Move overseas

Submitted by Valeryia Mikharava on Sun, 2014-05-11 00:32

Hi, we are foreign nationals. I am a green card holder and my husband is on a visa. Have lived and worked in the US for about 10 years and are planning to go back home. What can we do with our 401k? After all the research I came to the conclusion that instead of trying to roll over funds into Roth IRA, it would be cheaper to just pay the 10% penalty. I don’t really see any other options. Ideas outside the box are welcome – will a divorce-mandated distribution help? We are going to purchase a house back home – will it qualify for real estate exclusion?
Thank you very much,

Val



Submitted by mk foss on Sun, 2014-05-11 01:14

  1. You can use the $10,000 first time homebuyer exception to the 10% penalty to buy a home overseas but this is only available if you convert to a rollover IRA. You have 120 days to purchase the residence after taking an IRA withdrawal so you may be able to play with the timing on that. There is also a larger exception for Roth IRA withdrawals for a first time home purchase.
  2. You need to know how the retirement withdrawals are taxed based on the tax treaty with your home country. In many cases 30% U.S. tax is withheld from retirement distributions sent overseas.
  3. You’d pay tax on the entire amount of the 401(k) is you convert to Roth – but there’s no penalty. If you did the conversion you will have some variations regarding whether or not it is taxed, whether a penalty might apply, etc depending on your timing of withdrawals. Again, you need to coordinate your planning with the tax treaty.

 

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