Retirement and 401k withdraws outside USA

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mvitulano
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Retirement and 401k withdraws outside USA

Post by mvitulano »

I’m wondering how withdrawing from retirement accounts (ie 401k) is taxed if you move to outside the USA at retirement age? For example, can one move to Puerto Rico and pay their taxes (4% income tax)? Do you pay taxes to the where you are located at the time you withdraw? Thus, is it advantageous to move out of a state like California and to a lower tax state or country like PR?
Topic Author
mvitulano
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Re: Retirement and 401k withdraws outside USA

Post by mvitulano »

Anyone?
christoph_kohl
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Re: Retirement and 401k withdraws outside USA

Post by christoph_kohl »

Depends.

Depends on the local tax laws.
Depends if a tax treaty exist between USA and said location.
TropikThunder
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Re: Retirement and 401k withdraws outside USA

Post by TropikThunder »

mvitulano wrote: Wed Apr 28, 2021 8:28 pm I’m wondering how withdrawing from retirement accounts (ie 401k) is taxed if you move to outside the USA at retirement age? For example, can one move to Puerto Rico and pay their taxes (4% income tax)? Do you pay taxes to the where you are located at the time you withdraw? Thus, is it advantageous to move out of a state like California and to a lower tax state or country like PR?
Puerto Rico is not a foreign country.
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sunny_socal
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Re: Retirement and 401k withdraws outside USA

Post by sunny_socal »

mvitulano wrote: Wed Apr 28, 2021 8:28 pm I’m wondering how withdrawing from retirement accounts (ie 401k) is taxed if you move to outside the USA at retirement age? For example, can one move to Puerto Rico and pay their taxes (4% income tax)? Do you pay taxes to the where you are located at the time you withdraw? Thus, is it advantageous to move out of a state like California and to a lower tax state or country like PR?
Yes on moving out of CA.

You will also enjoy paying 50% less for many essentials: Water, electricity, fuel, natural gas, auto registration.
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22twain
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Re: Retirement and 401k withdraws outside USA

Post by 22twain »

We recently had a three-page thread about how much you save (or not) by moving out of California.

viewtopic.php?f=2&t=346959

It focuses on staying in the US (of which Puerto Rico was still part, last time I checked :wink: ).
Meet my pet, Peeve, who loves to convert non-acronyms into acronyms: FED, ROTH, CASH, IVY, ...
crre
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Re: Retirement and 401k withdraws outside USA

Post by crre »

u.s. citizens are taxed on their worldwide income. and if you move to a foreign country (which, as others have pointed out, puerto rico is not), you are liable to be taxed in that country as well.

if you are not a u.s. citizen, then i don't know. but i have a sneaky feeling that you cannot avoid u.s. taxes on 401k withdrawals in any case.
cbeck
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Re: Retirement and 401k withdraws outside USA

Post by cbeck »

An American should normally not have to pay state income tax after he has expatted, provided that he has researched the tax domicile rules for his state and has taken all necessary steps to sever his relationship completely with that state. That probaby means surrendering your driver's license, not owning any property, changing the registered addresses on all your bank and brokerage accounts, not voting, and other steps depending on the state. Some states, notoriously CA and VA, are extremely aggressive in chasing leavers for taxes even years after they have left. CA does so on the basis that the person has taken steps that indicate "an intention to return" in the eyes of the state. VA apparently takes the stance that your tax domicile remains VA until such time as you establish tax domicile in another state.

I retired abroad from NY state ten years and stopped paying NYS and NYC income taxes. A couple of years later I got a letter from the NYS Tax Commission asking where are my returns. I replied with the date I moved away and never heard any more.

Of course, we still have to pay federal income taxes.

So, yes it is advantageous. I did my Roth conversions after leaving which meant that those IRA contributions will never be taxed by any state even if I were to return to the States, which is not my intention.
Topic Author
mvitulano
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Re: Retirement and 401k withdraws outside USA

Post by mvitulano »

Thank you cbeck, you answered my question thoughly: you will pay federal income taxes but not state taxes if you expat for retirement. I wasnt sure if you still pay federal taxes on your retirement accounts ((401k) while living in another country.

Follow-up, is there a thread on the most economical way to retire abroad? When and how?
cbeck
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Re: Retirement and 401k withdraws outside USA

Post by cbeck »

mvitulano wrote: Sun May 16, 2021 7:56 pm Thank you cbeck, you answered my question thoughly: you will pay federal income taxes but not state taxes if you expat for retirement. I wasnt sure if you still pay federal taxes on your retirement accounts ((401k) while living in another country.

Follow-up, is there a thread on the most economical way to retire abroad? When and how?
Yes, you will have to pay federal income tax on your distributions from tax-deferred accounts while you live abroad. You federal tax return is exactly the same when you no longer reside in the US, except that you do indicate that you live abroad.

Be sure to be meticulous in following your state's tax domicile rules so that don't come after you years later.
Arby
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Re: Retirement and 401k withdraws outside USA

Post by Arby »

cbeck wrote: Sat May 01, 2021 5:59 am

I retired abroad from NY state ten years and stopped paying NYS and NYC income taxes. A couple of years later I got a letter from the NYS Tax Commission asking where are my returns. I replied with the date I moved away and never heard any more.

After I moved overseas I received a similar letter from the state of New York. They seemed especially interested if I owned property in New York. I responded that I did not own property in New York and moved overseas. The replied saying they are closing their file on me.
Slacker
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Re: Retirement and 401k withdraws outside USA

Post by Slacker »

mvitulano wrote: Sun May 16, 2021 7:56 pm
Follow-up, is there a thread on the most economical way to retire abroad? When and how?
You should try searching a specific country you wish to move to as each has their own pros and cons and various rules and treaties wrt taxes.
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