Explore essential steps for managing your 401(k) after leaving the US and ceasing to be a US tax resident. Learn about options like leaving it with Vanguard, transferring to an IRA, minimizing early withdrawal penalties, and Roth conversion.
___________________________________________
“Hello Everyone,
I left US for NZ in 2020 (not a US citizen or resident or tax resident anymore). I have about $55k in my 401k which seems to be managed under VANGUARD TARGET 2050. I don’t really understand deeply how ROTH IRA works and I am not in hurry to take the money out. What are my options to minimize the penalties and taxes to slowly withdraw this money, considering I am no longer have a US source income and no longer a US tax resident. I’m in my mid-thirties and contributing to Kiwisaver(NZ 401k equivalent). Thanks for your help.“
___________________________________________
It’s important to note that tax and financial regulations can change, and it’s always a good idea to consult with a tax professional or financial advisor who is well-versed in international taxation. However, here are some general steps and considerations for handling your 401(k) after leaving the US and no longer being a US tax resident:
Leave the 401(k) Where It Is:
You can leave your 401(k) with Vanguard as it is, since you’re not in a hurry to withdraw the money. Vanguard will continue to manage the account, and you can let it grow until you decide to take distributions.
Transfer to an IRA:
If you want to maintain more control over your investments, you could consider rolling over your 401(k) into a Traditional IRA. This can be done without incurring any immediate tax penalties. You won’t be contributing to it, but you can continue to manage it from overseas.
Minimize Early Withdrawal Penalties:
Since you’re in your mid-thirties, you can avoid the early withdrawal penalty (usually 10%) by waiting until you reach the age of 59½. At that point, you can withdraw from your 401(k) without penalties.
Consider a Roth Conversion:
A Roth IRA is funded with after-tax money, and withdrawals in retirement are typically tax-free. While you’re no longer a US resident, you might consider converting your 401(k) to a Roth IRA over time, paying the tax due in the year of conversion. This can be a complex decision, so it’s essential to understand the tax implications and consult with a tax professional.
Transfer to KiwiSaver:
Investigate whether there is a tax-efficient way to transfer your 401(k) funds to your KiwiSaver account. Some countries have agreements in place for such transfers to avoid double taxation. You may also want to explore if New Zealand allows this type of transfer.
Consult a Tax Professional:
It’s highly advisable to consult with a tax advisor who specializes in international taxation, as they can provide you with personalized guidance based on your specific circumstances.
Remember that tax laws and regulations can be complex and can vary depending on your individual situation. What’s best for you will depend on your financial goals, your plans for staying in New Zealand, and any applicable tax treaties or agreements between the two countries.
Hope this helps.
Regards, Clive Fernandes (Financial Adviser)
Director – National Capital
Disclosure: I am the director of National Capital, a KiwiSaver advice firm. The views expressed in this article are the views of the author. The information provided is of a general nature and is not intended to be personalised financial advice. You may seek appropriate financial advice from a Financial Adviser to suit your individual circumstances or contact National Capital.
