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Guest hbrenn

Options for foreigners leaving US with 401K

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Guest hbrenn

I recently got laid off and need to make a decision about my 401K. I have left the US and likely will not return (I am not a citizen and no longer have non-immigrant status). I’m hesitant to cash out due to the tax hit however I will only have been employed for 4 months in 2011 and lost a large amount in company shares (not sure if that helps with the tax). The company is in liquidation so leaving in company plan is not an option.

For my situation would a traditional IRA or a Roth IRA be my best option. I’m assuming I can’t make any contributions since I will no longer be employed in US. If I do a Roth IRA and lose the 30% upfront will I still be taxed when i take distributions on retirement since I will not be resident in the US.

If I rollover to a traditional IRA and avoid the tax upfront, will I be taxed at the normal rate for US citizen or will it just be viewed as a regular investment if I am not resident in US.

Thanks for any advice.

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If I were in your shoes, I would roll the account to a IRA account at an international bank with a US presence, such as HSBC. Once you are no longer a US resident and have no US income, you will not be subject to US income taxes. However, the IRA will, of necessity, remain in the US, and will be, at least, subject to US withholding taxes. I don't know whether or not your IRA will be subject to US income taxes upon distribution, but even if they're not, you would have to file a US tax return to obtain a refund. Perhaps the bank could advise you, but I recommend that when you are ready for the distribution, you approach the in-country office of a major international CPA firm for advice on these issues.

Also, it may be possible to transfer the IRA into a similar type of retirement account in your country of residence.

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