Hello all,
I signed up for Generali Vision Plan for 15 years on Oct 2015. I was confident I could pay my monthly premiums of $1350 for 15 years. I am an expat in UAE and the 'respectable Independent Financial Advisor' sold this to me as I was 28 then and ;I should do the smart thing by starting saving early; so that I have a nest egg for my 40s. So I signed up. I have no financial background and have been an expat all of my life. I did tell him that I expect to immigrate to Canada within 3-4 years.
My Plan details:
Monthly Charge: $4.5
Annual Charges= 2% of ALL premiums paid from plan outset to plan anniversary date (!!! - I didn't read T&Cs properly and expected the annual charge is only for the yearly premiums paid - which would be fixed and somewhat reasonable). After year 10, the annual fees reduce to 0.3% per annum. (0.3% of a large sum by then)
Lock in period= 15.6 months. 1 year and 5 months have now passed and I have paid in $24,300 already. Next payment due end of this month.
Now the problem - I have been offered a job in USA and the company will sponsor me for a green card. I am hoping to become an American citizen - definitely before 15 years. This is hopefully a permanent move.
The problem is taxation of American resident or citizen which I will be.
At 15 years, when the plan matures and the total surrender value is credited to me, I thought it would be taxed as Capital Gains tax - which would be 15% (!!) Assuming I have 6% growth, I would have paid in $243,000 and the surrender value would be $327,761 - but the gains tax would wipe out most of my gains (even though my continuing payments from within US would be from my after tax income - so really unfair!).
But apparently this type of foreign based mutual fund may be classified as 'Passive Foreign Investment Company'. This is the definition:
"If a foreign-based mutual fund or partnership has at least one U.S. shareholder, it’s designated as a Passive Foreign Investment Company, or PFIC. The classification includes foreign entities that make at least 75% of their revenue from passive income or uses 50% or more of their assets to produce passive income.
The tax laws involving PFICs are complex, even by IRS standards. But overall, such investments are at a significant disadvantage to U.S.-based funds. For example, current distributions from a PFIC are generally treated as ordinary income, which is taxed at a higher rate than long-term capital gains."
If so, I could be taxed with a rate as as high as 50%!!!
I don't know if I am understanding this correctly - what should I do? Forget my investment and get out of the plan instead of sinking in more money...Forfeit my 16 months of payments for initial units ($21,600 or maybe higher) and cry myself to sleep?
I signed up for Generali Vision Plan for 15 years on Oct 2015. I was confident I could pay my monthly premiums of $1350 for 15 years. I am an expat in UAE and the 'respectable Independent Financial Advisor' sold this to me as I was 28 then and ;I should do the smart thing by starting saving early; so that I have a nest egg for my 40s. So I signed up. I have no financial background and have been an expat all of my life. I did tell him that I expect to immigrate to Canada within 3-4 years.
My Plan details:
Monthly Charge: $4.5
Annual Charges= 2% of ALL premiums paid from plan outset to plan anniversary date (!!! - I didn't read T&Cs properly and expected the annual charge is only for the yearly premiums paid - which would be fixed and somewhat reasonable). After year 10, the annual fees reduce to 0.3% per annum. (0.3% of a large sum by then)
Lock in period= 15.6 months. 1 year and 5 months have now passed and I have paid in $24,300 already. Next payment due end of this month.
Now the problem - I have been offered a job in USA and the company will sponsor me for a green card. I am hoping to become an American citizen - definitely before 15 years. This is hopefully a permanent move.
The problem is taxation of American resident or citizen which I will be.
At 15 years, when the plan matures and the total surrender value is credited to me, I thought it would be taxed as Capital Gains tax - which would be 15% (!!) Assuming I have 6% growth, I would have paid in $243,000 and the surrender value would be $327,761 - but the gains tax would wipe out most of my gains (even though my continuing payments from within US would be from my after tax income - so really unfair!).
But apparently this type of foreign based mutual fund may be classified as 'Passive Foreign Investment Company'. This is the definition:
"If a foreign-based mutual fund or partnership has at least one U.S. shareholder, it’s designated as a Passive Foreign Investment Company, or PFIC. The classification includes foreign entities that make at least 75% of their revenue from passive income or uses 50% or more of their assets to produce passive income.
The tax laws involving PFICs are complex, even by IRS standards. But overall, such investments are at a significant disadvantage to U.S.-based funds. For example, current distributions from a PFIC are generally treated as ordinary income, which is taxed at a higher rate than long-term capital gains."
If so, I could be taxed with a rate as as high as 50%!!!
I don't know if I am understanding this correctly - what should I do? Forget my investment and get out of the plan instead of sinking in more money...Forfeit my 16 months of payments for initial units ($21,600 or maybe higher) and cry myself to sleep?