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Tax implications of Green card abandonment


srini

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I have had green card for 18years. I have been living outside US for 8 years. I have not visited US in the last 4years due to family issues and I was told my greencard is no longer valid.

I was advised that I should surrender my green card and re-apply for new green card (through my family).

My question: If I surrender my green card, what will happen to my IRA (it was established during the time I worked in US for the 1st 10 years of my career)? Are there any tax implications and will I be forced to withdraw from my IRA or can I leave it there until retirement age even though I will no longer be a green card holder?

 

Thanks

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It's going to depend on whether you are a covered or non-covered individual. "Covered Individuals" are those whose annual net income or net worth exceeds certain levels and who fail to certify that complied with all Federal tax obligations for the 5 years preceding the expatriation date. For these individuals, the account is treated as distributed. The 10% penalty does not apply. You don't actually have to close the account, but you will be taxed on subsequent earnings when the account is finally closed.

For everyone else, the account can remain open and tax deferred. Unlike Covered Individuals, you could be subject to the 10% early withdrawal penalty. Obviously, you end up paying taxes once you receive a distribution. Additionally, if you keep the IRA open after surrendering your green card, you will have to navigate the complicated waters of international tax treaties once you finally do take a distribution. In my opinion, unless there is some compelling reason to stay tied to the U.S. tax system (e.g., you are facing a large early distribution penalty), it's probably better to take the distribution, pay any tax, and just simply be done with it all.

For reference, See Sections 877 and 877A of the Tax Code (26 U.S.C. 877, 877A).

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