Non-US Citizens in 401k Plan

[CLE401kGuy]

The employer has non-U.S. citizens with Social Security #'s - provided the plan doesn't exclude non-U.S. citizens - any issue with them participating? haven't run across this question before so I though I'd post in addition to research - any thoughts or observations on the issue would be appreciated... Thanks

[K2retire]

Be sure everyone involved knows that non-US citizen is not necessarily the same as the plan's definition of Non-Resident Alien.

[MoJo]

The employer has non-U.S. citizens with Social Security #'s - provided the plan doesn't exclude non-U.S. citizens - any issue with them participating? haven't run across this question before so I though I'd post in addition to research - any thoughts or observations on the issue would be appreciated... Thanks

Nope. The law allows you to exclude certain non-citizens (non-resident aliens with no U.S. source income....) but doesn't prevent you from including them. I've actually seen plans cover foreign nations in their home country, although....

The only cautions I have (and I'm sure there are others) are 1) what tax consequences participation in the plan has for foreign nationals (especially those who have a tax liability in their home country) - i.e. do they have income tax consequences in their home country as the result of employer contributions to a U.S. based plan, or as a result of earnings within the trust?; 2) what are the tax consequences upon retirement/distribution; and 3) does participation in a U.S. based plan have any effect on their ability to receive or the amount they may receive under their home country's version of "social security," if any?

[Guest Alonzo Church III]

This is allowed, but there are some hazards.

1. If you have automatic enrollment, note that automatic withholdings will likely violate the law in non-US jurisdictions.

2. Participation in the k-plan may actually be tax disavantageous to the non-US national, and you will have to jump through some extra hoops to avoid US taxation at the time benefits are distributed.

[ESOP Guy]

The whole withholding issue in this case can be a bit of a headache.

Also be careful when paying the person. I used to work with a plan that had Latin Americans who would come to the US. They would earn a benefit. When it came to request distributions there were troubles with people stealing the payments. It got to the point where the company would only pay to certain banks that tended to be international banks with a US presents and put in place policies to help make sure the person picking up the benefit was who they say they were.

One got the impression there was clerical staff in the local offices getting payoffs to help the thieves know when a payment was coming and getting needed data to make the theft happen.

Although I have seen enough of these plans that if one is willing to learn how to do it right and can get the client to accept a bill to cover your extra time they can be worth it.