401K

Old Jul 9th 2013, 1:54 pm
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Default 401K

Hi I have an old 401K pension in my name from when I worked in the USA.

Ive returned to Europe and its unlikely that I will emigrate to USA. I live in and tax resident in Belgium

Its quite old about 15 years or so and actually I dont know anything about it.

Is there any advice, please on what I should do. Keep it till 65... cash it in... transfer to another pension in Europe?

I dont need the money right now and just want to do the best thing and certainly avoid any US tax liability...

Any advice appreciated

Thanks in advance

Jon
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Old Jul 9th 2013, 2:13 pm
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Default Re: 401K

Transferring tax-advantaged pension type a/cs internationally is notoriously difficult, and usually impossible. If you cash out the funds you will incur a US liability.

Do you know where the funds are and how they're invested? You might want you look into transferring the funds to a freestanding 401k a/c if they are currently still attached to your previous employer's 401k, that will greatly increase the choice of funds you can invest in. A business like The Mutual Fund Store might be a good choice, but I think the MFS needs a minimum balance for a transfer. Assuming you're going to leave them long term in the US, you should make sure you can see the a/c on line to monitor its performance and make any adjustments to the investments from time to time, say, quarterly.
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Old Jul 9th 2013, 2:53 pm
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Default Re: 401K

Originally Posted by Pulaski View Post
Transferring tax-advantaged pension type a/cs internationally is notoriously difficult, and usually impossible. If you cash out the funds you will incur a US liability.

Do you know where the funds are and how they're invested? You might want you look into transferring the funds to a freestanding 401k a/c if they are currently still attached to your previous employer's 401k, that will greatly increase the choice of funds you can invest in. A business like The Mutual Fund Store might be a good choice, but I think the MFS needs a minimum balance for a transfer. Assuming you're going to leave them long term in the US, you should make sure you can see the a/c on line to monitor its performance and make any adjustments to the investments from time to time, say, quarterly.
Thanks very much Pulaski

I have full online access to the funds etc and can make changes etc. Though I am happy where the money is invested.

So bottom line is that I am stuck within the US system and its virtually impossible to get out....

Thats a shame! It just complicates matters.

When I reach pension age will I have to take an annuity in the US and then have to do a tax return please ? What a drag!

Jon

Last edited by Jon-Bxl; Jul 9th 2013 at 3:05 pm.
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Old Jul 9th 2013, 3:19 pm
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Default Re: 401K

Originally Posted by Jon-Bxl View Post
Thanks very much Pulaski

I have full online access to the funds etc and can make changes etc. Though I am happy where the money is invested.

So bottom line is that I am stuck within the US system and its virtually impossible to get out....

Thats a shame! It just complicates matters.

When I reach pension age will I have to take an annuity in the US and then have to do a tax return please ? What a drag!

Jon
Yes, it's a real pain.

I have the opposite issue. I have a pension in the UK which is stuck there and I'm unlikely to retire there to be honest.

I don't know about US to UK but in theory you can transfer a UK pension to an approved US plan however I'm yet to hear of a single person that has actually managed to do it without taking a tax hit. It seems silly given the tax treaty that exists between the US and UK.
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Old Jul 9th 2013, 3:21 pm
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Default Re: 401K

Originally Posted by Jon-Bxl View Post
T

When I reach pension age will I have to take an annuity in the US and then have to do a tax return please ? What a drag!
There is no requirement to convert a 401(k) to an annuity on retirement.
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Old Jul 9th 2013, 3:31 pm
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Default Re: 401K

Originally Posted by Giantaxe View Post
There is no requirement to convert a 401(k) to an annuity on retirement.
I that (above), combined with the possibility to borrow money from, or cash-out, a 401k makes the theoretical possibility of transferring a British PP into a 401k, a practical impossibility.
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Old Jul 9th 2013, 3:47 pm
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Default Re: 401K

Originally Posted by Bink View Post
Yes, it's a real pain.

I have the opposite issue. I have a pension in the UK which is stuck there and I'm unlikely to retire there to be honest.

I don't know about US to UK but in theory you can transfer a UK pension to an approved US plan however I'm yet to hear of a single person that has actually managed to do it without taking a tax hit. It seems silly given the tax treaty that exists between the US and UK.
Have you looked at QROPS - I have no expertise here, but its a way to transfer out a UK pension to an approved fund. Be careful though there are cowboys out there!

Re the 401K. What happens please, at the end? THeres no annuity, so what happens to the fund please?

Thanks
Jon
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Old Jul 9th 2013, 3:49 pm
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Default Re: 401K

Originally Posted by Jon-Bxl View Post
Have you looked at QROPS - I have no expertise here, but its a way to transfer out a UK pension to an approved fund. Be careful though there are cowboys out there!

Re the 401K. What happens please, at the end? THeres no annuity, so what happens to the fund please?

Thanks
Jon
You make withdrawals from it as you choose. Post 59 1/2 there's no tax penalty for early withdrawals.
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Old Jul 9th 2013, 3:58 pm
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Default Re: 401K

Once you leave a company, you are allowed to transfer the 401K to an IRA. Most discount brokers (Schwab, TD Ameritrade, Scottrade, E-Trade, etc.) have accounts that are IRA accounts that allow you to buy and sell securities like just any another account. Before doing the transfer, make sure that brokerage doesn't charge an annual fee to handle an IRA account (TD Ameritrade doesn't) and you have access to foreign exchanges that you desire (varies between brokerages).

