Hello!

I have a somewhat complex situation, and I am looking for the best path to proceed from a Tax perspective.

I am 30yo, currently employed in the US.. and am looking to leave my job, and move to the UK (I have dual US and Irish Citizenship).

My income is approximately $120K per year (including stock options), and I have approximately $70K saved in a 401K account. Unfortunately I also have about $40K spread about in various forms of debt.

What I would like to do is withdraw my 401K account, pay whatever taxes & penalties that I must, pay off my debt, and essentially start over fresh in the UK. Any advice?

Lastly.. I have approximately $25K in Capitol Losses credit from last year. Will I be able to utilize that towards any portion of the 401K gains, or does that all count towards income?

I am new to this site, and I greatly appreciate any help that you can provide. Thank you!

-jason

What I would like to do is withdraw my 401K account, pay whatever taxes & penalties that I must, pay off my debt, and essentially start over fresh in the UK. Any advice?


Yes, my advice is to leave the 401(k) alone. The taxes and penalties would grab a big chunk of your savings that would more than offset any gains you get by paying off your debt.

Jason:

FOUR WORDS: DO NOT DO IT!

Given your income level, you will pay AT LEAST 25% and perhaps as much as 50% in taxes on any early distribution from your 401K. That will more than offset any interest charged on your current debt. The capital losses cited will NOT direct offset the penalties (which cannot be mitigated), and the offset is limited to $3,000 per year, with excess losses being carrued forward to future years.

It would be better if you rolled the money into an IRA and manage the IRA via phone and email from the UK. I know that Charles Schwab will be able to help you set up that rollover IRA.

Jason:

FOUR WORDS: DO NOT DO IT!

Given your income level, you will pay AT LEAST 25% and perhaps as much as 50% in taxes on any early distribution from your 401K. That will more than offset any interest charged on your current debt. The capital losses cited will NOT direct offset the penalties (which cannot be mitigated), and the offset is limited to $3,000 per year, with excess losses being carrued forward to future years.

It would be better if you rolled the money into an IRA and manage the IRA via phone and email from the UK. I know that Charles Schwab will be able to help you set up that rollover IRA.

Thanks for the responses guys. If you could indulge me with one follow-up, I would appreciate it!

If I waited until Jan 1, left my job and moved to the UK.. it seems like I would be taxed in a much lower bracket.. since the 401K funds would be my only US income in 2010. Does that make sense?

Lastly.. I'm not entirely sure I will be able to avoid cashing out my 401k (though I will attempt to). I'm not looking to maximize long term savings. I need to rid myself of the current debt, and moving continents incurs a number of expenses as well.

Thank you again!

Even if you wait until next year, you start with losing $7K. Then the likelihood is that another $15-20K will go towards taxes. So you are left with less than $50K. Is losing almost $25% of your savings worth paying off debts?