international student

This Two-Time International Graduate Student Gives Excellent Advice to Her Prospective Peers

February 1, 2021 by Lourdes Bobbio Leave a Comment

In this episode, Emily interviews Josephine Shikongo-Asino, a second-year PhD student at Oklahoma State University from Namibia. This is Josephine’s second stint as an international graduate student in the US, having completed a Fulbright fellowship about ten years ago. She has great advice for prospective and rising international graduate students in the US about the financial transition into graduate school. Josephine and Emily discuss funding models, the importance of saving and debt reduction prior to matriculating, researching cost of living, visa restrictions on working, credit and debt, budgeting, remittances, and more. Josephine’s excellent advice nearly always applies to prospective and rising domestic graduate students as well; this episode is for everyone!

Links Mentioned in this Episode

Teaser

00:00 Josephine: If anyone is considering to come, I would say before you hand in that resignation letter, really do an inventory analysis in terms of your financial needs and maybe also pay off any loans, if you can. If you have any loans, you can pay them off. If you have a car, sell it, you weren’t needed at least for a year. So yeah, that’s really doing a financial inventory to make sure that you are in the right place.

Introduction

00:34 Emily: Welcome to the Personal Finance for PhDs Podcast: A Higher Education in Personal Finance. I’m your host, Dr. Emily Roberts.

00:42 Emily: This is Season 8, Episode 5, and my guest today is Josephine Shikongo-Asino, a second-year PhD student at Oklahoma State University from Namibia. This is Josephine’s second stint as an international graduate student in the US, having completed a Fulbright fellowship about ten years ago. She has great advice for prospective and rising international graduate students in the US about the financial transition into graduate school. We discuss funding models, the importance of saving and debt reduction prior to matriculating, researching cost of living, visa restrictions on working, credit and debt, budgeting, remittances, and more. Josephine’s excellent advice nearly always applies to prospective and rising domestic graduate students as well; this episode is for everyone!

01:32 Emily: It’s always a pleasure for me to create content for international graduate students, postdocs, and PhDs with Real Jobs, and I’m really grateful to Josephine and everyone who has donated their time to help me and my audience learn more about how to navigate finances while in the US on a visa.

01:48 Emily: Some other episodes in which I’ve covered this topic are S4E17 Can and Should an International Student, Scholar, or Worker Invest in the US?, S2E6 Making Ends Meet on a Graduate Student Stipend in Los Angeles, and S6E3 The Financial Hurdles of Moving to the US as a Postdoc.

02:08 Emily: I’m actually working on some tax content specifically for international graduate students this spring, so if you aren’t already on my mailing list, please join to hear more! You can do so at PFforPhDs.com/subscribe/.

Giveaway

02:21 Emily: Now it’s time for the book giveaway contest! In February 2021, I’m giving away one copy of The Simple Path to Wealth by J L Collins, which is the Personal Finance for PhDs Community Book Club selection for April 2021. Everyone who enters the contest during February will have a chance to win a copy of this book.

02:42 Emily: If you would like to enter the giveaway contest, please rate AND REVIEW this podcast on Apple Podcasts, take a screenshot of your review, and email it to me at emily@PFforPhDs.com. I’ll choose a winner at the end of February from all the entries. You can find full instructions at PFforPhDs.com/podcast/.

03:03 Emily: The podcast received a review this week titled “Crucial knowledge for a first year PhD student”. The review reads: “I started listening to this podcast a couple months ago, and the tricks I have learned have increased my confidence in personal finance has tremendously. As an international student. Not all advice work for me, but I especially enjoyed episode two in season eight, when Laura was sharing her experience as an international student. In general, this podcast have taught me to manage my new monthly stipend the best way. I now know that it’s okay not to prioritize paying down my student loans, I’m not crazy to be checking my bank account on a daily basis, in fact, it’s encouraged, and I’m now putting together a 50/30/20 budget. My goal is to one day be managing my personal finances in a way that I could be a guest on Dr. Robert’s podcast”.

03:51 Emily: Thank you for this a wonderful review and I can’t wait to have you on the podcast without further ado. Here’s my interview with Josephine Shikongo-Asino.

Will You Please Introduce Yourself Further

04:02 Emily: I am delighted to have joining me on the podcast today. Josephine Shikongo-Asino. She is a second year graduate student at Oklahoma State University. And she’s here to talk with us about international students and their transition to the US, particularly the financial aspects of their transition. This is a subject I’m highly interested in. I hope you are as well. I’m interested in for all types of graduate students, both domestic in the US and international, but I’m really, really happy to have the focus on international students on the podcast today, because it’s a group that is highly in need of more information about this. So Josephine, I’m really pleased that you suggested this topic and that you’re joining me on the podcast today. Will you please tell the audience a little bit about yourself?

04:42 Josephine: Thank you, Emily. Thank you for having me. I’m Joseph Shikongo-Asino. I am originally from Namibia, which is in Southern Africa. We are just above South Africa. I’m sure many people know where that is. My background — I’m a certified accountant. I have a master’s in strategy as well, which I did here in the US. And then I’ve spent about 10 years working in the financial sector, including financial services, banking, and investments. But currently I’m a second year PhD student at Oklahoma State University with my research interests, really more on higher-ed finance and policy.

05:20 Emily: Wow. What a great fit for this podcast. I’m so glad you’re joining us. And between your master’s and starting your PhD, did you stay in the US that whole time, or did you live back in Namibia, or elsewhere?

05:31 Josephine: No. I had to go back home because with my master’s, I was sponsored by the Fulbright program. They require you to work two years at home once you finish your program so that you can give back, which is the purpose of the Fulbright program. I had to serve two years in my country and then come back to proceed with my PhD.

05:49 Emily: Gotcha. So you really have the perspective of having transitioned into the US twice?

05:54 Josephine: Yes.

Similarities and Differences Between Finances in Home Country and the US

05:54 Emily: Perfect. So tell us a little bit about, maybe before that first time that you came to the US, a little bit more about the finances in your home country, and how they are similar or dissimilar to the US.

06:07 Josephine: Namibia is classified as an upper middle income country by the World Bank. So it is actually, one of the better performing economies on the continent. And even when I came here, I realized that there’s not much of a difference in terms of salaries back home and being in the US, other than currency exchange, obviously. But, because I had to quit my job, I did not have a backup, I did not have any cushion, that could keep me in case something happens. In case I have an emergency, I did not have, um, any backup. And also because I’m coming from a low income family, I did not have any other backing, other than the sponsorship, which I go through the Fulbright program. I really had to do to survive on my own. I took a decision to leave my job because I thought that I would come to a better situation, which will give me better opportunities afterwards. Looking back, maybe I would have made a different decision after the two years were over. I don’t know if I would have necessarily quit my job had I known what I was signing up.

Advice for Prospective International Grad Students

07:24 Emily: I see. Okay. So I think we’re going to get a little bit more of those stories as the interview proceeds. First of all, you just mentioned that you quit your job, no savings, no backup before you came here. What’s your advice for another international student planning to come to the US? We’re recording this in December, 2020. I think it will be out sometime in the early spring, so people are receiving decisions about their admission to grad programs, but they still have a bit of time before they actually need to matriculate. What is your advice for that time period?

07:59 Josephine: I think the first question really is can you afford to quit your job. For me, that’s the first question you should ask yourself. Do you have expenses such as maybe dependents at home that depend on you on you solely, financially? Do you have a home loan? Do you have a personal loan, that needs continued financing from you?

08:20 Emily: Okay, so you mentioned paying off debt earlier, but what about generating savings? You know, I imagine a degree of savings is helpful for anyone who is moving, but more so when that move is international. So can you speak to that a little bit?

08:34 Josephine: Yes. I mean, most people plan their international studies way ahead before they happen, because you even go through the process of first researching the institution’s, researching where to go. So when you start thinking about going to study internationally, I think you should start at nest. You should start putting money that you can have in case, even if you don’t get a full tuition waiver, even if you don’t get a full scholarship, to have something that you can either supplement yourself, or you can just supplement your expenses, or you can keep paying off the debt back home with that. It’s very important to definitely start the saving nest the moment you start looking into going to study international, and as you really want to have a cushion to land on

09:22 Emily: One other thing to point out here is in this process of researching where are you going to be moving, I find this the idea very daunting of figuring out what is the cost of living in a country that I’ve never lived in, in a city that I’ve never lived in. The US is obviously very diverse in terms of cost of living, and some places I’m thinking about bringing savings, like to a place where if you’re going to rent somewhere it requires, first month, last month deposit all upfront, that can be thousands of dollars easily, as well as just the actual transit, the transitioning costs. Plus sometimes there are fees to be paid to universities upfront. It depends on how your university structures things, but sometimes there could be over a thousand dollars, multi-hundreds of dollars in fees to pay near the start of the semester, that are not like prorated over time. So all of these things have to go into the research of where you’re going to be living.

