I am an Irish resident who worked in US in 1990s. I have approx $200k in IRA. I am currently resident in Ireland for 10 years, have no US income and am aged 45 and want to withdraw with minimum taxes. Does anyone have the best method of doing so. What US taxes are payable and what forms need be completed.

Are there benefits to transferring to Irish equivalent retirement fund or can I withdraw funds with minimum US taxes.

Tim. Ireland

You MAY be able to transfer the money to an Irish=equivalent retirement fund; you will need to contact a tax professional in Ireland to determine HOW to do it.

If a transfer is not possible, you can start withdrawing the money without incurring a 10% Early Withdrawal Penalty by setting up a withdrawal plan that withdraws the money in roughly equal portions based on your life expectancy. You WILL have to file a non-resident tax return and pay some taxes, but, given your age, the annual withdrawal amount should not exceed $10,000, so the taxes will be less than 10%.

Tim,

Article 18 of the U.S.-Ireland Income Tax Treaty would seem to indicate that no U.S. tax would be imposed on the withdrawl. Only Irish tax should be imposed. The Technical Explanation to the treaty (at http://www.irs.gov/pub/irs-trty/iretech.pdf page 54 of 100) indicates that Article 18 includes IRAs and that it includes lump sum distributions. The 10% early withdrawl penalty is an addition to the amount of tax due. Since no tax should be due, no 10% penalty should apply. The administrator of the IRA may feel obligated to withhold U.S. tax on the distribution to cover themselves. If this occurs, you would need to file Form 1040NR to request a refund. I would recommend that you discuss this with the IRA administrator or a U.S. tax advisor that deals in this area. I vague recall something about the U.S. IRS not treating certain IRAs as pensions if certain requirements are not met. If not treated as a pension then Article 18 of the treaty would not apply and U.S. tax (plus the 10% penalty) could apply.

I agree with IntlTax's answer.

If you show the treaty citation to the IRS administrator, he should waive the mandated 20% withholding and send you the entire distribution.

He would, however, have to send the Form 1099-R to BOTH the IRS and to Ireland Department of Taxation.

You may still have to file a non-resident tax return (Form 1040NR) to account for the distribution and file Form 5329 with the Form 1040NR to explain the exception for the non-payment of the 10% Early withdrawal Penalty.