401K early withdrawal by non-resident

AtlantaTaxExpert · Aug 30, 2006, 02:03 PM

First, what was your visa status? J-1? F-1? H-1? H-1B? It makes a difference.

2) Taxes will probably be due.

3) No expertise in UK taxes, so I cannot answer.

SarahRajiv · Aug 30, 2006, 05:53 PM

Sorry, I forgot to mention that - I was on a H1-B visa in the US.

AtlantaTaxExpert · Aug 31, 2006, 10:22 PM

1) Okay, since you were here since 2003, you are considered a resident alien and are subject to the same taxes as a U.S. Citizen, to include the early withdrawal penalties. Now, it is likely you can transfer the money tax-deferred into some pension plan in the U.K. You need to contact an expert in British tax law to determine if that is possible.

If not, you can set up a withdrawal plan where you can withdraw the money gradually, definitely NOT pay the early withdrawal penalties and, very likely, not pay too much in taxes. Regardless, there is no reason to withdraw the money right away. Do a trustee-to-trustee transfer from the 401K to a traditional IRA which you can manage from the U.K via phone and e-mail.

SarahRajiv · Sep 1, 2006, 08:06 AM

Thanks a lot ! I got similar advice from the tax department of Fidelity as well. I am going to look at rolling over into a pension in the UK.

AtlantaTaxExpert · Sep 1, 2006, 11:03 PM

Glad to help!

Leigh60615 · Sep 15, 2006, 07:54 AM

Hi Did you get anywhere with your attempts? I am in axactly the same situation. Ex H1B holder with 5 years in the states and $40,000 in a 401K with Fidelity. I'm sure I was classed as a non-resident alien. My UK pension firm is telling me my 401K is 'stuck' in the states and I'll end up paying tax if I try to move it. I hope this is a lack of experience on their part. Let me know how you got on.

SarahRajiv · Sep 19, 2006, 12:13 PM

We decided that best alternative for us was to not transfer to a pension fund here but to withdraw out of american 401K every year so that we would be below taxable income but lose the 10% penalty every time. This would give us the most money, but in our pockets. Of course you would need to file a W8BEN to make sure fidelity does not automatically withhold 20% on tax from this annual withdrawal.

I was told it would be possible to roll-over the 401K plan into my current UK pension plan, but I never bothered to enquire further into it because even if I make a loss, the 401K money is more valuable to me in the next few years as cash than inside a pension fund.

mricci · Mar 26, 2010, 11:25 AM

Hello,
I have the same kind of question, but I am French, not living in the UK. I left the US 6 years ago. Could you tell me how to transfer my 401 account savings with as little taxes as possible?
Thanks,
M.

AtlantaTaxExpert · May 4, 2010, 03:54 PM

Further research since my original posting has shown that there are virtually NO tax-free transfer options to foreign pension planes.

That being the case, you should start withdrawing a set amount per year using the acturial tables published by the IRS for your life expectancy if you wish to avoid the 10% Early Withdrawal Penalty.

Better yet, keep the money in the 401K until you reach 59.5 years of age, at which point the 10% penalty no longer applies.

401K early withdrawal by non-resident

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