10:23 Josephine: Yes, they definitely have to and I always advise people that do not look at the big cities. It’s very tempting to want to go to the big cities, because that’s what you’ve seen on TV all your life. And that’s where maybe some of the most universities that you’ve heard of are, but smaller cities actually have just as good universities, but their cost of living is lower. When you’re in a smaller city, your cost of living could really be low, which could then make it easier for you, but as you do the research, look at programs that offer graduate assistantships, if you can, if they offer full graduate assistantships. And like you said, some of them include fees and others don’t, so if you can get a program that pays for fees, pays for health insurance, and a stipend at least close to the cost of living in the town, because those are available online; you can look up the cost of living. That could make really your life more manageable, if you can get an assistantship that can give you full tuition, including fees, health insurance, and a stipend. Otherwise, fellowships or scholarships, because all of these are really, they’re not just readily available, they are competitive. It’s important to look out. Some of them are not even advertised, so sometimes you might have to just write to people at the university and say, “Hey, I’m looking at coming into your program, can you talk to me about the funding structures of your program?” Because some things are not advertise, and if you don’t ask, you wouldn’t know. So it’s really, it’s an investment into just looking into deciding where to go to ensure that you are not under financial strain while you are in your studies.

12:15 Emily: I totally agree. This is the same process, again, that domestic students need to go through is figuring out what the funding structure is. I would say most primarily in your field, because this is oftentimes very field dependent, like whether funding typically comes from fellowships or training grants, or whether funding typically comes from research assistantships versus teaching assistantships. Versus other fields, maybe the funding is very spotty. Sometimes it’s here. Sometimes it’s not. And all that you need to be going in with your eyes wide open as to what that situation is. I usually suggest a bit of networking and informational interviewing, not necessarily with the faculty, but rather with anyone you have a connection with who’s already at a university in particular, if you have one in mind or even just your field more generally. Like alumni associations, for example, is a great way to reach out to people. You don’t know who they are, but they have some kind of connection with you and maybe they’ll be willing to have a conversation with you because you can really get the best insights, I think from current students. Faculty, sometimes they might paint a little bit too rosy of a picture about the finances in a graduate program, because well, one, they may not be aware of some of the difficulties that students are going through. And two, they may want to recruit you and so they might be a little more optimistic than things really are. So I would say talk to with current students. Of course you do eventually need to connect with faculty members as you’re in the application process, but maybe when you’re just getting more information, just trying to narrow down the field, students are really great resource.

13:46 Josephine: Oh yeah. Students will give you the true picture without needing to paint it any rosey, because they have gone through it and some of them might not have had the same guidance. They will tell you the truth, so the reaching out to current students is definitely a must, I would say.

14:03 Emily: Yeah. And the extra wrinkle there for international graduate students, you can correct me if I’m wrong about this, but the extra wrinkle there is, well, really please do talk with other international students, and even particularly if there are some from your own country that would be especially helpful, because a lot of times programs don’t pay very well, like you just mentioned pay at least equivalent to the cost of living in a certain city. The resource that I really like to point to is the living wage database at MIT, livingwage.mit.edu. That’s an awesome resource for telling you in every county in the US or every metro area, what is the baseline amount of money that this research points to as needing to just get by just necessary expenses.

14:48 Emily: Okay, so speak with other international students, because I know what happens a lot on the domestic side is that if universities are not paying well enough, domestic students will side hustle. They will have outside jobs. And that is, as we discussed earlier, at least for jobs originating in the US, not an option for international students. Also debt is almost completely not an option because you have to have a US guarantor and that’s a whole big hurdle to get over. And so pretty much student loans are not accessible to international students unless you already have connections in the country. The fallbacks that domestic students have — the safety pressure release valves on their finances — are not necessarily available, usually not available to international students. That’s something really important to consider that if a domestic student is telling you, “Oh yeah, it’s okay, but I work 5-10 hours a week tutoring or whatever outside of my primary appointment,” please know that that option is not available to you and you’re going to have to make the finances work another way.

15:48 Josephine: Yeah, absolutely. And I would say that you would also need to just manage the little that you have when you get it. If you manage to get an assistantship, if you have a scholarship, if you somehow have an assistantship, even if it’s outside of your department, in the university, really try to stick to a budget. Draw up a monthly budget, stick to it, your income is fixed, so your expenses should be. Those really include things such as like sharing an apartment, to reduce the rent costs, just keeping your expenses low, using campus resources, such as buses to get around, instead of buying a car. If the university has a good bus system, you can use that to get around, you don’t need to get a car. Medical expenses, try to minimize those. Use the university campus health facilities, because medical expenses can be really high. I’ve had experiences in both times. When I was here the first time, there was a time I had to get an ambulance, and that cost me a lot of money. And this time I also had to go to an ER and that, again, cost me a lot of money that I had to continue to pay off. So try to minimize those. Save every month. If you have a stipend that you receive, even if it’s just $20, just put away something, you never know when you might need it, especially when you’re in a country where you might not have a network at all, not anyone that you can just call up. If you don’t have obligations at home, you will manage somehow. Try to stick to your budget and save every month, if you can.

17:42 Emily: Totally, totally agree with all of that. Especially about not committing yourself to higher fixed living expenses, right away. Yes, definitely find a place that’s on a bus line. I do remember, so I went to graduate school at Duke, so Durham, North Carolina. At the time, it was a very car dependent town, so moving there as a domestic student, I was like, “Oh, I have to buy a car.” I was living actually car-free before that point, but I was like, “Oh, Durham, I have to buy a car there.” But once I moved, I noticed that a lot of the international students who were my peers did not have a car yet because, there’s a process to go through. They had to get a license. They had to be able to get credit, to qualify for a loan. It took six months or 12 months for them to buy cars. So I was realizing, “Oh, well, they’re managing to get around okay. Yeah, they have to bum an occasional ride, but mostly they’re using the buses” and it’s actually pretty manageable. Try to set your life up that way, at least in the first year. You can reevaluate in subsequent years if that’s working for you or not, but really try to get those baseline expenses low until you have kind of your bearings in your new city.

Commercial

18:54 Emily: Emily here for a brief interlude taxes are weirdly, unexpectedly difficult for funded grad students and fellowship recipients at any level of PhD training. Your university might send you strange tax forms or no tax forms at all. They might not withhold your income tax from your paychecks, even though you owe it. It’s a mess. I’ve created a ton of free resources to assist you with understanding and preparing your 2020 tax return, which are available pfforphds.com/tax. I hope you’ll check them out to ease much of the stress of tax season. If you want to go deeper with the, or have a question for me. Please join one of my tax workshops, which you can find links to from pfforphds.com/tax. It would be my pleasure to help you save time and potentially money this tax season. So don’t hesitate to reach out. Now back to our interview.

US Funding Models and How They Impact International Grad Students

20:00 Emily: Was there anything else that you wanted to add about funding models in the US. We mentioned a few of them — assistantships, fellowships and scholarships. I did notice I’ll add here, in my own graduate program, a lot of international students did come with funding from their own home countries. So they were sponsored by their own federal government, so that is an option you can investigate in whatever your home country is, but I noticed that as another possibility.

20:27 Josephine: Yes. There are some countries that would have scholarships within their own funding structures, so if those are available in your country, that’s great. Some companies within the country could also sponsor you, or maybe even your employer, they might be able to sponsor something so that if you have those options, that is great. But the one thing that I also wanted to mention on the funding structure is that as you review an offer for an assistantship, for example, they usually do not include summer. That’s another aspect that you need to look at — what will you be doing in the summer? Will you be able to survive during the summer? Will you have an option to work? Would you be able to get an exception to work, or would you be able to have your assistantship extended to cover the summer? Because most assistantships do not include summer and many international students find themselves over the summer, really stranded and not having any funds. And it can be tragic.

