X and Y Advisors, Inc.
Jiyao Xu is a fee-only financial planner located in Los Angeles, CA and serving clients across the country via virtual meeting. He established X and Y Advisors, Inc. to make high-quality financial planning services available and affordable to young Chinese professionals living in the United States.
After one year of experience with KPMG China, Jiyao realized that corporate finance is not his interest. In 2012, he came to Los Angeles to join his beloved wife, Vivianna, and study Personal Financial Planning. While taking different courses at UCLA, Jiyao managed to pass the CFP® exam and all three levels of CFA programs. He also went through the real estate broker education program and then worked for a local wealth management firm for several years. With what he has gone through, he understands the needs and concern of the young professionals living in the U.S.
From his professional experience serving high-net-worth individuals, Jiyao realizes that there are so many financial planning strategies that could be applied and may even create relatively more value to young professionals. Therefore, he decided to establish X and Y Advisors, Inc. and share his knowledge to help more people and families.
The key to your question here is to understand how Amortization works. For a fixed 30-year mortgage, your mortgage payment consists of both interest payment and principal payment every month. Even though the total monthly payment amount is the same, the portion of the interest and principal payment are different each month. In general, the portion of the interest payment is the largest in the first month and then keeps decreasing over time. On the other hand, the portion of your principal payment is the smallest in the first month and then keeps increasing over time. There are many amortization calculators like this online. You could simply put your information in and find out how much interest you are currently paying from the amortization schedule.
The point here is that since you are in the 28th year of a 30 year mortgage, the interest portion of your monthly payment should be really small. The majority part of your payment now is paying back your principle. In other words, you should use your actual interest payment rather than the 4.05% interest rate when you compare it to other investments.
It is very hard to give you a definite answer without knowing your overall financial situation like income, expenses, other investments, and debts, etc. Based on the limited information here, you are probably better off to keep paying the regular mortgage payment and invest the additional cash into a well-diversified portfolio based on your risk tolerance and investment objectives. In addition, even though paying off the mortgage may not make sense from the financial perspective, you may feel a lot better emotionally when you are finally free of debts. You should make your decision based on your specific situation. And don't forget to keep enough money in your emergency fund. Hope it helps.
If the cash is simply your savings not your income in India, it is not considered income for U.S. tax purposes. If it comes from a gift or bequest from a foreign source, you just need to report it on Form 3520 if it is over $100,000 from an individual or estate or $15,797 from a foreign entity.
The U.S. persons are not only taxed on worldwide income but also are subject to certain foregin assets reporting requirements. For your case, if the money in all your financial accounts in India is over $10,000 at any time during the year, you may need to file FinCEN Form 114. If it is over $50,000 (for individual or married filing separately) / $100,000 (for married filing jointly) on the last day of the tax year or more than $75,000 / $150,000 at any time during the tax year, you may also need to file Form 8938. This may not apply to your case, but if you have some investments like mutual funds, you may also need to file Form 8621 which is usually complicated and time-consuming.
Based on the limited information you provide, I can only give you some general guidance here. I always recommend you to consult a tax professional for your specific situation.
There are a couple of different estate tax ramifications associated with a surviving non-U.S. citizen spouse.
1. According to the IRS, "the Unlimited Marital Deduction is generally not available for property passing to a surviving spouse who is not a United States citizen." In other words, all the gifts you received from your spouse, which are over annual gift exclusion amount to a non-U.S. citizen ($149,000 for 2017) every year, plus his/her estate will be subject to the total applicable exclusion amount ($5,490,000 for 2017).
2. The Deceased Spousal Unused Exclusion election is also generally not available to a surviving spouse who is not a U.S. citizen. In other words, if the estate is below the total applicable exclusion amount ($5,490,000 for 2017), any remaining exclusion amount is not portable to you.
3. In general, if the decedent owned property with a surviving spouse who is not a U.S. citizen, the total value of that property will be included in the estate unless you can prove the extent, origin, and nature of your interest in the property.
Two ways may help you avoid the ramifications mentioned above.
1. Become a U.S. citizen before the estate tax return due (usually 9 months after death plus 6-month extension).
2. Use the Qualified Domestic Trust (QDOT) if you already have one.
I highly recommend you to consult a qualified estate attorney based on your specific situation.
First of all, the gains from selling your property in China are still subject to U.S. capital gains tax due to your permanent resident status. However, you may qualify for the home sale exclusion. You could find the detail requirements here. If you have paid taxes on the gains to the Chinese government, you may be eligible for the Foreign Tax Credit to avoid double taxation.
Secondly, you mentioned that you are a green card holder. Are you a Chinese citizen or a citizen of a different country. In general, if you are a Chinese citizen, there is a $50,000/year/person foreign exchange limit from the Chinese government. You could apply for a higher amount if the money will be used for some specific reason like medical expenses.
Lastly, there is generally no limit to the amount of cash you can bring to the U.S. However, you are required to declare it to the U.S. customs if you carry more than $10,000 with you.
1. Does my daughter need to claim taxes on her education savings account or do I?
Coverdell ESA is different than 529 plans. Generally, the beneficiary, your daughter in your case, need to report the earning portions of the excess distribution on her tax return. You could find more about how to calculate the amount you need to report on your daughter’s tax return in IRS Publication 970 here. To be more specific, please refer to page 53 in Chapter 7.
2. Is there a way around this?
The best way is to find more expenses which are qualified for the excess distribution. You could find more about what expenses are qualified higher education expenses for Coverdell ESA distributions in in IRS Publication 970 here. To be more specific, please refer to page 47 in Chapter 7.
3. Can I use it to educate another kid?
The excess distribution can be rolled over to another Coverdell ESA for the benefit of your daughter or another member of your daughter’s family like her brother or sister who is under age 30. However, it has to be done within 60 days after the date of your distribution. Unfortunately, you have missed the window.