My R2I dilemma: Am I taking too much of a risk?

[sahinirnaya]

I am presenting a deeply personal question out on this forum as I am confident of receiving thoughtful responses.

Here's my story...

I came to the US about 10 years ago on an H1 visa. I was married, had just become a father and was well settled with my job in India at a tier II town. With attractive qualifications from respected institutes I could have come to the US earlier as well and yet never really viewed migrating to US as an achievement of any kind. The triggering event happened when I discovered that I was settling down in a company where my successes would be somewhat limited. The choice then was between moving to one of the bigger cities in India or checking out the other side of the world.

Like many others on this forum, I decided in favor of coming to US. I was quite impressed by the structured way of life. The initial year or two went by appreciating the lifestyle, cultural differences and identifying a workplace where I could build a long term career. Switched to one of the best known companies and focused on advancing my career....

Fast forward eight years - I am about to get my US citizenship, have reached Senior/Executive Management position in this worldwide company and have a workplace only half a mile from home, the child is now an 11 year old and I also have managed to get all my siblings here in the US. The job is extremely satisfying with distinct growth opportunities in sight. However, the parents have just retired and I don't expect them to enjoy spending their sunset years here in the US. The kids are growing up and it is getting obvious every day that we are entering their most important formative years. At the same time, IT industry in India is booming and there seems to be a distinct value for real management experience in India.

While I have enjoyed significant successes so far and don't have any reasons to expect anything different in future - the deeper side of me still can't associate with the culture in the US. I have been in countless management and client meetings where I have had to bring out the best in me to assimilate in the predominantly American crowd. As I climb the corporate ladder, it just feels like I am working with a significant handicap that is going to remain for a long time to come. On the other hand, given the recent growth spurt in India, it just seems that there is a significant scope for Senior Management roles in India where I will be working from a position of advantage.

My parents have always been supportive of my decisions and will never ask me to R2I for their sake. However, I can sense the desire in their tone to somehow bridge the time/distance gap. Am sure that this will get more prominent as they grow older and I can easily see myself torn apart trying to care for them from afar. My siblings aren't thinking about R2I and being the only son and the eldest in the family, I feel responsible for my parents more than any one else.

On the home front, my wife comes from a very traditional upper middle class home where domestic help is taken for granted. She has concentrated on growing our kids and has had an extremely difficult time reconciling to the idea of no help for domestic chores. For her, living in the US will always be a compromise where she won't ever enjoy the conveniences of daily life. In short, she is generally supportive of the idea of returning to India.

The final decision of whether to LIA or R2I was easy to postpone over the years - the kids were small, GC hadn't come and later USC was near etc... Accordingly, we navigated our way through every decision trying to keep our options open. Joined this MNC so I would be able to return easily, raised children as bilinguals so they could read/write in Hindi, bought a townhouse in 2000 instead of a single family home to limit our exposure, kept ourselves well informed about India with desi channels being family favorites and finally - have managed to build a road for R2I by developing the India based team of our division.

Am once again at crossroads as I was 10 years ago... I can continue where we are. I can easily afford a nice single family home and continue to reach greater successes. Develop deeper bond with local community, brace ourselves for the cultural challenges of raising American teenagers and accept the fact that I am an NRI!!

Or I can take the final plunge and shoot for a plan of R2I where I would continue to head our North American operations from India. There is a significant risk of potentially throwing away years of hard work if the transfer does not materialize, even if it does - there is also the risk of being away from my siblings (though my wife will get closer to hers) and finally there is the risk of geo-political uncertainties causing stagnancy or even a reversal in growth prospects at India.

LIA option seems easy and simple at this time while R2I will require determination and long term commitment to the chosen path.

Sometimes decision making gets harder if you have plenty of attractive choices... This brings us to my question - If I go with R2I - will I be taking too much of a risk?

[Bobus]

You have done well - especially getting siblings over to the US and doing well here. If you R2I, I suggest getting USC for your spouse and for your child (looks like at least 1 child was born in India) and then R2ing. USC for yourself has tax disadvantages and as long as your spouse is USC and alive you can return to US almost anytime, even if you are not USC - keeping this return bridge open has its value, in the event it needs to be used even 10 years after R2I - also spouse being USC allows you to file as US resident for tax purposes until doing so is advantageous to you. If your financial goals are on track and will likely be met even with R2I, given that spouse is in favor and eldest child is 11 (and hence can adapt), I would suggest R2I so that when you are 60+, you dont wonder about the road (R2I road) not traveled - especially since from your well articulated post it appears you have given the issue considerable thought.

[ssppss]

... I suggest getting USC for your spouse and for your child (looks like at least 1 child was born in India) and then R2ing. USC for yourself has tax disadvantages and as long as your spouse is USC and alive you can return to US almost anytime, even if you are not USC - keeping this return bridge open has its value, in the event it needs to be used even 10 years after R2I - also spouse being USC allows you to file as US resident for tax purposes until doing so is advantageous to you.[/quote]


Bobus,

You wrote something that could be useful to my situation too. I too have been thinking of getting USC for my wife, while I continue with INC. Your post has encouraged me, but I am not able to fully understand your post. If you can explian and clarify a little, that would be nice. Could you explain the two bolded statements of your posting?

Thanks

ssppss

[Bobus]

Could you explain the two bolded statements of your posting? [/quote]

USC Tax Disadvantages

(a) USC is subject to US tax as US resident on global income no matter where USC lives - to my knowledge US is the only country that taxes its citizens in this way.