21:32 Emily: Yeah. I would say that goes into the research that you need to be doing into how your field, and then how specifically the programs that you’re looking into are funded. Because as you said, many places do not offer summer funding, or at least the funding might be different. Like maybe you have an assistantship during the year, but then summer it’s on you to go and apply for fellowships and when win of them., so that could be the expectation. Other places do have 12 month, year round funding. It really just depends and so it’s something you have to go in your eyes wide open and aware of. Again, I’ll repeat, the same advice for domestic students read that offer letter really, really carefully, because I’ve read many that just say what your funding is for nine months, then just stop talking about what happens next. You really need to ask those follow-up questions — what’s typical, what’s on the table? If they just say, “Oh, well, yeah, you’re definitely going to be funded, we just don’t know exactly how, we don’t know exactly what the mechanism is, but don’t worry about it, you’re definitely gonna be funded.” That’s a great answer to hear, but if you hear, “Oh, well, right, summer’s on your own, you need to figure that out,” then, okay, you need to know that going in.

Money Management Tips for International Grad Students

22:34 Emily: Now in terms of strategies for money management, you already mentioned budgeting. You mentioned saving even if a small amount. Are there any other strategies that you particularly want to point out for international graduate students?

22:48 Josephine: It’s really more looking at what you can bring in from home and this simple things such as watching…I don’t know, some countries have exchange rates that really fluctuate a lot, so if you have some money at home, for example, and something your currency just suddenly became favorable in comparison to the dollar, you should set up the money transfer from home in that way to say, “Oh, look at my currency — if I transfer right now, I’ll get double the money then I would get some other time.” I mean, obviously it’s something you need to actively do, and maybe it needs a special skill, but it can benefit you if you transfer money at times when your currency is not too weak against the dollar. For me, that’s something you can, you can as well look at. Again, leaving no obligations at home, I think that that can really leave you free and be able to focus on your studies, because if you have a debt back home that keeps needing money from you, it will weigh on you and you will need to accommodate it in your budget here in the US, and that can just kind of set you back up.

24:13 Josephine: Try to find really people that you can share expenses with, like whatever you do, if you’re able to share expenses with people — I loved to travel, when I was here for my masters, because I had the time, unlike now, and I would find friends and we would go to visit a state that we have never seen before. And when we are in a big group, you are able to share that cost without necessarily breaking a bank and you you’re able to kind of also have a good time, so that you’re not just focused on your studies. You have a good time as well on a budget, but when you have friends that you can share with it keeps your expenses down. Phones, again are another thing where if you have a friend who you can share, who can maybe help you put on their family plan, which are cheaper, instead of subscribing for your own phone directly.

25:21 Josephine: Don’t get yourself into things such as getting cable and do what you can stream online. Books for school — there are many used books out there that are cheaper. There are rental options. You can also stick to just maybe borrowing books from the library and really checking which book do you really need to buy in the end, instead of just buying all the books that are required. Books can be really expensive, so I had worked with the library for the most part. At the beginning of the semester, what books do I need? Check the library. Are they available? And then if I see that it’s a book that is really important for my future, then I will actually I’ll actually go and buy it, but otherwise I just borrow, use it and take it back. That way I keep my expenses low.

26:16 Emily: I’ll add a note on the textbooks there. I ended up borrowing textbooks from other students who had taken the course the previous year or whatever. Sometimes there might be an edition change, but sometimes not. And so I found that to be really useful because yeah, some people do invest in books and they want them available to them long-term but yeah, they can part with them for a semester, especially when they know where to find you. So that’s another good resource is just students who took that class last year.

26:41 Josephine: Yeah.

26:43 Emily: I do want to bring up remittances. You mentioned earlier supporting maybe dependence back in your home country, but that could extend not just to your children, but maybe your parents or other family members. So you have any suggestions for people who are expected to help continue to support family members or the like?

27:04 Josephine: Yes. I think there’s many tools online that actually charge really, really low fees to transfer money back home and are easy and fast. If you have a bank account, which for the most part, you would probably have, there’s ways that you can send money through your bank to your country, but that tends to be more on the expensive side, in terms of the international wire fees. There are online tools, financial apps that you can use to send money back home, as long as the person back home is able to receive it, and you can track it, that’s okay. But for me, I found those services cheaper compared to doing it through my bank, because the bank is obviously to involve the process that you have to go through. The money might not be available as soon as you needed, if the people need emergency money. It’s better to use the international wire tools that are available online. I think, I don’t know if I should mention any of them, but there’s WorldRemit, there’s MoneyGram, and the likes. There’s this many of them. One really just has to look and see which one offers the lower cost for sending money to your country, because the cost also varies depending on where you’re sending the money. So check which one has a low cost of sending money to your country and a fast one as well, because often people at home are not going to wait a week if they need the funds. So find the ones that it’s cheaper and faster to send money back home instead of doing it through your bank.

28:55 Emily: Yes. Thank you so much for making those suggestions. That’s something that I hadn’t thought about, like the mechanics. And I know a lot of people hear about building credit in the US when they first move here. Can you make a couple comments about your experience with that, or the best way to do that?

29:11 Josephine: Credit card companies here just give you unsolicited credit offers. And for me, I would say resist them if you can. It’s important to build a credit if obviously you plan to stay here, and maybe eventually get a job. But credit needs discipline. And as a student who might not necessarily have the means to always service your credit, my main advice is to stay away from the credit, but if you find yourself not able to, and you would like to take on some credit, either for credit building, or just really to make up some gaps that you need, then make sure that you do pay it off. Do not take away anything that you are not able to settle within that the month. Or if you really need, if it’s an emergency, then you have to set up a fixed repayment plan to make sure that you pay back because you also don’t want to leave the country with debt. I would advise against getting debt. If you’re going to get a job, just wait until you have a job. But if you want to access the credit that’s available and you have some offers then make sure that you do pay them off.

30:44 Emily: Yeah, I think my perspective on that question is it is helpful to have a credit score, a good credit score, in terms of actually just finding rentals. And this also depends on the housing market that you’re in, so it might be different, you know, cities versus smaller cities. Go ahead and build the credit, but like you said, don’t actually use it by carrying debt or carrying balances or paying interest. Do it in a way that you don’t have to pay any fees, essentially, but you can still build your credit score for the point that you need it. And like you said, maybe you won’t really need a credit score until you need to get a job or take out, like I mentioned car loans earlier. That could be a possibility if you feel you can support the debt. It’s a funny thing because credit scores seem like they should only be useful when you’re taking out debt, but in fact, they creep into other areas of life as well. It’s like a helpful thing, although not maybe like strictly necessary depending on your housing market.

31:43 Josephine: Yeah. I mean, yes, you do get kind of penalized if you don’t have any credit history, like you have never taken out credit, they penalize you on that. But yeah, build as little as you can for what you need, but don’t get into it because you probably come across friends who have used debt to pay off their studies, especially the domestic students, but it’s different. I would say as an international student do not take on any credit that you are not able to service immediately.

31:17 Emily: I totally agree. And we talked about the dangers of having debt earlier, when you’re obligating a portion of your already very small stipend, already completely limited stipend. It’s a tool you have to be really, really careful with because it’s very easy to get in trouble.

32:33 Josephine: Oh yeah, and they just send you, sometimes the moment they have the address, they just send you offers — “you qualify for a hundred thousand”, “you qualify for a credit line and you also get this airline miles” and you’ll still have to pay for them, so just stay away from it.

The Financial Culture Shock for International Grad Students

32:50 Emily: Absolutely. Is there anything that has struck you about the financial culture in the US that you think international students need to know about before arriving?

33:01 Josephine: I think for me, what was shocking is really the 20 hours a week that that is really strict. I think when we come, sometimes we think, ah, I’ll be able to make my way around this. I’ll be able to find a job. I’ll be able to make extra money. You really can’t. So you are only allowed to work 20 hours a week and it’s important to keep that in mind, That that 20 hours a week is the only income you will have. Life is expensive. Just buying bread itself, I was shocked at how much bread cost around here. The culture of eating out for the most part and really not, not cooking at home. So you would have to resist always being out, because obviously you won’t be able to probably fund it, and find ways to really cook at home. For me, the credit card offers were the most shocking, because I’m like, “Do they know how much I earn? Why are they offering me this credit?” Because in my country getting credit is very difficult. You only get credit if you earn a certain salary and you can prove that you have a good credit history of paying off any loan that you have had before. So getting offers from companies to just say, you qualify for credit, without me doing anything, was what was kind of surprising.

