common sense finance pointers for us based nris
What kinds of financial information do you need to know when you move to the USA as an NRI? If you reside in the USA already, maybe you feel you’re not up-to-date on all the legal and tax implications of your financial life. In either case, read these tips that can keep you out of trouble and make your life easier.
Despite the extra expense, you may want to start identifying and finding good advisors to help you. It is often cheaper to spend the money on a good tax/financial advisor up front than to pay later to try and get you out of trouble. Knowing the rules and laws is vital since “I didn’t know” is not a valid defense in front of the IRS (USA Internal Revenue Service: The US tax authority). The IRS is far stricter than the Indian Tax Authorities and can land you in prison or issue stiff fines. Tax laws and financial matters also change regularly so stay informed or work with someone who is.
a. Understand your Social Security benefits
If you are working in the USA and paying into the Social Security system, then you may have rights to this money later. Usually working for 40 quarters, or 10 years, qualifies someone to receive social security benefits. This may translate into: retirement benefits, benefits in case of disability, and/or benefits to dependents in case of death. Click here to go to the Social Security Webpage.
b. Be properly insured: e.g. home/apartment (whether you rent or own), automobile, life, disability, medical and dental;
c. Have an emergency fund in cash to cover at least 6 months of expenses (savings account or money market);
d. Keep and follow a budget
e. Know your credit score and keep it up to date and clean, You’re entitled to free credit reports at least once a year;
f. Fund retirement first, education of kids 2nd
g. Consider contributing to a Roth and/or Traditional IRA every year for you (if appropriate) and your spouse, especially if non-working;
h. Consider maxing out your 401K
This gives you tax deferment in the USA and usually entitles you to an employer contribution. Not using it is like giving away free money. You will not lose the money if you move to India later. Make sure your 401K is properly allocated in a risk-appropriate, diversified manner. You may need a professional to guide you;
i. Don’t forget to take your RMD after age 70.5
If you leave your money in a 401k in the USA, don’t forget to take Required Minimum Distributions at the appropriate age, e.g. in the year following when you turn age 70.5. You can avoid these issues in several ways by converting your 401K to a Roth 401k, or annuitizing your IRA. The penalties are high for not taking RMD. If your RMD is $50,000 one year and you don’t take it, the penalty is 50%, e.g. $25,000.