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-   -   Tricky - 401k vs Roth when potentially moving overseas (non US citizen) (https://www.askmehelpdesk.com/showthread.php?t=178410)

  • Jan 30, 2008, 07:04 AM
    konradsa
    Tricky - 401k vs Roth when potentially moving overseas (non US citizen)
    Hello,

    First of all, kudos to everybody answering questions in this forum. It is great to get such quality advice for free.

    Here my question: I am a German national working here in the US (green card application currently filed). Me and my fiancé are thinking about moving to Germany eventually (if we move, not until in a couple of years).

    I was looking at opening at Roth IRA for 2007, since the future withdrawals will be tax-free, compared to the 401k I already have. However, what would happen if I move back to Germany, get old and retire? Could Germany tax my retirement income out of my Roth IRA, although it is supposed to be tax-free in the US? In this case, I guess I'd better stick with a 401k.

    I hope somebody can help me with this question. I know that nobody has a little crystal ball and can look into the future, but it would already be good if somebody would know how this work nowadays.

    Thanks in advance!
  • Jan 30, 2008, 03:29 PM
    AtlantaTaxExpert
    Sorry, I am afraid to answer that question in regards to U.S. tax law, since it is likely that a Democrat will be elected and then who knows how the tax laws will be changed.

    As for German tax law, I have not a clue!
  • Jan 31, 2008, 01:28 AM
    MukatA
    konradsa should also keep this in mind:
    If you has the U.S. green card, then you must file the U.S. return if your worldwide income exceeds the filing requirements, and this is true even if you are living outside the U.S.
  • Jan 31, 2008, 05:09 AM
    konradsa
    Thank you both for your answers.

    Since the places I will most likely move to have higher taxes than the US, I am not all that much worried about the taxes I will need to pay when I have a green card.

    But coming back to my question. When I have a Roth IRA and retire, and the income is tax-free in the US, shouldn't it also be tax-free in Europe then? If you do not have a definite answer, what is your "educated guess" on this topic?

    Thanks!
  • Jan 31, 2008, 09:50 AM
    MukatA
    When you withdraw from Roth IRA, you are withdrawing (a) the amount you deposited in your Roth IRA and (b) interest or other gain on your deposit.
    The amount (a) is just like an amount you put in a CD or bank deposit so it can't be treated as income in the year you withdraw it. It was income in the year you deposited it.
    The amount (b) may be taxable.
  • Feb 1, 2008, 03:10 PM
    AtlantaTaxExpert
    Noted!
  • Feb 1, 2008, 03:33 PM
    konradsa
    Ok,

    Well, wouldn't your (non-binding) advice for me then be to keep everything in a 401k, and not put money in a Roth? Because when I ever withdraw money from a 401k in retirement and I live in Europe, I would need to pay tax in the US anyway, and can then it should be relatively easy to avoid double taxation.

    If I, however, withdraw money from a Roth, which would be taxfree in the US including the interest income, then Germany may still tax me. That would then kind of make the Roth IRA a bad choice for retirement saving.

    Thanks in advance!
  • Feb 3, 2008, 05:12 AM
    MukatA
    1. When you withdraw from ROTH only the interest part is tax free income.
    Amount you invested in ROTH is not income at the time you withdraw it.

    2. It is easier to withdraw money from ROTH without paying early withdrawal penalty. But if you withdraw form 401K before 59 1/2 age, you will also pay 10% early penalty.

    So finally you have to make the decision.
  • Feb 4, 2008, 10:56 AM
    AtlantaTaxExpert
    Konradsa:

    I tend to agree with you about the taxation issue IF you determine that the Roth IRA distribution is considered taxable income by the German tax authorities.
  • Aug 9, 2011, 11:47 AM
    almarlin
    Konradsa,
    I am faced with the same dilema.
    I believe the german tax authorities will not recognize the Roth tax free
    account in Germany and you will have to pay tax on the portion of your
    account that 'grows' after you roll over to a roth account, the original
    amount you roll over will be taxed at that time.
    eg; 100k rolled over = approx 25,000 taxes leaving $75,000 to grow and later
    have the profit taxed at the german tax rates.
    Hope this helps.
  • Aug 9, 2011, 04:07 PM
    konradsa
    Thanks almarlin,

    I don't qualify for a Roth IRA anymore (my income exceeds the threshold), so I am stuck with a 401k now anyway. :-(

  • Mar 14, 2012, 11:15 AM
    jameshartland
    Hi
    The trick is to not build up pension savings in any country scheme but to keep it private. For instance if you build up pensions in the US, UK or most of Europe, chances are you are restricted as to when you can take the pension and also restricted as to how much you can get tax free. Best policy is to meet your obligations in the country where you work and then build up a nest egg in a tax neutral country like channel islands, isle of man, Gibraltar, Luxembourg etc
    You will not get tax relief but you will be free to decide how you want your money back and when and can minimise tax by taking advantages of relief's available in most countries as you get older. The other thing is that with most pensions when you die the pension provider/insurance company or govt take the balance or most of it. If you do it yourself it is your asset and can be passed on in full to your loved ones.

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