34:40 Josephine: Big cities, again, very, very expensive, every little thing costs you money, so it’s better to stay maybe in like a rural town, which is very close to a big city where you can take and one hour train to a big city, for example, that takes off a lot. If you can stay in a smaller town, which has a train that goes into a big city for one hour, that kind of gives you the best of both worlds. But yeah, the financial culture in the US is just, it’s a spending culture. It’s obviously about revolving money in the economy and supporting the businesses. So it is just, we have to keep spending there’s always holidays that have different things that you need to spend on. You really need to be able to manage your spending within such a culture.

35:39 Emily: I agree. I think from what I’ve read about, let’s say permanent immigrants to the US, they come with certain, I’m generalizing, obviously the world is very diverse, but oftentimes the US is more consumeristic and then the countries that they come from. And so, maybe that first-generation keeps some of the mindsets from their home country, original culture, but it gets diluted, and within two, three generations, the descendants of those people are just totally in the thick of the consumerism of the US and completely Americanized in that way. I would imagine it can be quite shocking, and a lot of pressure to spend once you’re here.

36:24 Josephine: I think the other thing is also to pay your taxes. Obviously in many countries, people still pay taxes, especially if you’re in a salary, your employer has an obligation to deduct that, but the deadlines on when to file and all that could be like flexible. But here it’s really, I feel it’s important to keep to the deadlines and ensure that you file the taxes and don’t do anything to feel maybe, “Oh, okay. If I say this, then I can claim more.: Don’t do it. It will ruin your life and it will ruin your chances to ever be in the US, so do pay what is due to the tax man and do not claim anything you are not entitled to.

37:18 Emily: Yeah. So I think what I’m hearing you say between the rules about visas and then the tax stuff is, there’s not flexibility here. The rules are the rules, and you need to follow them. You need to toe the line, because especially as you said, if you eventually want to get a green card and stay in the US, there could be things that come up in your history, your record, that torpedo that application, if you’ve made any missteps early on. So really, really keep to the rules. I have corresponded with international graduate students who have skirted the rules and worked extra or whatever, and they got away with it, I guess, for the time being, but I always say don’t chance it.

38:01 Josephine: No, because then you walk around looking over your shoulder, wondering if someone will come after you at some point. So I think just live, you’re in another country, just live according to their rules.

Financial Advice for Early Career PhDs

38:12 Emily: Okay. Josephine, as we wrap up, what is the best financial advice that you have for another early career? PhD could be an emphasis of something we’ve already talked about today, or it could be something completely different.

38:24 Josephine: I think there’s a few things that I just need to emphasize, which is seek funding. There are options out there. Don’t up on your dream thinking, there’s no way I can study in the US, I don’t have the money. There are options. There are funds out there that sometimes go unclaimed. Talk to as many people as possible that can help you to give you the information on where to find funding, because there are ways for you to be able to fund your PhD dream. Again, avoid debt. Live modestly. The rewards will obviously come later, hopefully.

39:04 Josephine: And then just make sure that you do it for the right reason. As you make your decision to pursue a PhD, it’s not like a master’s program where you do it, you finish maybe within two years or one year, and you can go and get a job. It takes time. So at some point it will get tough. Whether it’s financially or just the coursework, it will get tough. But if you have a clear motivation, if you have a “why” you’re doing it, you will remain on track. Don’t come to do a PhD as a way to just be in the US because when it gets tough, you will find it hard to keep motivating yourself. When the stipend is much less than the salary you used to get back home before you resigned, there will come a day when you are like, why am I even doing this? Why did I have to give up my job to come and do this thing, which is now going to take me four years to finish, but if you have a clear motivation on why you’re doing it, I think it will keep you going., when you can keep going back to your why.

40:15 Emily: Beautiful, beautiful advice. Thank you so much for adding that. For the international listeners, I will add a few links in the show notes of previous interviews I’ve done, some articles I’ve written specifically for international students. There’s one especially, we didn’t touch on investing in this interview, but if you’re interested in investing as international student, I have an interview on how you can make that happen, so that could be of interest as well. Josephine, thank you so much for joining me on the podcast and giving me this wonderful interview.

40:45 Josephine: Thank you. Thank you, Emily.

Listener Q&A: Credit Cards

Question

40:47 Emily: Now it’s time for the listener question and answer segment! This week’s question is one I ran across on Twitter from Jake Thrasher, who gave me permission to answer it in this segment. Here is Jake’s Tweet: “Does anyone have good credit card recommendations for grad students? I’ve never had a credit card before, and I have no clue what I’m doing.”

Answer

41:08 Emily: Jake got a lot of great answers to this question on Twitter, and I’ll link to it from the show notes.

41:13 Emily: I’m going to answer this question not with respect to what might be the best credit card for a grad student right now, but rather how to find a first credit card no matter when you may want one.

41:23 Emily: First, you should determine what characteristics you’re looking for in a first credit card. It is recommended that you keep your first credit card open indefinitely because having a higher average age of credit boosts your credit score. So even if you open and close other cards later, ideally you would keep this one open for many years. Given that, I recommend that you sign up for a card with no annual fee and also with a creditor who has a reputation for good customer service. Some other features that are nice-to-haves but not must-haves, in my opinion, are ongoing rewards, a sign-up bonus, and waived foreign transaction fees.

42:03 Emily: If you have any inkling in your mind that you might carry a balance on this card in the future, look for a card with the lowest interest rate that you can find. I did this when I signed up for my first credit card because I didn’t 100% trust myself to pay it off completely every statement period. I ended up creating a track record of paying my cards off completely and on time, so now when I open credit cards, I don’t even look at the interest rate. But if you’re just starting out with credit cards, that’s reasonable to take into account.

42:34 Emily: Finally, to avoid applying for cards that you won’t get approved for, you should take into consideration your current credit score. If you’re new to credit you might not have a credit score or it might be not very high yet. You can search for cards that don’t have a credit score requirement in that case. For anyone new to the US, it’s typical to apply for a secured credit card as your first one.

42:57 Emily: Once you have your lists of must-haves and nice-to-haves, it’s time to start searching for current offers. You can definitely Google “best first credit card” or some variation on that and see what you get. I also like to use the sites bankrate.com and Nerdwallet.com. Those sites typically set up categories of cards for you to peruse, such as student cards, no annual fee cards, cards for bad credit, etc. However, please note that probably any credit card review you run across online has an affiliate or commission structure in place. That means that if you click through a review to open one of the cards, the site hosting the review will get paid, and that can bias their reviews. Look across a few sources to see if some cards commonly pop up within the criteria you’re searching for.

43:46 Emily: For example, when I’m doing this exercise in January 2021, I’m seeing that Discover offers a student card that probably fits the bill. Many of the people who responded to Jake’s prompt said they used Discover cards when they were starting out. I read Discover’s policy, and apparently after you are no longer a student they reclassify the card to a non-student card with the same benefits structure, so you keep the longevity of that account going. While I’ve never had a Discover card myself, they are one of the major players in the credit card space and their online reviews seem to be solid, which leads me to believe it will be easy to keep the card open for a long time.

44:22 Emily: Another great suggestion from the Twitter responses is to open your first card at a local credit union because they are likely to be less predatory than a bank. So that’s a great approach as well, provided that you will still be able to use the card with ease if and when you move away from the area that the credit union serves.

44:40 Emily: One final suggestion for Jake since he said he has no clue what he’s doing: Read my article titled Perfect Use of a Credit Card, which is linked from the show notes, and follow its advice to the letter. It’s super, super easy to slip up with a credit card and quickly get in over your head with the high interest rate. I’m very strict about how I use credit cards, which I explain in the article, and I suggest you set up rigid rules for yourself as well, such as treating your credit card exactly like a debit card.

45:11 Emily: Thank you, Jake, for posing this question on Twitter and permitting me to answer it here!

45:16 Emily: If you would like to submit a question to be answered in a future episode, please go to PFforPhDs.com/podcast and follow the instructions you find there. I love answering questions so please submit yours!

