And if you think of it that way, it makes life a lot easier when we start moving outside. So that's the first thing.
So you got HSAs, ROTH IRAs accounts. All those accounts are meant for people who are going to retire in the US. So that's the first thing.
I actually did a Kitces article on this. Okay, now you're here, let's say on H1B visa. These visas are not meant to be permanent. You could switch to a green card for it to become permanent. So technically, like the H1B visa, let's say after six years, you need to leave. These six years you're here, you really want to be saving, obviously, because it's probably some of your best earning years.
And so from there you then leave. And what I've seen is you take all the things you had in the U S and you take them out and kind of expect that your home country tax code is going to treat them the same way it does it.
So here's the crux of the matter. The U S taxes you on worldwide income. Once you become a U S tax resident, it doesn't matter, what you have elsewhere, you could have things in your country, on the moon, some planet, the US wants to tax you on that and they will tax you on that. Yeah, they really want to know what's happening out there. And I said to people, don't try to hide because in 2010, they signed these through the FATCA, which kind of forces other countries' banks to sort of report.
Jane Mepham, CFP (12:04)
back on you or to report to the US, but as they have the belong to US tax residents. So that's the first thing. Okay. Now you're here, you know, you're reporting on everything you now leave. Let's say for example, which is a case I'm dealing with, you go back to India. India looks at your situation and says, great. We're so happy to have you back. What overseas assets do you have? And, you've got a ROTH account. don't know what a ROTH account is as far as we are concerned.
This is just a taxable account. And so we're going to start taxing you on that. So there's a huge mismatch at that point because you were saving thinking this thing will be tax free and the US is looking at it as being tax free. So we don't need to track basis and all that stuff.
And India says, ⁓ we need to tax you on that. So that's the first thing I'll always say. We need to think about the accounts you're saving me and where you're going to be when you use these accounts. Now, when it comes to specifically, let's say IRAs and 401ks, there are tax treaties.
Hopefully it's about maybe 70 something or tax treaties between the countries that at least would say, okay, this is a pension in the U.S. Okay, you people in India, for example, you can treat it as a pension as well.
In at least a few of them will recognize retirement accounts.
Now, if there's tax treaty between the two countries, again, let's use India as an example, your 401k, the US of course wants to tax that because it's a 401k. If you've left, they'll tax you at like 30%. It doesn't matter what technically your tax rate would have been. If there's a tax treaty, then that gets modified to something like 15%.
But you're still paying taxes, but hopefully, not as much as it would have been without the tax treaty. So it's important that we know where you're going to be moving to, you're likely to be moving to, before we talk about what to invest in.
Belle Osvath, CFP (14:15)
If you leave this country and you no longer have a US mailing address, don't most broker-dealers not want to service your account?
Jane Mepham, CFP (14:23)
Yes, it's true. Because of FATCA, once again, a lot of custodians, you're right, don't want to deal with people that have put a foreign address on the account. And you really should put a foreign address on it because you're no longer a tax resident. So these two types of people, those that were here on temporary visas, you're now considered ⁓ an NRI non-resident alien or a US expat that's moved overseas.
What you need to do is before you leave, find a brokerage that allows you to put a foreign address on your account and most likely move your money to that firm. That's what it comes down to.
Belle Osvath, CFP (15:06)
You've found that people coming from other countries have a different view on what assets they want to invest in. Their risk tolerance is different or are they less interested in investing and they're more one physical assets? What have you seen?
Jane Mepham, CFP (15:20)
It's a little bit of a mixed bag. Like if I think of myself that moved 3000 miles to a brand new country, we're most likely going to have a higher risk tolerance if you think of how we define it here, right? And so I find a lot of the people that come on like some of those temporary visas, their risk appetite tends to be a little bit high.
And I know this is a generalization and they're also very interested in a lot of them. A lot are trying to pursue FIRE, the FIRE movement. So they'll talk a lot about other assets. Real estate seems to be a big one, like passive income, for whatever reason, a lot of people think passive income, they think real estate. And then depending on where they're coming from, there's also a huge appetite to invest home, whenever home is. if I'm thinking, again, let's use India as an example. If you came here on the H-1B visa.
And let's say you really want to get the green card, your company can apply for that green card for you. But right now it's going to take you 20, 30 years if you're lucky to get that green card. So a lot of people will look and say, you know what, I'm not going to wait. So I'm just going to do as much as I can here, invest home and off we go.
So I've seen, I'd say the risk tolerance tends to be a lot higher. They really want to explore other options, but of course you still have to think about the visa status before you get into this. So this was a lot of education around you need to be thinking about these things if you're not going to be here the next five, 10 years.
And then when they go home, and again, I'm using home as your home coming from, it's, I think a lot of rental property. They also want to invest in their stock markets back home. And that's where we really have to have a conversation like, as a US advisor, I can't really advise you on what to invest over there, but I do want to caution you that there's some things you may not want to invest in just because of the tax implications.
Because as long as you're in the US, we're very interested and we want to know everything about what you're doing with your money outside.
Belle Osvath, CFP (17:37)
I had never thought about the fact that people who come over here are already higher risk because they took the risk to come. So they're sort of self-selecting. That's such a good point that I had never really put two and two together, but it makes perfect sense.
Jane Mepham, CFP (17:52)
Yeah, you're willing to leave everything. It's like, what's the worst that can happen? When somebody comes over, like our first conversation, I now bring it up, whether they're going to become a client or not. And at last, do you have assets invested overseas? And if they do, I'm like, I really would just like for us to talk about it.
