International Transfer - 401k account options

[Guest pascarp]

My company has many non-US citizens working in the US and many US citizens working overseas. Non-US citizens returning to or transferring to another unit/office of the same company are generally not considered to have a 'separation of service' event. Therefore, a final or total distribution is most likely not possible.

As far as I know, direct rollovers to an account outside the US is not permitted (the IRS ultimately wants to get it's cut).

In our plan, an employee returning to his 'home' country is not considered terminated for plan purposes. While he/she cannot contribute additional amounts or take loans (because they are no longer on the payroll), we do allow them to take in-service withdrawals and to re-balance their account.

When they ultimately terminate or retire the final distribution options can occur. As you can imagine the tax laws vary greatly from country-to-country and are often guided by an existing tax treaty.

[Guest Tara Aguilar]

Our company is based in the US, with an office in London. The employee at issue is a British citizen, but he is working currently in one of our US offices. He will be transferring to our London office. Regarding his 401k contributions, what can we do with them? Does a similar type of pre-tax retirement savings account option exist in the UK? If so, will the IRS permit a direct rollover to such an account? If he does not want to leave the balance here until he retires, must he take a distribution?

Thanks

[KIP KRAUS]

Tara:

I was a Benefits Manager for a company here in the US, but owned by the Brits. When Brits came to work in the US they participated in our 401(k) Plan because they were on our payroll. When they returned to the UK, we considered them terminated and allowed them to leave their money in the plan or take a distribution.

Most left it in because they couldn't roll it into any plan in the UK and avoid the distribution taxes. Our case may have been a little different than yours, but I know of no tax free roll overs available outside the US unless there are some in US territories.

[Guest Harry O]

You simply cannot distribute 401(k) assets to a repatriating employee who is continuing to work for a foreign affiliate. The employee has not separated from service. The employee cab get to his $ once the employee attains age 59.5, terminates with the affiliate, or has a hardship. The IRS has issued a PLR to this effect and I think there is little doubt that they are correct.

[Guest Rich Viola]

My US based client sent to of its employees to work for a year or two in its London subsidary. The two employees wish to continue deferring to the 401(k) plan sponsored by the US client. I got a legal opinion that because they continue to be US citizens, they are still employees of the company, active participants in the 401(k) plan and should be able to continue deferring. However, they are now being paid in pounds sterling. Is there a way the deferring could continue through a currency conversion? Is there any opposing view to the legal opinion I received?

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rich.viola@plandesign.com

[Guest ESOPwizard]

Harry O-

I agree with your position. Nevertheless, I have a client who has a determination letter to the contrary. The plan allows foreigners returning home (to a company that is related under 414(B)) to take their 401(k) money. The client explicitly disclosed the position in the application.

NOTE: I'd strongly recommend against doing this without a determination letter.