Outtro

45:29 Emily: Listeners, thank you for joining me for this episode. PFforPhDs.com/podcast is the hub for the Personal Finance for PhDs podcast. On that page are links to all the episodes show notes, which include full transcripts and videos of the interviews. There is also a form to volunteer to be interviewed on the podcast and instructions for entering the book giveaway contest, and submitting a question for the Q&A segment. I’d love for you to check it out and get more involved. If you’ve been enjoying the podcast, here are four ways you can help it grow. One, subscribe to the podcast and rate and review it on Apple podcasts, Stitcher, or whatever platform you use. If you leave a review, be sure to send it to me. Two, share an episode you found particularly valuable on social media, with an email list serve, or as a link from your website. Three, recommend me as a speaker to your university or association. My seminars cover the personal finance topics PhDs are most interested in, like investing, debt, repayment and taxes. Four, subscribe to my mailing list at pfforphds.com/subscribe through that list. You’ll keep up with all the new content and special opportunities for Personal Finance for PhDs. See you in the next episode! And remember, you don’t have to have a PhD to succeed with personal finance, but it helps. Music is Stages of Awakening by Poddington Bear from the Free Music Archive and is shared under CC by NC podcast, editing and show notes creation by Lourdes Bobbio.

Can and Should an International Student, Scholar, or Worker Invest in the US?

December 9, 2019 by Lourdes Bobbio 2 Comments

In this episode, Emily interviews Hui-chin Chen, a Certified Financial Planner specializing in advising globally mobile professionals through her business, Pavlov Financial Planning. In the interview, Hui-chin answers the questions: Is it permissible for an international student, postdoc, or worker to invest while in the US, and if permissible, is it advisable? Hui-chin and Emily discuss several factors that could impact the answers to these questions: whether the person desires to stay in the US long-term, the type of visa they are on, what type of income they have (W-2 vs. fellowship/training grant), and whether they have access to a tax-advantaged retirement account, such as a 401(k), 403(b), or IRA. Listeners to this episode should come away with clear next steps to further evaluate whether and where to invest while living in the US.

Links Mentioned in This Episode

Teaser

00:00 Hui-chin: I would actually recommend the default is think about, well, if I had the extra money I can invest for the long term, I don’t really need the money — why not? So there has to be a really good reason why you don’t do it.

Introduction

00:21 Emily: Welcome to the Personal Finance for PhDs Podcast for higher education in personal finance. I’m your host, Dr. Emily Roberts. This is season 4 episode 17 and today my guest is Hui-chin Chen, a certified financial planner specializing in advising globally mobile professionals through her business, Pavlov Financial Planning. In this interview, Hui-chin answers the questions: Is it permissible for an international student, postdoc, or worker to invest while in the US and if permissible, is it advisable? We discussed several factors that could impact the answers to these questions. One, whether the person desires to stay in the US long-term. Two, the type of visa they’re on, F-1, J-1 or H-1B. Three, what type of income they have, that is W2 versus fellowship or training grant. And four, whether they have access to a tax advantage retirement account such as a 403B, 401k, or IRA. I’ve wanted to help the international graduate students in PhDs in my audience think through these questions and scenarios for a long time and I’m so grateful to Hui-chin for giving us her expertise in this area today. Please consider sharing this episode with your friends and peers. Without further ado, here’s my interview with Hui-chin Chen.

Will You Please Introduce Yourself Further?

01:42 Emily: I am so delighted to have joining me on the podcast today Hui-chin Chen. She is a CFP. Her business is Pavlov Financial Planning. She is an expert in this area of international students, postdocs, workers living in the US and what can we do investment wise? I know this is a question of high, high interest in my audience. I get this question every single seminar I deliver at universities. Can I invest in the us? Should I invest in the US. What kinds of accounts can I use? So Hui-chin is here to help us answer these questions as best we can. It’s a very complicated and detailed area, but you know, we’re going to work through it over the next 30 minutes or so. So Hui-chin, thank you so much for, for joining on the podcast and please tell us more about yourself and your business.

02:29 Hui-chin: Well, thank you for having me Emily and I think you covered like all the high levels. Like you said, I’m a CFP, a certified financial planner and I focus my work on clients and international planning needs, whether they’re immigrants to the US, people who are temporarily working in the US that migh leave or US citizens that become expats. So sort of like your listeners who are technically expats from other countries. So I deal with international complexities day in and day out for my clients, so I’m happy to answer any questions you might pose today.

03:05 Emily: Yeah, I mean I have been searching high and low for an expert, just like you. Will you please mention your blog name, your website name.

03:12 Hui-chin: Yes. You can read more about just in general financial planning topics for global and mobile people on moneymattersforglobetrotters.com and if you want to learn more about my business or working with me, it will be on pavlovfp.com.

03:29 Emily: Great. And you have a YouTube channel as well, right? What’s the name of that?

03:32 Hui-chin: Yes. Well there’s no name because I just record more like a series of different topics. The most recent one I recorded, I call it “Welcome to the USA: personal finance edition”. I think some of you might be interested or your spouses who accompan you to the US while you study or work and they may or may not be able to. So it goes through a lot of the different steps of understanding the US system that will be helpful if you eventually do want to stay in the US.

04:04 Emily: Yeah, perfect. Tell me just a little bit more about yourself — when did you arrive in the US, where are you from, why did you come here and those kinds of things.

04:12 Hui-chin: I first arrived full time in the US in 2004 for my graduate degree in public policy and management. I did consider going into a PhD, but I did not eventually and I basically stayed. Since then, I found a job in the US, I continued my work and then I met my husband in grad school, but after working separately for a few years, decided to get married and he got a job posting overseas in different countries. So I also have a very personal interest in working with people from all over the world because, for example, right now, I’m actually not physically in the US, we’re somewhere else. So.

Investing in the US as an International Student

04:58 Emily: Okay. Yeah. Fascinating. Oh my gosh. I really hope people follow up with you about this. So what we decided to do with this interview was to answer two broad questions, which are the ones that hear during seminars. The first is am I allowed to invest in the U S is this permissible? Secondly, is it advisable for me to invest in the U,S while I live here? Now the second question is a lot thornier than the first, I understand, so we’ll kind of go through a few different, aspects of this question that might affect the first question or the second.

Is it permissible? Yes!

05:33 Hui-chin: All right, so you’ll have to prompt me later for all these different questions. I’m going to answer the easiest one which is whether, as an international student who is not a US citizen or a green card holder, can I invest through a US based account? The answer is yes. And the United States is one of the few countries that’s very friendly to foreign investors investing directly in the stock markets and the US also has one of the largest stock markets. A lot of foreign companies come to list in the U S. dot. Markets. So really, even if you were not in the US, even if you were just like live in your home country and you want to open a US brokerage account, you can actually do it.

06:24 Hui-chin: It’s not only permissible, it’s actually a sometimes recommended way to invest, especially if your home country gives you very little access directly to investing equity on your own. A lot of countries don’t even have what we call retail access, like in the US. In a lot of places you have to invest through insurance contracts or very expensive mutual funds. So investing directly as a retail investor, that means that you’re as an individual, not going through an advisor, just like open your own account and start investing, it’s actually a great opportunity to do so. Now you’re in the US, it’s a lot easier. It’s easier for you to find information like that instead of doing it in your home country and tried to find those kinds of information. So that’s the long answer. But the short answer is it’s definitely permissible to do so. Right now you’re in the US and you can invest no matter what kind of income that you have. We’re talking about just a normal broker brokerage account, so it doesn’t give you any tax advantages. It’s just for somebody who wants to buy some ETFs or even just stocks. For example, if you really like Apple, you want to buy Apple stocks, you’re totally permissible to open a brokerage account online and pressures that Apple stocks with whatever money you have, either from your work in the US, from your grants, from your fellowships, or from your wealthy uncle back home who wired you some money. Those are all possible ways to invest.

Opening a Brokerage Account

08:06 Emily: So I think there may be, you can tell me if this is the case, I think there may be a distinction between something being permissible under the law and being, will I actually find a brokerage firm who will work with me? Because what I hear from international students and scholars is, and I never know if this is the rumor mill or if it’s actually their own experience is, “well it’s difficult to find a brokerage firm to approach who will work with me.” Is that the case? Is it, I can walk up to any brokerage firm and you know, as an international student or scholar or worker and open whatever. Or is it like, Oh well some of them might, by policy, be excluding certain types of people from you know, opening accounts.

