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PSLDX during FIRE and/or ex-pat status
Old 10-14-2021, 07:43 AM   #1
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PSLDX during FIRE and/or ex-pat status

Hi,

I came here while researching PSLDX and FIRE (early retirement) aspects. I want to understand two things.

1. I know PSLDX is not recommended in a taxable account. But how would it look like in taxable if want to do early retirement? Since there will be no other significant income, does the tax treatment improve, such that it can be viable?

2. What if you also become an ex-part in the near future. Does anyone know how that scenario should be evaluated in terms of taxes?
I believe there is ~$107 k of foreign income exemption, but instead, here the main income is from PSLDX. I'm not sure how to understand this.

Thanks for any guidance on this.
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Old 10-14-2021, 09:24 AM   #2
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I have no idea about PSLDX but assuming you are a US citizen then if you go live in another country all worldwide income, including that from PSLDX will be taxable by the USA and the country you are living in will also likely tax most US based income including that from PSLDX, possibly treating it as a PFIC.

If you EARN income in a foreign country then the first $107k can be exempt from US tax using FEIE form 2555. Most other foreign income (with some exceptions) is taxed by the USA.
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Old 10-14-2021, 09:36 AM   #3
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Yes, US citizen. But looking to be ex-pat.
So income from US based funds/ETFs, like PSLDX, SPY, QQQ, VTI, are just taxed in the usual way? i.e., so special consideration for residing outside the US?


Thank you



Quote:
Originally Posted by Alan View Post
I have no idea about PSLDX but assuming you are a US citizen then if you go live in another country all worldwide income, including that from PSLDX will be taxable by the USA and the country you are living in will also likely tax most US based income including that from PSLDX, possibly treating it as a PFIC.

If you EARN income in a foreign country then the first $107k can be exempt from US tax using FEIE form 2555. Most other foreign income (with some exceptions) is taxed by the USA.
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Old 10-14-2021, 09:46 AM   #4
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Originally Posted by sigma_frq1 View Post
Yes, US citizen. But looking to be ex-pat.
So income from US based funds/ETFs, like PSLDX, SPY, QQQ, VTI, are just taxed in the usual way? i.e., so special consideration for residing outside the US?


Thank you
The US has "citizenship based taxation" which means that it taxes its citizens no matter where in the world they live. (Bolded text is mine below)

https://www.taxesforexpats.com/expat...omparison.html

Quote:
Systems of personal income tax vary enormously around the world. The differences are big and small, simple and complex. Some countries' personal income tax code consists of one word - "none" - while other countries' consist of volumes and volumes of intricate details.

However, almost all nations are unified on one point: a country only taxes non-residents on, at most, income earned within the country. Residents are fully taxed by the country according to its tax code. But if you don't live there, then your personal income tax obligation to that country is limited to, at most, tax on only the income earned within that country. This is the essence of what is called "territorial taxation".

The United States is an exception.

"The USA is one of the few countries of the world which levies personal income tax on all its citizens: not only on its residents - citizens or non-citizens - but also on its citizens who do not live in the country. All citizens of the United States are taxed under the same personal income tax system, regardless of whether they live in the country or abroad."

This citizenship-based taxation is very unique. How unique?

Only the U.S. and Eritrea
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Old 10-14-2021, 09:53 AM   #5
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Originally Posted by sigma_frq1 View Post
Yes, US citizen. But looking to be ex-pat.
So income from US based funds/ETFs, like PSLDX, SPY, QQQ, VTI, are just taxed in the usual way? i.e., so special consideration for residing outside the US?
Not only will those funds be taxed by the US in the usual way, any foreign fund you may invest in will be treated as a PFIC and taxed punitively by the USA.

The IRS also ignores many of a countries' tax shelters. for example here in the UK the first £1,000 of interest is tax free, and there are various types of tax free accounts where after tax money can be saved and grow tax free but they are all fully taxed by the IRS.
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Old 10-14-2021, 02:53 PM   #6
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There is a (very) long thread on PSLDX over on bogleheads forums.
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Old 10-15-2021, 06:01 AM   #7
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Originally Posted by Alan View Post
Not only will those funds be taxed by the US in the usual way, any foreign fund you may invest in will be treated as a PFIC and taxed punitively by the USA.

The IRS also ignores many of a countries' tax shelters. for example here in the UK the first £1,000 of interest is tax free, and there are various types of tax free accounts where after tax money can be saved and grow tax free but they are all fully taxed by the IRS.

wow! Unbelievable. But good to know regardless. Thank you.
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Old 10-15-2021, 06:03 AM   #8
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Originally Posted by ncbill View Post
There is a (very) long thread on PSLDX over on bogleheads forums.

Yes I have gone through it, but it is for general investing and therefore the strong recommendation to not hold it in taxable. Not much discussion around using it for FIRE, hence I posted a dedicated question .
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Old 10-17-2021, 10:41 AM   #9
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Any other thoughts or comments on 1.
(I think I am clear on 2.)


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Old 10-17-2021, 11:14 AM   #10
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Two of my former colleagues, both expats, gave up their US citizenship because of the tax implications and the hassle of reporting each year. They were both well established in another country with no intention of returning to the US.

It was apparently quite a process that involved getting a clearance letter from the IRS.

They were very surprised when they attended a presentation from US consulate officials. The room full of people in their city who were interested in doing the same... and it seemed to them for the same reason.
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Old 10-17-2021, 02:09 PM   #11
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Originally Posted by sigma_frq1 View Post
Any other thoughts or comments on 1.
(I think I am clear on 2.)
You had not explicitly asked for this before, but your latest post inviting comments makes me think this is appropriate.