So you can sell off your current high expense mutual funds and invest in lower expense ETFs or stocks and the account remains tax deferred until disbursement.
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Old Jul 9th 2013, 3:59 pm
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Default Re: 401K

Originally Posted by Giantaxe View Post
You make withdrawals from it as you choose. Post 59 1/2 there's no tax penalty for early withdrawals.
Errrm do I understand it right. At 59.5 I can cash in the fund and theres no tax liability? I guess an 'early withdrawal' in your post means just after 59.5 and before retirement age.

I can wait till then if I know I can just cash it all out and be OK. I dont want to have to do a US tax return yearly if I can help it, too complex for what is just a pension withdrawal.

Thanks

Jon
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Old Jul 9th 2013, 4:10 pm
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Default Re: 401K

Originally Posted by Jon-Bxl View Post
Errrm do I understand it right. At 59.5 I can cash in the fund and theres no tax liability? I guess an 'early withdrawal' in your post means just after 59.5 and before retirement.
No - you always pay income tax on the money that you withdraw from a 401K.

There are additional penalties for early withdrawal.
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Old Jul 9th 2013, 4:11 pm
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Default Re: 401K

Originally Posted by Jon-Bxl View Post
Errrm do I understand it right. At 59.5 I can cash in the fund and theres no tax liability? I guess an 'early withdrawal' in your post means just after 59.5 and before retirement age.

I can wait till then if I know I can just cash it all out and be OK. I dont want to have to do a US tax return yearly if I can help it, too complex for what is just a pension withdrawal.

Thanks

Jon
Normally by the age of 70 1/2, you have to start drawing on your tax deferred account. The following calculator tells you the minimum amount that has to be withdrawn depending on the amount in the account. Most people draw it annually to keep the taxes down since if they withdraw it in a lump sump, they will be paying taxes on their highest marginal tax bracket but due to tax advantages with social security benefits (currently only about 15% of the social security benefits that I receive is taxable income) and lower income after retirement, they can possibly keep the tax owed on withdrawals to 0%, 10%, or 15% depending on your total taxable income. For a single person with maximum social security benefits, no tax will be owed until total income exceeds about $45,000.

http://www.bankrate.com/calculators/...ator-tool.aspx

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Old Jul 9th 2013, 4:21 pm
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Default Re: 401K

Originally Posted by Michael View Post
Once you leave a company, you are allowed to transfer the 401K to an IRA. Most discount brokers (Schwab, TD Ameritrade, Scottrade, E-Trade, etc.) have accounts that are IRA accounts that allow you to buy and sell securities like just any another account. Before doing the transfer, make sure that brokerage doesn't charge an annual fee to handle an IRA account (TD Ameritrade doesn't) and you have access to foreign exchanges that you desire (varies between brokerages).
If he can find someone who will open an account for a non-resident, non-citizen...
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Old Jul 9th 2013, 4:21 pm
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Default Re: 401K

Originally Posted by Michael View Post
Normally by the age of 70 1/2, you have to start drawing on your tax deferred account, The following calculator tells you the minimum amount that has to be withdrawn depending on the amount in the account. Most people draw it annually to keep the taxes down since if they withdraw it in a lump sump, they will be paying taxes on their highest marginal tax bracket but due to tax advantages with social security and lower income after retirement, they can possibly keep the tax owed on withdrawals to 0%, 10%, or 15%.

http://www.bankrate.com/calculators/...ator-tool.aspx
My situation is more complex as I am back in Europe. I can take the minimum US wage out each year from the 401K but who knows if they then look at incomes in Europe etc

I just want to avoid the hassle of filling out a tax return when I am not tax resident in the US... if I could transfer it to a UK or EU pension that would be great... but apparently its impossible.

I think this is really tricky for people that have worked a while in the US.. there doesnt seem to be an easy answer and like most things like this is complicated!

Thanks for all the help so far

Jon
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Old Jul 9th 2013, 4:33 pm
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Default Re: 401K

Originally Posted by Jon-Bxl View Post
My situation is more complex as I am back in Europe. I can take the minimum US wage out each year from the 401K but who knows if they then look at incomes in Europe etc

I just want to avoid the hassle of filling out a tax return when I am not tax resident in the US... if I could transfer it to a UK or EU pension that would be great... but apparently its impossible.

I think this is really tricky for people that have worked a while in the US.. there doesnt seem to be an easy answer and like most things like this is complicated!

Thanks for all the help so far

Jon
I think with tax deferred accounts, they are taxable in the country of residence due to tax treaties (unless the country of residence is a tax haven) and there may not be an tax advantage on government pension in those countries not giving you an extra advantage. First you have to determine where the withdrawals will be taxed and then tax plan according to that. I believe that to be true since I believe that many Brits living in the US are taxed on their UK tax deferred accounts in the US and not the UK.

Last edited by Michael; Jul 9th 2013 at 5:18 pm.
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