College Planning for U.S. Expats

You’ve got kids. They may be small now, but before you know it, they’re off to college. Unfortunately, the cost of a university degree in the United States has become incredibly daunting. Therefore, planning for college expenses is imperative, and getting an early start provides an absolute advantage.

According to the College Board, the average cost of tuition and fees for a private university in the United States is slightly over $30,000 per year (excluding room and board). Public schools are more affordable, but still clock in at over $22,000 per year (out-of-state tuition). Furthermore, every year the cost of tuition increases at a rate much higher than inflation.

In this article, we discuss 529 plans for U.S. expats. A 529 plan is basically a savings account established for the purpose of funding a college education. There are two types of 529 plans; however, the main ones are sponsored by individual States.

Why are 529 plans great? From a tax advantage, there are clear advantages. Account balances grow tax deferred. And when the proceeds are used to pay for qualified college expenses, there are no tax consequences. So if you can afford to save for college, a 529 plan is a fantastic vehicle for doing so.

For U.S. citizens living abroad, setting up a 529 plan can be slightly tricky. That is because many expats do not have residency in a particular state. In these cases, we recommend establishing a 529 plan with Vanguard (one of the largest mutual fund companies in the world). Vanguard 529 College Savings Plans are sponsored by the State of Nevada, but is open to any investor. Vanguard is renowned for its low fee structure, so more of your money goes toward covering college expenses. For more information, go to: https://investor.vanguard.com/what-we-offer/college/overview.

As of the publication of this article, roughly 110 countries either have FATCA  (Foreign Account Tax Compliance Act) agreements in-place with the United States or are in discussions. Thus far, Suriname has not yet signed an agreement. But it is probably just a matter of time before FATCA comes to Suriname.

The first clue is when local banks begin handing out W-9s to U.S. citizen account holders. This is an indication that local government has had significant internal discussions, and have briefed the banks to prepare for FATCA. The key information on a W-9 is the social security number. When banks in Suriname begin transmitting account information along with a SSN, the IRS will be able to easily pursue U.S. citizens and green card holders for not reporting foreign earned interest.

Technology is making the world a lot smaller. Computers will be able to instantly flag many delinquent taxpayers. Prior to FATCA, expat tax returns were largely based on an honor system. With FATCA, the IRS has the ability to electronically reconcile expat tax returns with foreign bank account information. It may take the IRS several years to actually pursue someone, but that is clearly not a desirable situation. Along with penalties for not reporting interest income, there may be penalties for not filing the FBAR or Form 8938 (if applicable).

Our best guess is that Suriname will become a FATCA-compliant country within the next 2 years. For U.S. expats in Suriname, it’s a good idea to get compliant before FATCA becomes effective.

American expats are subject to U.S. income taxes regardless of where they live and where they make their income. Furthermore, there are special requirements and issues to consider when it comes to tax return preparation. Over the next several months, we will be addressing some of the tax complexities faced by American expats living in Suriname.

Question: Do I really need to file U.S. taxes?

In general, individuals with income <$9,750, or married couples filing jointly with income <$19,500 do not need to file (for 2013). However, the filing requirement is completely different for self-employed people. The threshold is a meager $400 in earnings.

Child Tax Credit – Reason to file even if you are under the filing requirement

Many expat families with children <17 years of age should file a return in order to take advantage of the child tax credit. As long as earned income is at least $3,000, there is a good chance you will qualify. Each child is worth up to $1,000 money back from the IRS even if you don’t owe any taxes.

Foreign Earned Income Exclusion and Foreign Tax Credit

Without doubt, the IRS filing requirements cast a wide net. However, many U.S. expats end up not owing taxes because of certain exclusions and credits available to them. The most important of these are the foreign earned income exclusion (FEIE) and foreign tax credit. With the FEIE, up to $97,600 of foreign earned income while living abroad is excludable from federal tax. The $97,600 works in conjunction with other deductions. As a result, one can have more than $100,000 in income, and pay no taxes. For married couples, both of whom are working, the exclusion amount is doubled. In order to qualify for the FEIE, one must meet be either the bona fide residence or physical presence test.

With the foreign tax credit, taxes are paid to a foreign country offset U.S. tax liabilities. The foreign tax credit is normally utilized when one has paid income tax to a country with a higher tax rate than that of the U.S. For most expats in Suriname, the FEIE is a more applicable tool than the foreign tax credit.