08:51 Hui-chin: That’s a good question. Sort of at the practically, how does that work? So the first scenario is that if you have, for example, if you actually pay social security, now you have a social security number and you’re technically getting your income and you’re an employee of your university, then, for example, if you go onto Vanguard, that’s all the information they ask for. So at Vanguard, if you provide those two types of information, you will be able to open the account and plus you have a US address because you’re currently living in the US, so you actually do not need to already be a green card holder or something in order to have it processed through it. It doesn’t mean that if you eventually decide to leave the U S and if Vanguard finds out, they will want to close the account. So that’s one scenario.

09:43 Hui-chin: The other scenario is that I know some people because their totalization agreements, they don’t even have a social security number or they choose not to have one in the US and so in that case, even though you’re physically in the US and you have a US address through your apartment or on campus, it’s basically you’re considered a foreign, like how you file taxes as a nonresident alien, you can be a foreigner. So in that case, if you still have pretty close ties with your home country and you do decide to go back, you can actually open an account like your just a person living overseas, but in that case it is pretty much dependent on the brokerage company being willing to work with you because every brokerage company, like Schwab or Fidelity or TD Ameritrade, it’ll have their own internal list of which countries residents they were willing to do business with. So you’re basically declaring to them, I am a resident of some other country, would you would do business with me? And then they may or may not. So that’s another way to go about it.

10:59 Emily: Got it. So, okay, an international student or scholar who does not have an SSN, when they actually try to go and open a taxable brokerage account, what should they say to customer service? I’m a resident of X country, but I’m living in the US currently, will you work with me? Is that the question that they need to pose?

11:22 Hui-chin: Yeah, the question will really be, I’m a resident of another country, because if that’s the case, you’re providing an address of that country. You may be able to provide a us mailing address, but that’s not the address that’s associate with the account. So if they know that you are foreign customer, they will have different tax reporting, different tax withholding. Instead of filling out a W9, you fill out W8-BEN, all the different things, so it’s whether you want to be considered as a foreigner to the US institution or somebody who’s a US resident.

12:01 Emily: Got it. So in the case where someone does have an SSN, probably because they’ve been employed W2 employee for at least part of the time that they’re here, would you say that it’s totally fine to then present yourself as a US person? Even if you’re still technically a non resident alien for tax purposes, even though you have the SSN, but let’s say you’re a nonresident alien for tax purposes, is it okay to go ahead and use that SSN and be like, I’m a US person?

12:26 Hui-chin: Well, that’s the tricky part because you are still for tax purpose, like your dividend capital gains interest will be taxed differently. So you do need to report, you need to write a W8-BEN instead of W9. So I would just give an example on how easy it is to actually open an account. For example, on TD Ameritrade’s website they actually ask what kind of visa you have. So I’m just saying that usually in those kinds of applications, if you have a SSN, you have a US address, you have a US employer, it’s most likely those online retail brokerage account, they will allow you to open the account. But you also need to make sure that they know that for tax purposes you need to fill out a tax form as a non resident alien.

Investing during Short-term vs. Long-term Stays in the US

13:17 Emily: Got it. Okay. I think that’s very clear now. Than you so much for going through that in detail. Okay. So then let’s go back to the scenario of “I plan to stay in the US long term, or hope to, not sure if it’s gonna work out” versus “I don’t plan to stay in the US long term”. We now know what’s permissible, but then what is advisable? Should a person who hopes to stay in the US long-term, has the ability to invest right now — is there any reason for them to shy away from doing that because they’re not sure about the longterm status? Let’s start with that question.

13:50 Hui-chin: So like I mentioned, I guess, eluded to earlier, because the US is such an attractive market, not in terms of return or performance, but in terms of access, you can invest in a broad index in so many different countries, so many different companies with such little cost, and it’s really hard to beat if you tried to do it in some other country. Usually there’s more brokerage fees more commission, there are more hurdles to jump through as an individual investor. So I would actually recommend the default is think about well if I have the extra money I can invest for the long term, I don’t really need the money — why not? So there has to be a really good reason why you don’t do it upon the US perspective.

14:38 Emily: Got it. And so maybe that person in that situation is thinking, “well, is it a good reason that I might eventually leave?” How would the investments that are in the US for the moment, do they to exit the country with that person? If the person ends up leaving, how does that work and how’s that handled?

14:57 Hui-chin: Yeah. So as I mentioned earlier, even for somebody who’s never been to the US, some custodians will be willing to open account for a foreign customer. So if you’re thinking about, “Oh, I’m just leaving after I finished my grad degree in three years,” if the country you’re likely going to is on whatever list that custodian posts, like it’s European EU country or it’s a relatively developed country or it’s a safe country, it’s not like a terrorist country that may be on the treasury list of “do not do business with”, then you’re probably safe to assume that you can continue to hold the account. But of course do your own research on the specific countries. It’s impossible for me to go into every single country.

15:46 Emily: We’ll link to a reference if you can provide a reference of that treasury list. We’ll put that in the show notes and check to see if your country appears on this list, in that case, okay, we need to tread more carefully. But let’s say, okay the country is not on that list, go ahead.

16:04 Hui-chin: Yeah, so basically what will happen is that for example, if you went the first route when we’re talking about opening an account, you open account with the U S address and everything, and let’s say you actually end up staying over five years or you actually got a job at under H-1B then leave, right? So you actually went from nonresident alien for tax purpose to a US person tax role, and then you’re leaving, so you’re going back to a non resident alien textual. So you do need to report to the custodian that you’re leaving this is my W8-BEN, this my new address. So of course you want to make sure the custodian does business with people at that address. And there is some other complexity in terms of what you can invest in. Some people from the EU countries might know there are some new regulations saying that the custodian is not supposed to sell ETFs that’s not registered in the EU to their residents. So that’s one type of complexity that may come up that whatever you invested in, you may or may not be able to add more to it once you leave. But whatever you have already invested in, there shouldn’t be any issue with keeping it there, as long as the custodian is willing to keep you as a customer.

17:30 Emily: Got it. So let’s say then that the custodian is not willing to keep you as a customer, for whatever reason. What happens in that scenario?

17:39 Hui-chin: It does happen. Over the last 5 to 10 years, even some US citizens are experiencing that, living overseas, it used to be okay that custodians know that they live overseas and now they’re not okay and custodians say please close your account. For normal brokerage account, of course the first step was if you want to keep your investment in the US, you can always find a different custodian to move your investment to. You actually do not need to sell those investments. You can do a transfer. It’s just whoever’s holding those stocks will transfer the certificate electronically to another custodian. It’s not like you’re selling and getting the money back. But if because where you’re going next or because of personal reasons, after investing in the US for five years, you’re willing to take the money and leave, you can go ahead and sell your investments, close the account, taking the money and leave. There’s no problem with that. There’s also some tax considerations there. For people who are considered a nonresident alien, getting capital gains while they stay in the US for over 183 days versus they do not. Because if, for example, if there is a tax year when you have a US based account and you have a lot of capital gains on your Apple stock because it increases in value a lot, but if you already finish your study and you’ve moved back to your country for two years you’re just wondering, well, will I be taxed on the capital gains? The question is, you actually do not get taxed on the capital gains, in the US. There could be also tax treaties that differs between the US and your country, but in general, the rule is the US does not tax and your country may or may not tax that. So that’s actually a good–

19:34 Emily: It sounds like in that situation, where you’re planning on moving the money out of the US, it sounds like that’s the time to consult a tax advisor in the country that you’ve moved to, right? How to execute this, when to execute this and the tax implications. Is that right?

19:51 Hui-chin: Yeah. So you’re definitely thinking about tax strategy, because, as opposed to the situation I talked about, if you sell the day you leave the U S for example, like “I’m just closing everything down, I’m moving back home.” And if you sell the stocks as somebody who has lived in US, even though you’re a nonresident alien but you were in the US as a tax home, when you sell the stocks, the capital gain is actually taxed at 30%, unless their treaty dictates differently as well. Like you said. So definitely talk to your tax advisor in your home country, as well to understand how the tax coordination works.

Taxable vs. Tax-Advantaged Accounts

20:33 Emily: Got it. And now, you mentioned earlier that all of that was for a taxable brokerage account. So let’s also throw in the scenario that the person has been using a tax advantaged retirement account — IRA, 401k, 403B — and they’re not going to leave it in the US, they’re are going to be moving the money out, what are the tax implications of making a withdrawal from whichever account type.