(b) Someone who is US resident for tax purposes is subject to PFIC tax rules which make investment in India mutual funds (especially for the fixed income portion of AAP) difficult. These investments enjoy nice India tax advantages.

I find (b) more problematic than (a). Even (b) can be surmounted, but it would involve some dexterity.

Filing Options with USC Spouse

Anyone who is spouse of USC (or US resident by some other means) and does not qualify to be US resident for tax purposes, has the option to elect to file as US resident. This election can subsequently be revoked at the option of the tax payer.

http://www.irs.gov/publications/p519/ch01.html#d0e1628

Filing as US resident will likely be advantageous after R2I until IRA money is withdrawn. After that filing as NRA will likely be more advantageous and at that time GC can be relinquished (GC relinquishment is necessary to file as NRA).

--------------------------------

One spouse USC and the other Indian citizen may involve some US estate (death) tax disadvantages - this can be partially surmounted via careful planning about which assets are held by which spouse and any difficulty that remains can be taken care of by purchasing additional life insurance with insured being USC spouse and beneficiary being non USC spouse and vice-versa, till such time as these difficulties remain in the horizon and discontinued thereafter.

I believe that in many situations, the cost of additional life insurance will be offset by the tax advantages of being non USC. Other individual specific non tax comfort factors are also relevant. In my situation, I am thinking along the lines of being rich (most assets in my name) Indian citizen at the time of R2I, if and when it occurs, and letting my spouse be poor (fewer assets in spouse's name) USC, with children being USC.

[Old-Spice2]

>>One spouse USC and the other Indian citizen may involve some US estate (death) tax disadvantages - this can be partially surmounted via careful planning about which assets are held by which spouse

How about withdrawing all the assett from US to India after certain period of time? Then US estate tax rules does not apply, correct?

One more point to ponder - getting SS benefits after 62. The way SS fund is getting depleted, there is a high probability that non-USC may be excluded from SS benefits in the future. Which is financially more beneficial - additional tax burden+PFIC (as USC) or loss of monthly SS check?

[Bobus]

How about withdrawing all the assett from US to India after certain period of time? Then US estate tax rules does not apply, correct? [/quote]

Yes, if assets are situated outside US and were held by deceased NRA. Hence the statement that additional life insurance be bought until difficulties are in the horizon. There is also the issue (beyond estate taxes) of basis of inherited property where property is PFIC investment (PFIC investment does not receive step up of cost basis to FMV at death) and here NRA spouse is advised to sell and buy back India mutual fund investment periodically (without inviting too much in India taxes) to increase basis and/or buy additional life insurance with USC spouse as beneficiary to take care of the tax burden.

One more point to ponder - getting SS benefits after 62. The way SS fund is getting depleted, there is a high probability that non-USC may be excluded from SS benefits in the future. Which is financially more beneficial - additional tax burden+PFIC (as USC) or loss of monthly SS check? [/quote]

Relevant issue. Do you really expect a definitive answer about which is more beneficial without knowing individual circumstances? If and when it comes to that, and SS payments seem attractive enough, one can consider turning USC or at least getting GC (since spouse will be USC).

[Old-Spice2]

>>Do you really expect a definitive answer about which is more beneficial without knowing individual circumstances?

No, I don't know the answer - just a gut feeling that $1500/m (US inflation adjusted) check till death (with benefit passing over to spouse) will beat the disadvantages of US taxation. There is no Indian tax on SS payment.

PFIC issue is hard to beat - since the consumption will be in Rupees, it is important to invest in Indian MF.

>>If and when it comes to that, and SS payments seem attractive enough, one can consider turning USC or at least getting GC (since spouse will be USC).

Here are some issues with this approach - you have to r2i as USC. There is no other option. If you r2i as GC, it is hard and expensive to maintain GC status. Also there is no guarantee INS will give USC if you moved back on a long term basis. Nowadays immigration applications are put under microscope.

Non-working spouse taking USC and later on sponsoring better half will not work. Any sponsoring person has to prove he/she has financial strength and income to support the dependent partner. May be he/she can use the asset as proof - it is a grey area.

[Bobus]

OldSpice:

First, we are talking of an event (non USC banned from SS benefits) that is yet to occur, which you have assigned a high probability to. Also, what you are talking about is not merely a ban on non USC receiving SS benefits, but also a ban on a USC beneficiary receiving benefits based on a non USC's work record.

Second, a $1,500 per month SS retirement benefit (in today's USD) seems unlikely - though I have not checked the calculators at SSA - based on a mere 10 to 15 year working history (i.e. 40 to 60 credits), even with income at max of FICA withholding limit during those years. With more working history, one would be older, and better able to assess the likelihood of the event you are talking about, at R2I time.

What was outlined was a plan that involves relinquishing GC post R2I after a certain date, not a plan to maintain GC - so the issues involved in maintaining one after R2I are moot.

While a USC sponsoring a non USC spouse for GC has to file affidavit of support, I doubt it will be an issue where non USC spouse has sufficient assets.

And finally, it is not as if PFIC issue cannot be beaten by USC - just that doing so will involve some dexterity.

[gabbar007]

OP, your story is very similar to mine, I feel I can associate with you. I am R2I'ing so as to spend more time with my parents, I can always come back with my USC few years down the line if my child decides to come here for higher studies. At 11 years the child will have no problem adjusting back (my kid has adjusted well at 10), so as long as we adults keep our expectations lower, we can have a successful R2I.

[sahinirnaya]

Folks, just to clarify - I am most likely going to go with USC for both myself and spouse if I choose to R2I.

Would appreciate responses on whether the risk is worth it.

Thanks!