X and Y Advisors, Inc.
Co-Founder and President
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.
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.
I am glad that you have realized the importance of having life insurance, especially when you have kids. First of all, you need to figure out how much money your family needs in addition to your current assets if you pass away. Once you figure out how much life insurance you need, you could decide what type of life insurance you should get.
From cash flow perspective, term life insurance often could get you the correct amount of coverage in the most affordable way. It is what I usually recommend to people in their earlier stage of life. For your case, term insurance is probably also the way to go if you don't have any life insurance now.
In general, I am not a big fan of using life insurance as an investment. However, for very limited cases, indexed universal life insurance (IUL) can be beneficial if it is designed properly to optimize the growth of the cash value, especially for people who have maxed out other tax-advantaged saving vehicles, have over 20 years of investment horizon, and expect to be in the top tax bracket when they take out the money. And no matter what, an insurance agent cannot promise returns or cash value growth on an IUL.
Having said that, to address your specific question regarding what to do with your current IUL, it depends on a lot of factors including but not limited to:
1. Whether the IUL give you enough life insurance coverage?
2. Whether you are using the IUL as an additional saving vehicle for a long-term goal like retirement or your kids' college expenses？
3. Whether the IUL was designed in an optimized way?
4. How much have you contributed to the policy already? For how many years? In other words, how much it will cost you to surrender the policy?
5. Has your health condition changed from the time you get the IUL?
I am sorry that I cannot give you any specific recommendations without knowing all the details. I recommend you to consult an independent financial planner who is not selling insurance but understand the ins and outs of the IUL. He/she could guide you through the process of deciding whether you should keep your IUL and add some term insurance on top of that if needed or simply get rid of it and get some term insurance instead based on your specific situation. Hope it helps.
In general, if you withdraw your money from your traditional 401k account before age 59 1/2, you need to pay ordinary income taxes on the money you take out plus 10% early withdrawal penalty. And you may also give up some of the unvested employer's contributions if any. I find another article on Investopedia maybe helpful to you regarding "How do you calculate penalties on a 401(k) early withdrawal".
There are certain exceptions to the 10% tax penalty. Most of them may not apply to your situation, but you could check it out directly from IRS's website here.
Wells Fargo also has a 401(k) Early Withdrawal Costs Calculator. It may help you get some estimated numbers based on your specific situation.
Having said all these, I wouldn't recommend you taking an early withdrawal from your 401k account unless you are really out of options. Just throw out a couple of ideas here：
1. If you are still with the same employer, you could consider taking out loans instead of taking a withdrawal if the plan allows. A loan from your 401k plan is not taxable if it meets certain criteria which you could learn it directly from IRS's website here.
2. If you are no longer with the same employer, you could consider rolling over your 401k to an IRA account. An IRA account has more exceptions to the 10% tax penalty including qualified first-time homebuyer distributions. You could learn more about the exceptions specifically to IRAs directly from IRS's website here.
3. If you don't need all the money right away, you could also consider using Substantially Equal Periodic Payment (SEPP) with your 401k if you no longer employed by the employer that sponsors the plan or with an IRA right away. It not only could help you avoid the 10% tax penalty but also may lower your total income taxes on this by stretching a one-time lump-sum distribution into multiple years. Another article from Investopedia here may give you a basic understanding of how this works.
It really depends on why you need the money, when you need it, and how much you need. Unfortunately, I cannot give you any specific recommendation without knowing all the details. As always, I recommend you to consult a qualified professional based on your specific situation. 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.