20:56 Hui-chin: Yeah, in that scenario, basically first of all, you should know that there is a penalty that applies if you take money out of and IRA, 401K, 403B. You should have known it before you put money in, but that’s the same rule that applies broadly to everyone, whether you’re a US person or not. Right? Because the reason is that the government gave you a tax benefit and it’s the incentive for you to keep the money there for retirement. They don’t want you to take the money out. So, if you need the money obviously and you think closing the account, paying the penalty and income taxes is still better going back home and doing it in a few years because of the different tax situation, of course that’s something you can consider. But knowing, with a penalty if you are not not going to need the money and it is eventually going to pay for retirement, one thing you also can consider is to leave the account open for a very long time and let it grow. Of course, you cannot keep putting money into it, but whatever is in there can continue to grow and you can consider taking the money when your income is lower and take the penalty, so the income and the penalty together is less of a hit, or you can take it out when you are 59 and a half, which is the current law of when you can take it out and then there won’t be a penalty but there is going to be taxes in the US and withholding as well.

22:42 Emily: It sounds to me, and this may be painting with too broad of a brush, but it sounds to me like you know, if you end up having investments in the US, if you’re eligible to keep them in the US, and you do leave, sounds like it’s a good idea to keep the accounts open. You won’t be contributing anymore, at least to the tax advantage ones, but it doesn’t sound like there’s a big reason to be closing accounts and moving the money out, unless it is that you are not permitted to keep the accounts open based on the custodian and the rules of the country that you’re going to, and how they deal with the US, is that right? It sounds to me like that’s the pattern. Like go ahead and keep the money here and then when you’re of retirement age in the country that you’re residing and then you can work on doing the withdrawals and dealing with taxes at that time. Is that kind of broadly what you recommend?

23:32 Hui-chin: I think that’s generally correct. Like I said, the main reason for that is because the US is such a individual investor friendly country to allow you to invest that way, so like I said, I would ask the question of why not. Of course everybody’s situation is different. If there is a legit reason that you think that you shouldn’t be keeping the investment in US, of course, you just need to understand the tax implications. Otherwise, keeping investing long-term in the US, not just — let me clarify this, not investing in US companies only, but using a US based account and custodian, who charges you basically right now no commission to buy and sell anything and with very low mutual fund costs, very low ETF costs, it’s a really good bargain compared to the other alternatives.

24:34 Emily: Yeah. So it sounds like whether an individual in the US, not on a green card yet, not sure if they’re gonna be able to stay long-term or planning to not stay long-term, if they have the ability to invest at the time that they’re living in the US, as you said, why not? Why not go ahead and open the taxable brokerage account or the IRA or the 401k or whatever it is and use it, because it’s sort of, as we know — we don’t have to go into about the power of compound interest — starting to invest earlier is fantastic. So basically don’t a waste or fritter away the time that you may be in the US, it might be longer than you expect. Go ahead and start investing and then deal with either moving the money out or keeping here or whatever later, once you know where exactly are you going to be living. I like that approach of why not. So whether the intention is to stay in the US long-term or to not, go ahead and use the time while you’re here. Use your access. Go ahead and open the accounts, again if you’re able to be able to invest.

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25:37 Emily: Emily here for a brief interlude. As a listener of this podcast, every week you hear strategies that another PhD has used to improve their financial picture. But listening and learning does not automatically translate into action in your own financial life. If you are ready to change how you think about and handle your money, but need some help getting started, I can be of service. There are two main ways you can work with me to create and implement a financial plan tailored for you. First, I offer one-on-one financial coaching, either as a single session or a series, as you make changes over the long term. You can find out more at PFforPhDs.com/coaching. Second, I offer a group program called The Wealthy PhD that is part coaching, part course, and part community. You can find out more and join the wait list for the next time I open the program at PFforPhDs.com/wealthyPhD. I believe it’s possible to succeed with your finances at every stage of PhD training and throughout your career. Let’s figure out together how to make that happen for you. Now, back to the interview.

Investing Under Different Visas

26:52 Emily: Okay. That was the first scenario to talk about. And then the second one was about visa types. So F-1, J-1 and H-1B. You’ve already said broadly it is permissible, but is it advisable? Are there any differences among people holding each one of those different visas that they should be thinking about? Or is it like, “no, the general consensus of it’s permissible, why not?” still applies no matter what visa type?

27:17 Hui-chin: I think that it’s not really only based on visa type, but the idea of combination of visa type, how long are you staying in the US — as, you know, F1 can turn from NRA to US person, J-1 as well, with different time frames. I would think about it as just, it’s very similar to what we were talking about before, like longterm or short term. Eventually, the main difference is tax treatment of if you’re staying, if you’re becoming a us person long-term, or even becoming a US citizen and we’re just going to pay US taxes forever versus at some point, in the future, it’s possible you will sever tax ties with the US, other than whatever investment you kept in the US. So overall investing in both scenarios are great. You just need to know the tax implication and the tax strategies, because if you’re switching from one to the other, there may be some opportunities for you to reduce taxes. And if you don’t think about it clearly or get the correct advice, you might find out, well I could have been taxed zero but now I’m getting taxed 30%.

28:28 Emily: Got it. So it’s not so much about the particular visa type, but rather at what point it flips to you being a resident alien for tax purposes, which is different on the different visa types. Okay, great! Quick one there.

Investing for Different Income Types

28:41 Emily: Third point that I wanted to talk about was the income type. So having W2 type income, or even self-employment type income, if that’s permissible, versus having this weird fellowship, training grant, non W2 type of income. This is very common for graduate students and also for postdocs. And so the general rule that certainly applies for US citizens and residents is if you have the W2 type of income that is taxable compensation for the purposes of contributing to an IRA. So let’s say in the scenario where the person does not have access to a workplace-based retirement account, they’re looking at can I open an IRA or not? Taxable compensation would be the W2 type of income. They can open an IRA and use that income towards it. If you go an entire calendar year and don’t have the W2 type of income, not taxable compensation, it’s all fellowship or training grant, and of course for international students, scholars, they’re not permitted to side hustle, they can’t have the second jobs and so forth, so there would be no possibility of having taxable compensation type of income. I guess the question is, whether they had access to an IRA or not, does it change the, we know it’s permissible, but does it change the advisable recommendation on whether to be investing at this time or not, knowing that in the one case with fellowship and training grant type income they wouldn’t be able to use an IRA but could be using a taxable brokerage account as we discussed earlier.

30:09 Hui-chin: I think that’s actually something we can just combine with the fourth one, so the tax-advantaged one. Like you said, eventually the main question is whether I have taxable compensation or I do not have taxable compensation.

30:23 Emily: Now, I want to jump in just to note that we’re recording this in November 2019 so the SECURE Act has not passed the Senate, yet. I am certainly hopeful that it will because what it does is it changes the definition of taxable compensation to include fellowship and training grant type of income, non-W2 income for graduate students and postdocs. So maybe when you’re listening to this, that law would have changed, and so certainly keep that in mind that we’re discussing this as what is the definition of taxable compensation. Basically, right now it does not include fellowship and training grant and come perhaps in the future it will, but right now it doesn’t. Okay, go ahead.

31:02 Hui-chin: I think at the very beginning you mentioned the whole connection to your personal service, right? So the idea of you can contribute to areas that you need to have taxable compensation and that’s related to the idea of it’s not just that it’s taxable, but it is a compensation for performing a service. If we’re just really thinking about why we’re using IRA, it is for the tax advantages. So even before you think about that, it’s like what would be the tax consequences or how much you save by using that kind of account and is that really helpful in your situation? I know, one question, you posed before is well, everybody wants a Roth IRA because they’re like, well, I’ll never get taxed in the future. I want to be able to contribute to that.” But a Roth IRA and traditional IRA have the same rule: the compensation needs to be taxable. So if it’s already not taxable, the government wouldn’t allow you to put money into something that’s never been taxed before. The Roth IRA is for the government to tax you up front, so it doesn’t tax you it in the future when you take it out.

32:26 Emily: Okay, let me, I just want to clarify this. This is a little bit new information to me. So when we have the two words, taxable and compensation, you have to have taxable compensation to contribute to an IRA. The compensation part of it is this, is it non-W2, fellowship and training grant type income? Okay, that’s not compensation. But now we’re also talking about the “taxable”, the first word there in taxable compensation. Your income has to be taxable in the US in the first place to be eligible to be contributed to an IRA. So maybe under certain tax treaties, your income for a time is not taxable in the US, that income would not be eligible to be contributed to an IRA. Correct?

