Can I purchase U.S. mutual funds if I'm not a U.S. citizen and not a U.S. resident? -- Richard Byrne
You can, but you may not want to.
There is no U.S. law prohibiting the sale of mutual funds to nonresident aliens in the U.S. But from an investor's perspective, there is at least one big practical impediment: taxation.
U.S. mutual funds are required to distribute net investment income and realized gains to shareholders, and for nonresident noncitizens, there is usually mandatory withholding on those distributions for income taxes. (Rates vary depending on treaties the U.S. has with other countries.) Plus, there also may be tax consequences in your home country.
"If what you want is the underlying investment, you may be able to get it in your own country with a much more favorable tax treatment," says Janet Olsen, an attorney with
Bell, Boyd & Lloyd
in Chicago. If you want a fund that invests in certain types of U.S. securities, you may be able to uncover one that is run or sold in your country of residence. U.S. fund companies sometimes sell offshore versions of their funds for investors outside the U.S.
If you are interested in a particular fund family, I suggest you call that company to inquire about specific rules and offerings.
for example, you can open an account as a nonresident alien, but you must have a U.S. address.
If you have questions about U.S. taxation of nonresident aliens, email your query to our Tax Forum columnist
firstname.lastname@example.org. As always, include your full name. You always are welcome to send your fund questions to me at
I have continued to get email from readers detailing their problems with poor customer service from fund companies.
Tony Welch wrote in to make a very valid point: "In my mind, one of the worst forms of customer service remains excessive turnover and capital-gains distributions. To me, this shows a total lack of regard for the shareholder," he writes. "The only thing worse than poor performance is paying ordinary income tax rates on the poor performance!"
Tom Vayda emailed me with a list of problems he has had with
. First on his list: "I took some of my 401(k) from Fidelity and sent it to another fund company. I never touched the money -- direct transfer. Fidelity incorrectly indicated that this was a taxable distribution. It took many calls to get Fidelity to send me a letter acknowledging their mistake and years of letters to get the
Internal Revenue Service
and the state to agree that it was not taxable." His list of complaints goes on, but "needless to say, most of my money has been moved elsewhere," Vayda says.
I received a few emails in defense of
T. Rowe Price
. "I was surprised to hear that 'horror story' about T. Rowe Price and the problem with an IRA that cost some tax money. I've been with this group for many years and have gotten very good service," says Keith Prahl.
Bruce Binkowitz agrees: "Not to wish any bad luck onto myself, but I have a mutual-fund account with T. Rowe Price and have had no problems with either phone reps or their Web access," he says "Both my wife and I rolled our IRAs into Roth IRAs in 1998 with Vanguard. The transition went smoothly, and we have been satisfied," Binkowitz adds. "Now, if you had asked me about my mortgage company..."