Currently at $1.2383. Hasn’t been this low since the start of COVID in 2020.
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Euro is also at really low/high levels depending on which side you are converting. Good for US travelers this summer. And US students abroad. Bad for US exports.
Question: Can I convert, say, $10K USD to GBP now and then credit this forex transaction to a corresponding 529 withdrawal in September to pay UK university tuition? The reason I don’t want to formally withdraw from the 529 account now is because my D22 won’t know whether she has met her conditional offers until this August.
I struggled with this as well for my son.
The problem we faced was he didn’t have a UK bank account where he could hold GBP. Wasn’t able to set that up until he arrived in the UK for the start of Michaelmas.
To try to hedge (the exchange rate was very favorable in January 2017 after he went unconditional), I liquidated securities in his UGMA account and bought FXB, an ETF that tracks the GBP. If you use a discount broker, the transactions costs aren’t too bad and the expense ratio is relatively low. Trade worked out well as the pound significantly appreciated by the time September rolled around. Did have to pay ST capital gains tax, so not a perfect hedge.
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$1.94 peak in 2003-2005 when I lived in London and as an expat I was paid in US$ by Goldman Sachs. Oh, how I wish it would have been down here at $1.24.
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My daughter heads to Germany next week and will be in London for 2 weeks in June. She may just be able to afford to eat while she’s there.
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Did you ask your accountant? I was able to do a number of things with 529’s that aren’t advertised (like paying for high school tuition). I didn’t actually use the 529 $ for direct payment but they balanced off on taxes.
If you have a foreign account of some type you can likely send USD convert and hold in that account. BOA has some good foreign services but we’ve used them more as payment so I’m trying to figure out the best ways to pay with a good forex rate. I’ve found you can pay in full based on unconditional offer. There are companies advertised as offering better rates and services. But I’m not using any of them until I know more. Banks are notorious for giving Forex rates that are far off.
@HazeGrey Why didn’t you just buy the GBP and hold it in the account instead of the fund? trying to understand if there is any advantage to what you did v. just converting.
I’ve converted some USD to GBP, enough to cover withdrawal from my D22’s 529 for fall term college expenses. I am using Wise, which offers very good rates.
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I think it’s up to you to decide how to account for it for tax purposes and there’s no need to show that the money you actually withdraw in dollars is then subsequently converted to pounds.
If you need say 10K pounds in September, and convert $12,400 today, it is up to you to decide if you withdraw $12,400 in September to match that or if (let’s say) the exchange rate is then $1.30 on the date you make the payment you then withdraw $13,000. I think either is perfectly defensible from a tax perspective, I just wouldn’t chop and change the method, especially not in the same tax year. And you do need the 529 withdrawal to be in the year the expenses were incurred.
If you effectively make a profit on the exchange rate then my assumption has been that most people would not declare any foreign exchange gains or losses on their US tax return unless there’s trading going on (moving money back and forth to make investments) or you are selling an investment (eg a house or shares) that is valued in pounds and would generate a taxable gain/loss. Say you buy a car while in the UK and sell it 5 years later. That’s not a taxable event (assuming you didn’t make a profit) so I can’t see anyone accounting for exchange rate gains or losses, it is simply a change in the price you realized.
Non-taxable events (like normal day to day spending while overseas) wouldn’t typically result in gains/losses - at least I think of it as effectively cash accounting where you are getting something at a higher or lower price in dollars when you buy it. That’s why to me the easiest thing is to simply withdraw the amount in US dollars corresponding to the expenses on the date they are incurred, even if you make a separate transfer of other funds at a better/worse exchange rate now.
Put another way, even though you may need to declare your end of year UK bank balance on your US tax forms (though not the return itself), unlike a business you don’t reconcile the change in your personal balance sheet with all income and expenses which is what a company would do to determine exchange rate gains/losses.
Thanks, @Twoin18. Glad to hear the timing of the forex transaction doesn’t have to follow the actual withdrawal from the 529 account.
I saw Wise. Looks good. Just makes me nervous to use a service to send lots of money. But it looks legit. We’ll look after first major payments are set.
I’m going to ask our banks what they can do ( and if they use an interbank rate or something else).
We’re not using 529’s for payment but I do want to get a good forex rate on a regular basis.
We don’t have any accounts in the UK but do have another account in Europe so might be able to lump sum send money there and then transfer to kids bank account as needed(once it’s opened).
In any case, the exchange rate looks great for our purposes.
Yes Wise is what I’ve used for several years to transfer money to and from family in the UK with no problems at all. They also have the ability to provide you with an account in UK pounds to hold your foreign currency and allow you to make direct bank transfers which how payments are usually made within the UK (a bit like Zelle in the US but you just use the account number and sort code).
Given the complications and additional costs that Brexit introduces, that might be easier than shifting it to a European bank. It also might avoid having to declare it as a foreign bank account of over $10K to the IRS since I think it has a US custodian (but you should check).
Thank you. I’m going to look into Wise. Just seems so risky when you’re unfamiliar. Some of those payments can get really complex.
I get that. Since I have worked and lived in different countries (and continue to be paid in different currencies by clients), I have USD, GBP, and Euro bank accounts so I don’t leave funds in Wise for too long. Not that this will be an effective recourse if something goes wrong, but one of my former students works at Wise!
Edited to add: Another thing. In the US, Wise holds funds at smaller financial institutions (Evolve Bank & Trust and Community Federal Savings Bank). That gave me pause at first but I’ve sent funds to both with no issues.
All - any thoughts on whether this level (or even lower) is the new normal for the pound?
Perhaps temporary while inflation rising.
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I think it’s not so much the pound falling as the dollar rising (the Euro is at $1.04 and the Hong Kong dollar peg is being questioned). That’s because the expectation is for US interest rates to rise in line with the path set out by the Fed, while UK/European rates aren’t rising as far/fast (note the UK economy is more sensitive to interest rates because so many mortgages are adjustable rate).
But if the US economy tips into recession and the Fed pulls back on some of its projected rises (which seems to be the message from 10 year Treasuries falling back below 3% in recent days) then forex markets might change their view. Though perhaps my view is colored by sitting in Silicon Valley amid a bunch of companies that look pretty screwed.
And from a broader perspective, Euro/dollar going below parity is rare and probably unlikely to be sustained. On that basis I’d say there isn’t much room for the dollar to strengthen significantly further on a more than temporary basis (eg flight to safety during a crash).
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I’d like to think it’s temporary as well, although I wonder whether the accumulating toll of Brexit and the government finally clamping down on the London laundromat mean the pound will steadily drift lower.
https://texmexexpats.com/if-i-hold-pesos-within-a-wise-account-do-i-have-to-file-an-fbar/
According to this article best to file an FBAR with tax return.