This is an old revision of the document!
! This page is just a collection of notes for a future blog post. It will become the technical appendix to that post.
- Technical note on transferring 401k and IRA accounts source:NetActuary
- Atlas Wealth blog post - but I don't think he has it right. I think all contributions - pre-tax/post-tax/ etc constitute corpus for Australian tax rules. He is only treating post-tax contributions as corpus.
Note that Australia does not distinguish between traditional and Roth varieties - both are taxable in Australia.
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.
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.
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:
In addition, certain distribution requirements must be met before distributions from these plans would fall under paragraph 1. To qualify as a pension distribution or similar remuneration from a U.S. plan the employee must have been either employed by the same employer for five years or be at least 62 years old at the time of the distribution. In addition, the distribution must be made either (A) on account of death or disability, (B) as part of a series of substantially equal payments over the employee’s life expectancy (or over the joint life expectancy of the employee and a beneficiary), or (C) after the employee attained the age of 55. Finally, the distribution must be made either after separation from service or on or after attainment of age 65. A distribution from a pension plan solely due to termination of the pension plan is not a distribution falling under paragraph 1.
Also PLR 200416008