The fund in question has had a remarkable run of outperformance. If you are thinking that you can swing early retirement based on the expectation that such outperformance will continue in the future, then I think you should NOT rely on such expectations.
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Old 10-18-2021, 10:23 AM   #12
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Hi,


I am not thinking that, what I am thinking about is whether it will be viable or not.


I want to know what sort of income I can get using PSLDX. Any thoughts on that?
That should help me determine.


Quote:
Originally Posted by Out-to-Lunch View Post
You had not explicitly asked for this before, but your latest post inviting comments makes me think this is appropriate.

The fund in question has had a remarkable run of outperformance. If you are thinking that you can swing early retirement based on the expectation that such outperformance will continue in the future, then I think you should NOT rely on such expectations.
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Old 10-18-2021, 10:52 AM   #13
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Quote:
Originally Posted by sigma_frq1 View Post
Hi,


I am not thinking that, what I am thinking about is whether it will be viable or not.


I want to know what sort of income I can get using PSLDX. Any thoughts on that?
That should help me determine.
If you’re not clear what sort of income the investment will provide, it’s probably safe to say this investment may not be a good choice for you.

What are you looking for with this fund? Is it intended to be a core holding or one of many funds? What % of your portfolio do you intend in putting into it. Finally, what is it about this fund that interests you so much?
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Old 10-18-2021, 11:30 AM   #14
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Originally Posted by Alan View Post
Not only will those funds be taxed by the US in the usual way, any foreign fund you may invest in will be treated as a PFIC and taxed punitively by the USA.

The IRS also ignores many of a countries' tax shelters. for example here in the UK the first £1,000 of interest is tax free, and there are various types of tax free accounts where after tax money can be saved and grow tax free but they are all fully taxed by the IRS.
Alan, did you ever become a US citizen, I'm assuming you were born in the UK?
I've been a citizen for many years but it's crossed my mind more than once to buy a small house and live back there for a few months a year on the beach where I grew up. I'm not rich by any means so I doubt the US government would target me as long as I filed a US tax return yearly and did not work over there.
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Old 10-18-2021, 11:47 AM   #15
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Alan, did you ever become a US citizen, I'm assuming you were born in the UK?
I've been a citizen for many years but it's crossed my mind more than once to buy a small house and live back there for a few months a year on the beach where I grew up. I'm not rich by any means so I doubt the US government would target me as long as I filed a US tax return yearly and did not work over there.
Yes, we all became US citizens last century

If you did buy a small house and lived there a few months a year you would probably avoid paying UK taxes. Just be sure you look up the UK statutory residence test. This is what we planned to do in 2016 when we moved into a rental in May of that year, but after 6 weeks we loved it so much we decided to make the move permanent.

Fortunately access to our Vanguard accounts and US bank account has turned out to be pretty easy and unlike the USA the UK has a huge list of foreign funds that “report into” HMRC so get the favorable tax treatment for qualified dividends and capital gains.
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Old 10-18-2021, 01:27 PM   #16
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If you’re not clear what sort of income the investment will provide, it’s probably safe to say this investment may not be a good choice for you.

What are you looking for with this fund? Is it intended to be a core holding or one of many funds? What % of your portfolio do you intend in putting into it. Finally, what is it about this fund that interests you so much?

Presently, I want to understand what income can I expect (roughly) if I move all my non-401K portfolio to this fund?
I like this fund because it provides 2x leverage (and of course, the associated higher risk).
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Old 10-18-2021, 08:00 PM   #17
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Originally Posted by sigma_frq1 View Post
Presently, I want to understand what income can I expect (roughly) if I move all my non-401K portfolio to this fund?
I like this fund because it provides 2x leverage (and of course, the associated higher risk).
The income (dividends) from PSLDX are extremely variable. The primary investment of the fund is S&P e-mini futures, not the underlying equities. The quarterly gains don't accumulate as increasing NAV, they are distributed as quarterly dividends. Last quarter the dividend was ~10%. There was a year about 10 years ago where the dividends for the year totaled 60%. There have been years where the payout wasn't much at all.

I've had a position in PSLDX since 2010, held in an IRA. Because of the dividend payouts, the fund is very tax unfriendly if held in a taxable account. The relatively high returns are from leveraging the S&P500, not stock picking or market timing. Because of this you can expect it to return more or loose more than the S&P500, depends on which way the market is trending.

Study what you're buying before dumping a large percentage into it. It is not a typical stock fund.
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Old 10-19-2021, 02:25 PM   #18
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Because of the dividend payouts, the fund is very tax unfriendly if held in a taxable account.

Any chance you can illustrate that with a comparison with a tax friendly fund (like NTSX). Two hypothetical taxable portfolios, one PSLDX and one NTSX - what would that look like?
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Old 10-19-2021, 03:41 PM   #19
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Any chance you can illustrate that with a comparison with a tax friendly fund (like NTSX). Two hypothetical taxable portfolios, one PSLDX and one NTSX - what would that look like?
Head on over to Portfolio Visualizer and plug in whatever funds (over whatever time periods) you want to backtest:

https://www.portfoliovisualizer.com
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Old 10-19-2021, 04:51 PM   #20
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Head on over to Portfolio Visualizer and plug in whatever funds (over whatever time periods) you want to backtest:

https://www.portfoliovisualizer.com

Hi, I know I can use that tool to get historic performance, but it does not account for taxes:

"Hypothetical returns do not reflect trading costs, transaction fees, or taxes."


I want to know what a rough comparison would be:


Person A: NTSX in taxable, withdrawing some % every year, paying taxes
Person B: PSDLX in taxable, withdrawing some % every year, paying taxes
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