While Suriname’s crime statistics don’t even skim those of big American cities, Paramaribo is still an urban center that has its share of criminality. In fact, many residents are feeling uncomfortable with the recent crime waves, a rarity to Suriname. It is always best to take precautions; they may prevent you or your loved ones from becoming easy victims.

Many of the following tips are common sense, but there may be some new ones that you could add to your own list of safety habits. These tips are also not meant to bring you paranoia, but rather remind you that being alert and prepared may possibly prevent you from becoming a victim. Instinct tells us to defend ourselves and our loved ones, but if the crook has a weapon and you do not, play it safe and cooperate. Your life is far more valuable than your wallet!

Street Smarts
– Never walk around with wads of cash or flaunt your cash when making purchases.
– Try to keep cash and valuables in the bank or, if you must, well-hidden in your home.
– Avoid walking with a purse or exposing your cell phone when walking in the downtown area.
– Try to avoid using ATM’s at night or when it’s dark out.
– Stay in groups, have someone escort you to your car if possible.
– Do not frequent the same cambios.

Home Safety
– Always keep your front gate(s) and your doors locked.
– Purchase a home alarm with motion detectors and glass breaking sensors, and make sure it is functioning as it should. Does the alarm monitoring company have all the correct phone numbers to reach you on?
– Always use your home alarm; at night, when you leave, when you are home alone, and when you are gone for long periods of time (make sure that a trusted person can check on your home or has a key).
– Do not open the gate for strangers.
– Keep a cell phone/home phone near your bed.
– Before exiting your vehicle, upon arrival at your home, check that everything appears normal. Did your dogs greet you? Are the lights on? Are there any open doors or windows?
– If you have pets/dogs that assist in alerting you, protect them too. Burglars are known to poison pets. Train your pets not to take food from strangers. At night, keep your pets in your home, inside the iron bars, or on the leash (out of site to passer-byers) so that your pets do not go near the front gate and risk being poisoned.
– Keep good relationships with your neighbors. Try to keep an eye on each other’s homes and remain alert for screams or uncommon noises.

Car Safety
– Lock your car doors and keep your car windows closed while in traffic.
– Never leave purses, laptops, or valuable items in your parked car.
– Ladies, do not leave your purse in the car seat next to you while driving. Make a habit of placing your purse on the floor, in the back seat.
– If you are robbed in or near your car, do as you are told so as not to escalate the situation or cause injury to yourself.
– If you suspect you are being followed, pull over into the nearest public commercial area and call the police (115). Note the license plate, make, model, and color of the car, if you can.

And while we’re on the topic of safety, here are a few other tips to keep in mind.

Most houses in Suriname have windows and doors that are enclosed with iron bars (dievenijzer). Dief means burglar in Dutch, so it’s safe to assume that these decorative attachments were built to serve two purposes: to look nice, and to keep robbers out. Iron bars are a common sight within the Caribbean. But as with most things, there are also drawbacks to having iron bars in and outside of your home. The same bars that keep unwanted guest out can also hold you prisoner in your own home.
The more doors a house has, the more keys are needed to open the locks. Your Surinamese key chain probably weighs more than a pound because you have so many of them. But, can you easily identify the keys? Do you have copies near the exits of your home? Where do you keep your keys at night?
– Begin by purchasing color key rings or products that can help you differentiate the keys so you know exactly which belong to each lock.
– Keep only the important keys on your key ring and place the rest on hooks or nails near the exits of your home. For example, place a small hook with a spare key near windows with locks that open to create fire exits. Make sure the keys are placed in strategic places, easily accessible to you, but not to thieves who may try to access them from the outside.
– Also keep a basket of spare keys that only you and members of your household know the location of. Keep your key chain(s) near you at night. In case of a fire, you do not have time to go searching for keys.
– Make sure your household has a fire escape plan.
Purchase fire extinguishers and smoke alarms for your home. If you have a gas stove, do not place the gas tanks inside your kitchen, in your garage, or in places where they are vulnerable to damage. Even gas tanks get stolen, so be sure to also enclose them in iron cages, as well as outside air-conditioning units, and the copper plumbing that runs outside of your home. The number for the fire department is 110.