If a US Citizen emigrates to another country and then redeems his 401K's, does the person have a US Tax liability then?
tks all
bw
401K Distributions Overseas
Mar 13, 2008
7 Replies
Yes, since an emigre who retains his US citizenship is taxed just like a US citizen back at home -- all US citizens are taxed on worldwide income regardless of where they reside (though emigres do have the foreign earned income exclusion).
-- Rich Carreiro snipped-for-privacy@rlcarr.com
I'm not sure if you meant it this way but you imply that the 401(K) would come under the exclusion. As it is not "earned" income, however, it is not subject to the exclusion. Earned income means income paid within a year of the year in which it is earned. Retirement plan distributions, including 401(K), apply to all years worked and don't meet this requirement.
Lanny K. Williams, CPA Nawarat, Williams & Co., Ltd. Income Tax Services for Expatriate Americans
tks all
bw
Furthermore, in some cases high income ex-pats may be obligated to pay taxes for ten years after leaving the states, whether they consider themselves citizens or not. This closes a tax evasion method some people have used. This is difficult to enforce unless you elave asset in America.
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Becoming a citizen of another country does not terminate your US citizenship. You need to take affirmative actions to relinquish your US citizenship. Until you do so (and perhaps for several years afterwards) you are still subject to all US income tax laws.
Ira Smilovitz
Still not clear. You can be a citizen of the US as well as the other country.
Assuming you are not a citizen of the US, the 401k is still US source income, so you would have to file 1040-NR. See:
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At one point California would go after 401k distributions of people who put money into their 401k while they were California residents but moved out of state (and were non-residents when receiving their distributions). But the federal government eventually ruled that they cannot do this. So it's ironical that US based 401k's are treated differently.
However, I could be wrong. There are tax treaties between the US and many other countries, and many allow pensions earned in one country but received in another to be taxed in the other country only, or only up to 5% in the earning country. Here is the list of treaties:
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And don't forget the foreign tax credit. Basically on your US return you subtract out the taxes you paid to the foreign government, but only the foreign taxes on the US source income, and the remainder (if any) is what you owe the US.
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