[penfold]

Hello,

I have lived in California now for 2 years and paid into a 401K through my company with Mass Mutual and I am 30 years old. I am leaving the company and country in November and I want to cash out my 401K. I understand the options I have but I would rather cash out the money and put this towards a retirement plan in the UK that I can continue to add to over the years. A few questions;

If I apply for the cash out when I am no longer in the usa, do I have to pay state taxes?
What forms are needed to file the application and do I file them when I am back in the UK or before I leave the USA?
How would this effect my tax return for 2009?

Thank you for any advice you can give

Chris

[AtlantaTaxExpert]

Chris:

If you are NOT resident in any state at the time of withdrawal, then NO state tax is due.

There are no specific forms to file. Just tell the 401K custodian that you are withdrawing the funds early.

You will pay normal federal income tax on the withdrwal, PLUS a 10% Early withdrawal Penalty.

Now, as an alternative, you can go to Charlkes Schwab and set up a rollover IRA, then roll the money over into that rollover IRA and manage it from the UK via the Internet. This allows you to AVOID the 10% Early Withdrawal Penalty and still save for your retirement. When you eventually withdraw the money, you WILL have to pay U.S> taxes, but probably not at more than 10% if you plan properly. Something to think about.