US IRAs

[neversay]

Any US investors here?

We live in the UK but my wife from the US has a couple of old policies (circa £10k each, with a provider called American Portfolios) back in the US that seem to be being eaten away by charges.

OPPENHEIMER INTERNATIONAL SMALL COMPANIES (OSMAX) in an IRA
OPPENHEIMER INTL GROWTH A (OIGAX) in what seems to be a regular account

To be honest, I don't know where to start on knowing what to do with these. Can anyone give me any pointers?

Many thanks,

N.

[Lootman]

First, IRA's are not "polices" per se, in the sense that word is usually used, i.e. an insurance product. An IRA is an individual retirement account, something like a SIPP in the UK.

In some cases the IRA is held directly with a fund manager, such as Oppenheimer might. In other cases there is an IRA administrator or broker, who then selects underlying funds from a variety of fund managers, and of course gets a commission of some sort for doing so.

So I'm not surprised this is expensive as you have two layers of charges going on.

For an IRA, any holder is entitled to switch provider, and I'd have your wife switch to a low-cost IRA provider like Vanguard US. Vanguard would handle the switch so you'd only need to contact them and they'd be happy to do everything necessary, assuming that it meets their minima. You should not just close that account as then you lose the tax shelter, and have to pay tax plus an early withdrawal penalty of 10%.

If the other fund is taxable, I'd either sell it and close the account. Or, again, switch to Vanguard US. Either way, there would be a tax liability.

[TedSwippet]

Amplifying on what lootman wrote...

For the taxable holding, the UK tax reporting, forex and other hassles will very likely make this into a millstone investment. Unless this is a 'UK reporting status' fund -- not terribly likely -- capital gains are taxed in the UK at income tax rates. Best sold now, and bring the money to the UK, but read to the end for what to do next with the cash.

For the IRA, a transfer to a new IRA at Vanguard would be a great idea if doable. Vanguard are however reluctant these days to open new accounts for non-US residents, so may flat out refuse. Charles Schwab has a UK presence and is apparently a bit less picky. Or perhaps Interactive Brokers. Or in the worst case maybe your wife could access the 'brokerage' option at American Portfolios and switch here IRA holding there to one or more Vanguard ETFs. That will significantly reduce the fund charges. I don't know what American Portfolios lards on top, though; they seem a bit opaque in that regard (not a particularly good sign).

Now, your wife's tax situation. Is she a US citizen or green card holder? If yes, read on.

If she is a US citizen then your wife is going to have a difficult time investing in the UK. Thanks to a nasty US tax law known as FATCA, quite a few UK banks, brokers and platforms simply outright refuse accounts for US citizens, even where they live in the UK (and are perhaps also UK or EU citizens). Because the US taxes its citizens no matter where they live, with every investment she holds might have to thread the needle of two at times conflicting tax regimes. For her, UK OEICs and ETFs could be problematic due to US tax laws. US capital gains taxes kick in well before UK ones would. The US can charge capital gains on sale of residential primary home. Phantom currency gains across the USD/GBP become taxable to the US. Pension saving and contributions become problematic. And so on and on and on.

So... you might have some decisions to make around this also. One solution is for you (assuming you're not a US citizen) to hold all the assets and do all the investing for the pair of you; that way you cut the IRS out of your lives to the maximum extent. US citizens can hold some Vanguard US ETFs without running into UK 'reporting status' issues, but the intersection of what is okay for both tax regimes is slender.

[neversay]

@Lootman/@Tedswippet - I am very grateful for your helpful replies. I will investigate the sale and Vanguard transfer options as you kindly suggest.

@Tedswippet - your further observations have also made me realise that I haven't been paying enough attention to the US-UK tax option. My wife has dual nationality but most of our assets are here in the UK with the majority registered in my name. She completes a US tax return and we bank with HSBC here but do keep a presence in the US with a Chase account in joint names and a very small trading account with TD Ameritrade (all linked to her father's US address). There are no current plans to move back to the US but we want to keep our options open.

It seems that I need to do a lot of homework, so your pointers are sincerely appreciated.

N.

(PS apologies for my delayed reply as my work/travel situation means I can only log-in to LF infrequently)