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guilleava · May 9, 2015, 05:46 AM

I worked in the US as an H1B worker in 2011, 2012 and 2013. In 2014, I only worked for 3 months and then left the country to go travelling abroad. Now Its May/2015 (still haven't gone back to the US). On 2014, I can be considered resident for tax purposes but not anymore for 2015. I am 30 years old and considering an early withdrawal of my 401k money.

If I withdraw all of the money from my former 401K plan (about 14000) this year, they will withhold 20% of the total amount and they said that the final amount taxed would be established in 2016 when I file my tax return.

1. Is it true that I could get taxed 30% as income tax plus a 10 % early withdrawal penalty since I will be considered non resident?

2. Should I withdraw the total amount in 2 different years so that my U.S. income is so low that it may be under my personal exemption, or if not at least it will be taxed in the lowest tax bracket?

Thanks in advance

AtlantaTaxExpert · May 9, 2015, 06:52 AM

You CAN file as a resident for 2014, which requires you declare ALL world-wide income and claim either the Foreign Tax Credit (Form 1116) or the Foreign Earned Income Exclusion (Form 2555) for the income earned OUTSIDE of the U.S.

You also have to submit a Residency Termination Statement.

They WILL withhold at least 20% in taxes on the 401K, because you will pay normal taxes plus the 10% Early Withdrawal Penalty. Fortunately, the state no longer has legal standing to tax the withdrawal, but the taxes are still pretty stiff. The better option, if available, is to roll the money into an IRA and manage it from wherever you are using the Internet.

Also, the phased withdrawal IS also an option to take advantage of your personal exemption. However, that phased withdrawal will NOT affect the 10% penalty, which cannot be mitigated with exemptions or deductions.

If you need professional help with your 2014 tax return. Email me at the email address in my profile.

guilleava · May 9, 2015, 11:42 AM

Thank you so much for your quick response!

In regards to the taxes in 2014, Could I also file as Non Resident by claiming closer connection to a different country with Form 8840, Closer Connection Exception Statement for Aliens?

So, is 30% just a general rule for non residents that could be lowered depending on other specific situations of the alien?

Thanks again!

AtlantaTaxExpert · May 9, 2015, 07:17 PM

You could file dual-status, but NOT as a resident alien given the fact that you were in the U.S. for the three previous years.