33:05 Hui-chin: Yes.

33:06 Emily: Okay, great. Go ahead.

33:07 Hui-chin: Yeah, and the second one, we use compensation, but on the US-person side it’s called earned income. So if you look at IRS publications it’s always referred to earned income for US person related publications on contributing to IRA. Those two are equally important. It has to be earned income, so your compensation from service, and it’s taxable. The idea is that you will know whether you have that kind of income or not and if you have that income, meaning you’re getting tax in current year, so you’re thinking about, “Oh, if I contribute to an IRA or 401K, or 403B, I get taxed less. Or you contribute to it and now we get taxed, but in the future it won’t get taxed, which is the Roth side. In the first one, just the pretax contribution, it makes sense if you’re really high income. I think for the students, because if you’re on a 1040-NR, depending on the level of your compensation, because you may not have standard deduction, you may only have itemized deduction, some people can be at the zero percent, some people can be twelve percent or above, so you have to look at your tax situation of which bracket you’re going to be in to give you an idea of, well, maybe I want to do pretax instead. And the second one is, okay, so if I’m at a really low bracket, how about I just do Roths, but then the idea is you want the tax benefit in the future, right? But if you are going to move away from the US, how much more is that tax benefit versus simply using a taxable brokerage account, if you don’t get current year tax benefits. So those are the analysis that you need to go through, in terms of whether or not to use a tax advantage account, if you have the income type to do so.

35:20 Emily: Okay. Yeah. Let me see if I can summarize that. If you don’t have taxable compensation, can’t use a tax advantage account anyway, so go through the brokerage firm and go for the taxable brokerage account, if you’re able to use it, if you can set up that kind of cap. Okay. On the other side, we have eligibility for the 401K, the 403B, the IRA. If you want the tax deduction today for contributing to a traditional version of each of those accounts, great. Go ahead and take it and get a tax deduction today. Awesome. The money grows tax deferred, you’ll deal with the taxes in retirement or whenever you move the money out or whatever. For the Roth option, because of any of those kinds of accounts, because you don’t have the immediate tax advantage today, you really have to be asking yourself, does it make sense to put my money into a Roth IRA, no immediate tax advantage, but it will grow income tax free and then I can withdraw it income tax free in retirement versus can I just use a taxable brokerage firm, which is more flexible. And I think maybe the answer to that question, of course it will depend on the math in any individual’s scenario, but might come down to, again, what we talked about earlier, the expectation of staying in the US long-term or the hope, because really over the long, long term it is very advantageous to be using an IRA of any kind, Roth or traditional. But maybe if the time that you see yourself being in the US is on the shorter side, not to retirement or only five years or the length of your degree, then maybe it’s like, well why bother with the whole Roth IRA scenario? Let’s just go for the taxable brokerage account because if you are expecting to move the money out, for example, it’s kind of more of a pain to do so with a Roth IRA, because while you can withdraw your contributions, whatever gains have been in the account, if you try to withdraw those, then then the penalty comes into play. Is that correct?

37:12 Hui-chin: Yeah. And one big difference for people who eventually just move away from US and no ties in the US, I think I mentioned that before, you could qualify for 0% capital gains tax rate if you sell it, so it’s almost like the same, but the only difference is the dividend. So dividends are taxed at a flat 30% if your a NRA living outside of the US, but over the long term, if you’re investing in, for example tech companies, they don’t pay dividends anyway, and your main goal is for that capital gain growth for the next 30 years, then investing in Roth and investing in a taxable brokerage as an NRA living somewhere else is the same.

37:53 Emily: Gotcha.

37:53 Hui-chin: Why give yourself more ties to a Roth type account you can’t access and there’s more complexity.

38:01 Emily: I see. So really your investing strategy might change based on the tax treatment, if you’re no longer living in the US, of capital gains versus dividends. I actually do want to also add in for people who, I think this is still the case under post-tax custom jobs act, people who are the 12% marginal tax bracket or less, they have 0% federal tax on long-term capital gains and qualified dividends. So if you have a very tax efficient strategy, if you’re buying and holding, generally, as long as you stay in those lower tax brackets, you’re really going to see much or any income tax anyway. So why bother with the IRA, when you could be using a taxable account and not really having that much in the way of actual tax burden. Is that correct?

38:47 Hui-chin: Yeah. And just going back to definitely understand the tax treaty if you already know where you’re going to. Of course, most of the time you might think, well I’m just moving back to my home country, but then you get a job somewhere else and then you know, your life is not really as predictable, but at least understand the tax treaty between us and your home country, if you think it’s very likely you might end up there at retirement age when there would be IRA, 401k distribution consequences and compare that to, if I simply use a taxable brokerage, how does that change my dual country tax liability.

39:31 Emily: Got it. I think what I’m hearing mostly from this interview and the point that you just made about life being sort of unpredictable is, okay, here’s what you know. You know you’re in the U S right now. You have to be in the US for a few years, several years, maybe longer. Deal with what you know about right now, make the best decision you can for right now, and then if the situation changes later, you have to pivot. It’s possible to pivot. You’re not going to be losing your investments just because you’re leaving the country or whatever. It’s something that you can move with you, so you can adapt and change depending on, you know, the next step that you take. And hey, if you end up, if you do end up living in the US long-term, like until retirement age, it will be awesome if you started investing earlier and had started using an IRA or a 403B or a 401K earlier, as soon as you have access. Is that fair?

40:22 Hui-chin: Yeah. And I think those more specific questions and people questioning whether they should have account here. I think in my experience, I really mostly hear it from people from EU countries, Australia, Canada, because they feel like they have the same access when they move back. They don’t want the complexity of dealing with cross border things. And I totally understand that. And if you have good access to invest when you go back home, of course. But I think, what I know is being from a developing country myself is that most of the people who come to US see it as an opportunity and if you can have an investment in the US and don’t have to deal with turmoil that may be happening in your home country, most people jump on the opportunity. I don’t know that many people would say it’s a bad idea to open an account in the US.

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Where to Find More Information

41:26 Emily: Got it. I think we’ll leave it there. This has been fantastic. Thank you so much for joining me. Tell us again where people, can find you — your website, your business name and so forth.

41:35 Hui-chin: Yeah, sure. If you want to read more about what I just talked about, and this also how Emily found me, is on moneymattersforglobetrotters.com. It’s just a blog for reading. And if you’re interested in working with me, you can go directly to pavlovfp.com. That’s Pavlov Financial Planning.

41:54 Emily: Thank you so much for joining me today Hui-chin.

41:57 Hui-chin: You’re welcome.

41:58 Emily: Listeners, thank you for joining me for this episode. PFforPphDs.com/podcast is the hub for the Personal Finance for PhDs podcast. There, you can find links to all the episode show notes and a form to volunteer to be interviewed. I’d love for you to check it out and get more involved. If you’ve been enjoying the podcast, here are four ways you can help it grow. One, subscribe to the podcast and rate and review it on Apple podcast, Stitcher, or whatever platform you use. Two, share an episode you found particularly valuable on social media or with your PhD peers. Three, recommend me as a speaker to your university or association. My seminars covered the personal finance topics PhDs are most interested in, like investing, debt repayment, and taxes. Four, subscribe to my mailing list at PFforPhDs.com/subscribe. Through that list, you’ll keep up with all the new content and special opportunities for Personal Finance for PhDs. See you in the next episode, and remember, you don’t have to have a PhD to succeed with personal finance, but it helps. The music is Stages of Awakening by Poddington Bear from the Free Music Archive and is shared under CC by NC. Podcast editing and show notes creation by Lourdes Bobbio.

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Introduction

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Will You Please Introduce Yourself Further

Similarities and Differences Between Finances in Home Country and the US

Advice for Prospective International Grad Students

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US Funding Models and How They Impact International Grad Students

Money Management Tips for International Grad Students

The Financial Culture Shock for International Grad Students

Financial Advice for Early Career PhDs

Listener Q&A: Credit Cards

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Teaser

Introduction

Will You Please Introduce Yourself Further?

Investing in the US as an International Student

Is it permissible? Yes!

Opening a Brokerage Account

Investing during Short-term vs. Long-term Stays in the US

Taxable vs. Tax-Advantaged Accounts

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Investing Under Different Visas

Investing for Different Income Types

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Where to Find More Information

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