Because what happens is once you become a U.S. tax resident and you're supposed to report everything overseas, If you have, let's say there's something called the PFIC, but if you have accounts more than 10 K, just one day, it's 10 K plus, you need to report that. There's no tax and precautions, but you need to record it. If you're invested in, let's say mutual funds, stocks, know, anything else, you need to report that on a different form. And that's actually tax. And then if you're invested in foreign registered mutual funds, which are the worst,
They fall into something called a PIFIC, which stands for Passive Foreign Investment Company. In the US, taxes that so, so badly, that's the only way to put it. You could end up paying up to like 50 % of when you get into that account, whether it's recognized or not. And so what we'll say to people is I just want to make sure I educate you on this.
If you have this kind of assets, you may have to sell them or just deal with having to file taxes on these things, which is not fun. ⁓ IRS says it takes 25 hours to do what's called an 8621 form for one of these mutual funds. So just want to let you know, this is what it is. We can find a cross boarder, a planner that will help. ⁓ But I also know they're probably not very keen because you need to charge them appropriately for that kind of money. ⁓ So that's something I caution people about.
We definitely...want to look at what you have in. If you haven't been filing, if you're talking to me after you've been here for a while, IRS has actually created what are called streamlined filing process. Cause I think they know people don't know that allow you to come into compliance with some of these things. So that's always a good one to bring to people's attention.
Belle Osvath, CFP (20:09)
That's a really good point. Can you talk a little bit about your podcast, The International Money
Jane Mepham, CFP (20:13)
Sure. So the International Money Cafe podcast, I do it with a Cross-border EA, she's become a really good friend now, my cross border tax professional, her name is Manasa. And the way the podcast started was we used to meet every Friday and just talk about these things, know, this cross border ideas, cases and things like that.
And one time we were like, why don't we just record this stuff? And so we started recording it. So it really is a coffee chat.
And so within the podcast, we'll talk about, you know, finances, obviously, taxes, all looked at through your immigration lenses. And then we're both immigrants. So we're here and actually we both become citizens. So we'll also talk about our lived experiences, what it means to move to the US, to another country, and what are some of the things that we see.
So it's a fun podcast, but we also address very serious issues, I said, all the tough things that you can think about, ⁓ and just life in the US. And from what we've been told, it's a good resource, not only for our end consumers, which is who we were thinking about, but also other planners who are interested in the subject. It's a fun one. Everybody should check it out, www.theimcafe.com.
Belle Osvath, CFP (21:32)
One question that I was thinking about. Right now, we have a lot of policy changes going on in our government. Are you seeing that trickle down, that uncertainty around these policies? Is that trickling down to your clients? Is it something that's more set in law and you feel like it's going to be a gradual change? How are you viewing the changes?
Jane Mepham, CFP (21:52)
It's very stressful because things are changing. People panic. Actually had somebody reach out from me back home saying, are you okay? Do you have to leave? So you can see the miscommunication that happened even to the people outside. So the people here, because nothing was clarified at that point, another part of that announcement also indicated when you come into the country, we'll need to see the stamp to show that you've actually paid the fee.
It wasn't explained who these impacts people who were on their way out, literally on which one H-1B visas turned around to come back to the country. People who were like in India, literally cut short their trips to come back. So that's a kind of anxiety that we're talking about. So with all this going out, people are afraid.
I spoke to somebody the other day. And it was, it was so sad because I know they're here on the H1B visa and they said to me, Jane, I'm afraid to leave the house. It would be nice if this was communicated nicely.
And I know immigration lawyers are doing all they can. The other Saturday. I think I was on LinkedIn a lot, and it was like every 30 minutes, there was a new update. Here's a new update. ⁓ it doesn't affect everybody. Okay. It affects only these people.
But then, when you come into the country, you don't know, who you're going to find at the airport, know, check. So there's a lot of anxiety for sure.
And that does not bode well for people's livelihoods and their psychology. So what I'm also seeing a lot of is people saying, we're not sure about this. So I think we're just going to plan to leave. And so, we've had a lot of those conversations with Manasa, and what we ended up doing was actually creating a checklist.
For anybody who's on a work visa that's thinking I need to go, because we can't talk to everybody. they go to theimcafe.com store. We have a 52 page checklist to help them plan their departure, what to do with like what you were talking about addresses, accounts. What do I do with my house? know, what do I do with whatever the case may be? So I'm definitely seeing a lot of that.
Belle Osvath, CFP (24:18)
have one question, the same question I ask everybody. What is the one thing you think financial planners should know, but don't?
Jane Mepham, CFP (24:25)
I'm going to talk about again, cross border planning and this was reinforced at the XYPN live conference. When you have a cross-border client or a client with roots in other countries, planning is not usual. There's so much more you need to consider, not only their cultural background, which I think is huge, but also the technical aspects of the country, their immigration status.
Where they wanna be when they retire because that's always completely different. And of course, their whole situation. So the best thing I say is find another cross-border planner, have a quick chat with them and hopefully they'll be able to guide you in the right direction. But I think if you do that, you have a shot at getting this thing right for the client.
Belle Osvath, CFP (25:10)
Well, thank you so much. That's an excellent answer. If people want to find you, they can find you on LinkedIn and at your website, which is...
Jane Mepham, CFP (25:18)
Elgonfa.com or LinkedIn or they can also find a podcast on the imcafe.com.
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The speakers' views and opinions discussed in this episode should not be considered financial, tax, or legal advice. Consult your advisor for any legal, cross-border tax, and financial advice.