Taxation of IRA Distributions to German resident

Submitted by William Gordon on Mon, 2022-03-28 19:10

I have a client, a German national who has lived in the US many years under a green card. She is moving back to Germany for health reasons. She is contemplating cashing in a $500,000 Rollover IRA all at once to avoid the complication of having to figure out the taxation of distributions between the IRS and German taxing authority. She retired from a US corporation in 2009 and subsequently rolled over a 401(k) to the IRA in question.

I have read conflicting views of how the IRA will be taxed if she decides to keep taking annual RMD payments while (or take even larger withdrawals) as a German resident. Is there a way to simplify the explanation? Is the IRS exed out of the picture if she resumes her German residency? Are German and US tax rates roughly the same or otherwise?

I very much appreciate the feedback.

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Permalink Submitted by Bruce Steiner on Sun, 2022-04-10 21:56

Why accelerate the tax?

Permalink Submitted by William Gordon on Sun, 2022-04-10 22:13

She’s in poor health. Her nephew is serving as her POA. Based on his comments, I think it’s more of an inconvenience thing more than anything. She’s moving back to Germany and he wants all her money there. He’s done research on it — which I’ve corroborated — and Germany will want to tax the IRA based on the difference between its current value and her contributions. Since no one possesses information on her basis, the “easy” thing to do is to cash it in in his view. I’ve calculated the cost to cash it in at ~ $150,000. That’s a big tax hit.