fortbc

Hi,

I worked in the States for a few years & I have a 401k. Does anyone know what the penalty & tax rates on cashing out before retirement age are?

It seems that there may be a Federal tax rate of 20% on the whole amount & an additional 10% penalty on the US side? Will the Irish government also look for some tax on what's left?

Appreciate any advice on this.

Steve_

This seems to be quite informative: Rules for 401K Withdrawals and Early Withdrawals

Given that it's a pension plan you'll want to have a look at the tax treaty provisions for Ireland, typically you have to notify the local tax authorities of the existence of the foreign pension. If you make withdrawals then also typically it is subject to income taxes in both places and you can usually claim a foreign tax credit to avoid dual taxation, although you'll usually end up paying the higher of whichever tax is imposed (in this case, with the 10% penalty, that'll probably be the US). Although possibly not, because if your only source of US-source income is the 401(k) when you make the withdrawal then you might be in a lower US tax bracket. Plus the 10% penalty.

fortbc

Thanks Steve.

BeerandChips

I am also looking at this problem and the solution, in my case, appears to be monthly transfer of 401k into a current account instead of taking the whole lot at once. This means that if taken over several years you can avoid a higher tax rate also if you can wait until you are 60 you avoid the 10% penalty.