US 401K Termination - Options

C

Cannondale

Registered User
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5
Hi All,

I have about 55K USD in a 401K as I had worked in the US for a number of years, the 401K plan is now being terminated and the funds must be distributed. Leaving the funds in the plan is not an option.
I am now resident in Ireland (Irish citizen) and have limited options on what to do. One option is to cash in, the tax is 10% additional tax plus 30% withholding tax (federal), plus Irish taxes?
Second option is to rollover into an IRA (Individual Retirement Account), however, there appears to be limitied companies that will allow this for a non-resident/non-us person. One company I did find, were charging, approximately 1.75% per annum plus 225 USD maintenance fee.

Firstly, can someone recommend a financial/tax advisor that can advise for such cases or what would be best option in my case. I am 41 yrs old and don't plan to return to live in the US in the near future.
 
I would suggest that the IRA, despite the relatively high charges, is your only real option as you can’t transfer U.S. pension assets to an Irish pension scheme.

Kevin
www.thepensionstore.ie
 
Last edited:
How many years do you have until you are 59.5 (age of withdrawl)? I did a rough calculation, and if you take the option to rollover based on a 4% growth minus 2.16% in fees you will end up with 80k in the US. I used the Wells Fargo 401k calculator to estimate costs of withdrawl (~50%) and then invest it over the same time period in Ireland. You would end up with a -18k shortfall.

This is just a simple calculation assuming 4% annual growth and looking at the 401k in isolation. For example if you have a mortgage in Ireland it may be worth while to take early withdrawl and pay down the mortgage and use excess cash to do AVCs in your pension.

If you could provide some further information on your current financial position in Ireland, there will be many on here who can provide additional better advise.

Note, I also have a 401k in the US that I am considering to cash out and pay down mortgage.

(https://www.wellsfargo.com/investing/retirement/tools/401k-early-withdrawal-calculator-results)


Annual Fees
2.16%​
Annual Growth
4%​
Pot 55,000.00
Remain In US $Take out in Ireland €
1​
 56,013 25,526
2​
 57,044 26,547
3​
 58,094 27,608
4​
 59,163 28,713
5​
 60,252 29,861
6​
 61,362 31,056
7​
 62,491 32,298
8​
 63,642 33,590
9​
 64,813 34,933
10​
 66,006 36,331
11​
 67,221 37,784
12​
 68,459 39,295
13​
 69,719 40,867
14​
 71,003 42,502
15​
 72,310 44,202
16​
 73,641 45,970
17​
 74,997 47,809
18​
 76,377 49,721
19​
 77,783 51,710
20​
 79,215 53,778
Difference -18,307
 
The link below is quite helpful. If I read it correctly it appears you could take a lump sum each year below the annual exemption (~$5k), you will still pay 10% penalty fees but not the Income tax. What would the tax implications be in Ireland for bringing in cash from the US? Is it Taxed as Income?

humaninterest.com

401(k) for foreign nationals: Options for PRs & visa holders | Human Interest

Foreign nationals may be able to invest their savings in a tax-deferred 401(k). This could lower your taxable income but you might also be hesitant to tie
humaninterest.com humaninterest.com
 
Hi All,

Thank Andrew365 and kevhenry for the replies.

I am 41, so it would another 18.5 years before I can withdraw without penalities.

My financial situation in Ireland currently have mortgage on principal residence amount outstanding 420,000 euro @ 2.85%, 24 years remaining value of home approx 730,000 euro. No other loans, and I have also irish pension fund. If I was to cash it in, that would be plan to use funds to pay down mortgage.

There is obviously currency flucatations to consider.

Also, when 59.5 years, will I only be deferring my tax to Irish autorities at that stage, when I cash in the IRA?
 
Cannondale said:
Hi All,

Thank Andrew365 and kevhenry for the replies.

I am 41, so it would another 18.5 years before I can withdraw without penalities.

My financial situation in Ireland currently have mortgage on principal residence amount outstanding 420,000 euro @ 2.85%, 24 years remaining value of home approx 730,000 euro. No other loans, and I have also irish pension fund. If I was to cash it in, that would be plan to use funds to pay down mortgage.

There is obviously currency fluctuations to consider.

Also, when 59.5 years, will I only be deferring my tax to Irish autorities at that stage, when I cash in the IRA?
Click to expand...

I am not an expert, so take this with a pinch of salt. There is a tax treaty between Ireland / US, however, according to revenue Foreign pension is taxable income (https://www.revenue.ie/en/jobs-and-pensions/pensions/taxation-of-foreign-pensions.aspx). What is not clear to me is if you take the pension out now and pay the 10% + withholding tax in the US, is the remaining taxed again in Ireland?

Your 401k (assuming no Irish Tax) is worth ~25k EUR. if you used it towards your mortgage you would pay off your mortgage 2 years earlier. The current mortgage payment is 2k, therefore you would have a period of 2 years in which you could save 2k a month (48k). From this perspective it would make sense to cash out. Another option is to let it sit for a few years and continue to hopefully increase in size but you are then exposed to the risk of the stock market. Another factor is to look at how much of the 401k is your own money vs what the company contributed plus returns. For example if you contributed 20k and after tax you will get 30k, that is pretty good.

I am in a similar situation, and part of my rational is the hassle of maintaining both a IRA in the US and bank accounts etc until I am 60.

Good to hear others thoughts. This could be a good money makeover post as I am sure there are quite a few people in similar positions.
 
Andrew365 said:
I am not an expert, so take this with a pinch of salt. There is a tax treaty between Ireland / US, however, according to revenue Foreign pension is taxable income (https://www.revenue.ie/en/jobs-and-pensions/pensions/taxation-of-foreign-pensions.aspx). What is not clear to me is if you take the pension out now and pay the 10% + withholding tax in the US, is the remaining taxed again in Ireland?
Click to expand...

it would depend on the rules of the scheme and how they describe this payment. DTA's generally deal with pension income. These type of payments generally wouldn't fall into this category. However they could be taxable elsewhere.
 
A friend of mine in similar circumstances found Charles Schwab accommodating. They rolled their 401k into an IRA with Schwab.
 
I am 59 and retired since age 58. I had spent approx 12 years in the US and have an IRA with approx 22K usd in it. I am currently living on my savings and wish to cash in the IRA. How will I report this to the Irish Revenue as I am no longer working. I have requested that they withhold 10% for federal tax purposes and the remainder to be sent by cheque as I am a dual citizen. Is this the best way to handle this tax wise.
Many thanks
 
Thanks Andrew, looks like it will be taxed on both sides as I have to withhold a minimum of 10% on distribution as I do not have a physical address in the US
 
does that document not refer to pension income though. it looks from the original post that the poster is receiving a lump sum and the scheme is being wound up?
 
Yes, that was my original query, the pension is being wound up, the options are to receive a lump sum, or place in an IRA.

My decision will be based on Irish tax on both options.

If I take lump sum now, will I be taxed in Ireland? I assume I get credit for US federal taxes paid, since there is a DTA between Ireland and US.

If I leave in an IRA, will I be taxed in Ireland when I draw down in the future (at 59.5 years).

Does it only make sense to leave in an IRA, if I plan to be resident in the US at 59.5 years.?
 
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