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latex2e · Apr 18, 2009, 11:29 AM

I am currently a US resident (as in 1040, but no green card), but will leave for Romania and become nonresident alien next year. What should I do with my 401(k)?

1. Liquidate and pay the penalty now (I will be in 15% tax bracket in 2009)
2. Rollover to IRA and manage remotely:
2a. How much tax on distributions before age 60?
2b. How much tax on distributions after age 60?

What I have found for 2a/2b:
* 10% withholding just because of foreign address (even if you were a citizen!)
* 30% withholding for nonresidents
* for Romania, could be only 10% for interest and dividends, due to treaty (IRS pub 901), no word about IRA distributions,
* no mention of a difference before or after 60

Any pointers ore help would be appreciated,
L.

AtlantaTaxExpert · Apr 20, 2009, 11:08 AM

1) Not recommended.

2) Yes, do that.

2a/b) The 10% Early Withdrawal Penalty generally goes away once you hit 59.5 years of age. The tax depends on your total U.S.-sourced income in the year you make the withdrawal.

The wihholding is just a down-payment to get you to file the annual tax return.

latex2e · Apr 20, 2009, 11:50 AM

Originally Posted by AtlantaTaxExpert

1) Not recommended.

2) Yes, do that.

2a/b) The 10% Early Withdrawal Penalty generally goes away once you hit 59.5 years of age. The tax depends on your total U.S.-sourced income in the yea yo make the withdrawal.

The wihholding is just a down-payment to get you to file the annual tax return.

AtlantaTaxExpert, thanks for the answer!

Do you mean I will have to file 1040-NR every year I get a distribution, even if I do not reside in US? If yes, a solution is to withdraw a smaller amounts every year so that to pay minimal taxes (e.g. 5% for $7000).

But are you positive that after 59.5 years, I will pay 0 taxes, even as a foreign individual, even if the distribution will go to a non US address? I could use a pointer for reading on the issue (IRS publication, etc).

Thanks,
L.

AtlantaTaxExpert · Apr 20, 2009, 02:13 PM

Yes, that is exactly what I mean.

No, I did not say that you would pay zero tax after age 59.5. I said the 10% Early Withdrawal Penalty goes away.

You would still pay taxes on the distribution. How much depends on the tax treaty THEN in effect between the U.S. and your home country. Off-hand, I would say the tax would be 10%, but it could be higher or lower (or even zero) depending on the tax treaty.