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Non-Resident Alien Contribution Restrictions


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Assuming a non-US citizen does not pass the substantial presence test and is classified as a non-resident alien for tax purposes, what restrictions/limitations may prevent them from contributing to a 401(k) and/or IRA? Please assume the individual maintains a US work visa and is seconded overseas while still being paid by the US entity, and they return to the US for short periods of time throughout the year.

I understand the individual must have US sourced income, but is there any firm guidance on how much? Is 1 day working in the US sufficient to classify the individual as having US sourced income and allow contribution to a 401(k)? Any special considerations if contributing as Roth vs. Traditional? Is it possible/common for a plan to specifically exclude non-resident aliens from contributing at all? Are the restrictions different for an IRA?

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Plans can and often do exclude non-resident aliens with no US-source income, and those are permitted statutory exclusions (like union, under age 21, etc.). Plans are not required to do so.

Could a plan exclude non-US citizens regardless of resident status and US-source income? Yes, but such would not be statutory and would be included in the denominator for your coverage testing. If this population is small relative to the employer that is not likely to be an issue. 

If the plan sponsor wanted to include such employee(s) in the plan then that is permissible but then they have to deal with the complexities for distributions if any employee is then out of the country when paid.

I do not know the IRA allowances/prohibitions in similar instances.

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43 minutes ago, CuseFan said:

Could a plan exclude non-US citizens regardless of resident status and US-source income? Yes, but such would not be statutory and would be included in the denominator for your coverage testing. If this population is small relative to the employer that is not likely to be an issue. 

I am speaking well outside my area of expertise here, but I believe immigration status and national origin are protected statuses for things like employment benefits. You may want to consult with an attorney before you exclude somebody from your plan merely because they are not a resident alien.

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If you second anyone to a related entity 1) pursuant to a secondment agreement with such foreign entity and 2) pursuant to a secondment letter/expat agreement with your employee, you can keep the individual on the US payroll, while the related foreign entity reimburses the US entity for employment costs.  While on US payroll they can continue 401(k) benefits and deferrals as they have US source income.  I would suppose this applies to a non-resident who is on US payroll but I've only had US or dual citizenship employees go to the UK.  Secondment keeps the employee off the foreign payroll for the country they work and reside in, which would normally be required of anyone working and residing there.   You should seek out a US tax law firm to assist you.  There is no requirement I'm aware of that they have to come back and work a day in the US to maintain their US source income status.  Coming back would seem counter to the secondment agreement terms.  Like what was said, a US DC plan typically excludes non-residents with no US source income, but here the employee would remain on the US payroll while seconded.  If your secondment fails a challenge then all bets are off.

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