X and Y Advisors, Inc.
President and Co-Founder
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.
I assume your parents do not have U.S. citizenships as you do.
According to the IRS, “you must file Form 3520, if, during the current tax year, you treat the receipt of money or other property above certain amounts as a foreign gift or bequest.
Include on Form 3520:
Gifts or bequests valued at more than $100,000 from a nonresident alien individual or foreign estate (including foreign persons related to that nonresident alien individual or foreign estate);
Gifts valued at more than $15,671 for 2016 (adjusted annually for inflation) from foreign corporations or foreign partnerships (including foreign persons related to the foreign corporations or foreign partnerships).”
You must aggregate gifts received from related parties. For example, if you receive $60,000 from nonresident alien A and $50,000 from nonresident alien B, and you know or have reason to know they are related, you must report the gifts because the total is more than $100,000.”
The filing requirement is for information purpose only. You generally don’t owe any taxes on the gifts or bequests you received from a foreign person unless he/she is considered a “covered expatriate”. Also, the money is generally not counted as gifts if it is paid for qualified tuition or medical expenses on behalf of you.
As you may know, as a U.S. citizen, you are taxed on worldwide income and subject to certain foreign assets reporting requirements including but not limited to FBAR (FinCEN Form 114), FATCA ( Form 8938), and PFIC (Form 8621). To avoid the burden of the tax filing requirements or any potential punitive tax treatment from the PFIC rule, it is usually beneficial to keep the money in the U.S.
As always, I cannot give you any specific recommendations without knowing you detailed situations. I recommend you consult a qualified professional based on your particular situation.
You are correct about that the cash back from your credit card is usually not considered as taxable income. It is generally considered as a discount or a rebate. You could learn more about this from another question on Investopedia here.
Here is the contribution limit rule to Roth IRAs directly from IRS Publication 590A.
"Roth IRAs only. If contributions are made only to Roth
IRAs, your contribution limit generally is the lesser of:
$5,500 ($6,500 if you are age 50 or older), or
Your taxable compensation.
However, if your modified AGI is above a certain amount, your contribution limit may be reduced, as explained
later under Contribution limit reduced."
For example, if you have $4,000 taxable compensation and $200 cash back from your credit cards, you can only contribute up to $4,000 to your Roth IRA since the cash back is not considered as taxable compensation in the first place.
On the other hand, if you have $10,000 taxable compensation and $200 cash back from your credit cards, you can only contribute up to $5,500 ($6,500 if you are age 50 or older) to your Roth IRA, not $5,700 ( $5,500 + $200).
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.
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.
According to IRS publication 54, bonus falls into the earned income category which is eligible for the foreign earned income exclusion. However, there are some additional rules you need to be aware of. Here are two examples of the publication directly:
- Income earned over more than 1 year.
Regardless of when you actually receive income, you must apply it to the year in which you earned it in figuring your excludable amount for that year. For example, a bonus may be based on work you did over several years. You determine the amount of the bonus that is considered earned in a particular year in two steps. 1. Divide the bonus by the number of calendar months in the period when you did the work that resulted in the bonus. 2. Multiply the result of (1) by the number of months you did the work during the year. This is the amount that is subject to the exclusion limit for that tax year.
- Income received more than 1 year after it was earned.
You can’t exclude income you receive after the end of the year following the year you do the work to earn it. Example. You were a bona fide resident of Sweden for 2015, 2016, and 2017. You report your income on the cash basis. In 2015, you were paid $69,000 for work you did in Sweden that year and in 2016 you were paid $74,000 for that year's work in Sweden. You excluded all the income on your 2015 and 2016 returns. In 2017, you were paid $92,000; $82,000 for your work in Sweden during 2017, and $10,000 for work you did in Sweden in 2015. You cannot exclude any of the $10,000 for work done in 2015 because you received it after the end of the year following the year in which you earned it. You must include the $10,000 in income. You can exclude all of the $82,000 received for work you did in 2017.
It sounds like that you are confident that you are eligible for the foreign earned income exclusion. It never hurts to doublecheck with a qualified tax professional. He/she could not only make sure you understand the tax law correctly but also may help you figure out whether you could further benefit from the foreign housing exclusion or the foreign tax credit based on your specific situation. Hope it helps.