The Indian diaspora has travelled all over the world but the IT boom has given the younger generation wonderful opportunity to work in the US and create assets. Luckily some of them have travelled in the last decade with lucrative compensation and sizable stock options. The long bull run in the US market has substantially increased the valuation of their stock options and in turn their wealth. For H-1B visa holders, planning a long term stay in the US is becoming difficult because of the long queue for getting the US permanent residency (Green card). At the same time with the newfound wealth, moving back to India has become an attractive proposition as it puts them on a strong financial footing back in India and allows them to live and enjoy life in the company of their near and dear ones.
Background
Hari (currently 32) travelled to the US in 2011 to do his Masters from Purdue University. There he met Vidya (currently 29) who was his junior in the same college. Post-graduation both of them got married. While Hari got a job in FAANG, Vidya got a job in an IT product company.
With decent salary and stock options, the couple made sure to max out retirement schemes such as 401 K to get a matching contribution from the employer. They contributed to HSA (Health Savings Account) to save taxes on healthcare expenses.
With good credit history, they took a mortgage to buy a primary home in 2017 for good living and save taxes. With the increase in income, they bought second home in 2018 on the mortgage to get the rental return. Beginning of this year, they bought the third home on the mortgage for rental return as the interest rate touched a historic low. They refinanced their primary home loan to decrease the mortgage interest rate. Since their income has increased over years, they are comfortable paying the mortgages for all three homes.
Hari’s job change in 2018 has been a game-changer. He has managed to secure a significant number of RSUs (Restricted Share Units) and luckily the valuation of his holding has quadrupled over the last 2 years. His RSUs are vesting every month and approximately $ 2 MN (in today’s worth) is due for vesting in the coming 4 years.
The couple believes that if Hari earns his committed compensation till 2024, they can easily FIRE (Financially Independent Retired Early) back in India. Keeping that in mind, they are working towards moving back to India for good in 2025.
Their current net worth is Debt – $400 K, Real Estate – $600 K (excluding liability), Equity – $700 K (Includes $550 K of RSUs of Hari’s current company). Hari’s RSUs are due for vesting in the coming 4 years – $2 MN worth.
Challenge
They know that Hari’s RSUs are key to their FIRE plan. Having seen stupendous appreciation in Hari’s company stock price in the last 2 years, they believe that there is more upside to it and are not comfortable selling the vested stocks now. They plan to hold on to their US real estate properties for rental income when they move back to India. Overall, they understand that the next 4 years are crucial for their FIRE and they want to play it right to reach their FIRE goal.
Solution
Both of them should continue to max their contribution to retirement schemes such as 401 K and HSA. Before moving to India, they should move 401 K and IRA plan with the institutions which will allow them easy access to the same from abroad. They can use HSA money to pay for qualified health care expenses in India.
As RSUs are key to their FIRE plan, they need to make sure that it is managed well. Currently, Hari has highly concentrated exposure in RSUs with a significant number of RSUs vesting every month. He needs to sell these RSUs at the periodic interval and invest the proceeds in a diversified Equity portfolio in the US and the global Equity market. A part of the proceeds should be invested in the short term Debt Fund to fund their near term goals. They should focus on diversification and investment according to asset allocation.
Planning for the rental income from the US real estate assets while in India may not be a good idea because it will be difficult to manage the property remotely. The net income adjusted for property tax, property management cost and property maintenance cost may not be worth it. Besides, this income will be earned in a low inflationary environment and spent in a high inflationary environment back in India. In the unfortunate scenario of their demise in India, the US government will levy an estate tax on assets in excess of FMV (Fair Market Value) $60,000. They should ideally plan for disposal of all their real estate properties while in the US so that they do not have to take a haircut on the market value if sold from India.
They should plan to transfer all their assets from the US to India during the validity period of their RNOR status to effectively manage taxation. The income from the assets outside India is not taxed during the RNOR period.
The price of Hari’s company stock is highly volatile. In case the price of the stock was to correct in future, they should be mentally prepared to extend the move to India by a few years.
Note – The details mentioned in this blog are fictional and only there to illustrate the point. Any resemblance is highly coincidental.
You may also like to read Finance Best Practices for US based NRIs.
The writer is a SEBI Registered Investment Adviser and Founder of FinMyn (https://finmyn.com). He provides Fee-Only Financial Planning and Investment Advisory services. He has helped many NRI Clients across the globe. To know more about him, click on https://finmyn.com/about/.
Excellent article.