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wiki:contents:tax_treaty:us_retire [2019/12/18 11:35]
karen created
wiki:contents:tax_treaty:us_retire [2020/07/24 05:29] (current)
karen
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-!FIXME This page is just a collection of notes for a future blog post. It will become the technical appendix to that post.+See this blog post [[http://fixthetaxtreaty.org/2020/06/23/how-does-australia-tax-your-us-retirement-account/|How does Australia tax your US retirement account]]
  
   * [[https://www.ato.gov.au/law/view/view.htm?docid=EV/1051218124123&PiT=99991231235958|2015 ruling applicable to tax year 2016/7 on computing income on 401(k) withdrawals]]   * [[https://www.ato.gov.au/law/view/view.htm?docid=EV/1051218124123&PiT=99991231235958|2015 ruling applicable to tax year 2016/7 on computing income on 401(k) withdrawals]]
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 Note that Australia does not distinguish between traditional and Roth varieties - both are taxable in Australia. Note that Australia does not distinguish between traditional and Roth varieties - both are taxable in Australia.
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-Karen's thoughts: I think a planning opportunity exists for those who have not yet established Australian tax residence - roll your IRA/401(k) over prior to becoming an Australian resident. I believe the rollover would be taxable in Australia if done after gaining tax residence, but doing it before establishing tax residence should mean that the corpus or contribution into the new account is the rollover amount, not the contributions into the original account. I don't believe this has been tested with the ATO.  
  
 The other side of this is: what will the US tax be on withdrawal? This depends on your US status.  The other side of this is: what will the US tax be on withdrawal? This depends on your US status. 
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 If you're a US taxpayer (citizen, green card holder, resident alien), then the 401(k) or IRA withdrawal will just be taxed under US rules - added to your taxable income if it's a traditional IRA/401(k), and not taxable if it's a Roth IRA/401(k). The income would (most likely) be US source, so Australia would allow a foreign income tax offset for any US tax paid. (Note that your US financial institution may withhold US tax, but that would be applied against any tax actually owed). If you're a US taxpayer (citizen, green card holder, resident alien), then the 401(k) or IRA withdrawal will just be taxed under US rules - added to your taxable income if it's a traditional IRA/401(k), and not taxable if it's a Roth IRA/401(k). The income would (most likely) be US source, so Australia would allow a foreign income tax offset for any US tax paid. (Note that your US financial institution may withhold US tax, but that would be applied against any tax actually owed).
  
-If you're not a US taxpayer (a nonresident alien - which would include anyone who renounced plus Australians who have returned from working in the US on a non-immigrant visa), then the default US position is 30% withholding on all withdrawals. It is possible that Article 18(1) will apply to bring the actual US tax rate down to zero - this will depend on your individual facts and circumstances. If the treaty position applies, then it may be possible to get zero withholding by filing form W8-BEN. Alternatively, a refund of withholding can be requested from the IRS on form 1040NR. If the treaty doesn't apply, then there will be withholding, but it is unclear whether this is a final tax. I have read articles stating that the US considers this effectively connected US income, and form 1040NR can be filed applying graduated US tax rates to the amount withdrawn.+If you're not a US taxpayer (a nonresident alien - which would include anyone who renounced plus Australians who have returned from working in the US on a non-immigrant visa), then the default US position is 30% withholding on all withdrawals. It is possible that Article 18(1) will apply to bring the actual US tax rate down to zero - this will depend on your individual facts and circumstances. If the treaty position applies, then it may be possible to get zero withholding by filing form W8-BEN. Alternatively, a refund of withholding can be requested from the IRS on form 1040NR. If the treaty doesn't apply, then there will be withholding, but it is unclear whether this is a final tax. I have read articles stating that the US considers this effectively connected US income, and form 1040NR can be filed applying graduated US tax rates to the amount withdrawn. See this blog post: [[http://fixthetaxtreaty.org/2020/07/05/us-taxation-of-us-retirement-account-distributions-to-nras/|US Taxation of US retirement account distributions to NRAs]]
  
 See [[https://www.irs.gov/pub/irs-wd/03-0228.pdf]] - written determination on distribution of US pension to Australian resident. Quotes Technical explanation of Model Treaty: See [[https://www.irs.gov/pub/irs-wd/03-0228.pdf]] - written determination on distribution of US pension to Australian resident. Quotes Technical explanation of Model Treaty:
wiki/contents/tax_treaty/us_retire.txt ยท Last modified: 2020/07/24 05:29 by karen
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