As an expatriate living in another country, you may have worked long and hard in the U.S. before beginning a journey overseas. If this is the case, you most likely accrued retirement savings in a 401k or Roth IRA. These savings programs are monumental in the U.S., with a large majority of Americans choosing to opt in to these programs to best prepare for their golden years. However, moving abroad can put your retirement in a sticky situation– is it worth it to withdraw? What should I do with myaccount now that I am overseas? When do I access it?In this article we’ll go over some options for expats who have a US based retirement plan to give you an idea of how it may play out. When it comes down to handling a U.S. based retirement plan while living abroad, most individuals choose to avoid tax penalties which may unnecessarily reduce your savings. With this in mind, let’s take a look at the three options you can choose while handling your US based savings account abroad.
Transferring your U.S. Based Savings Account to a Foreign One.
This would be the most ideal situation. By transferring your account to a country which you are residing, it may be easier to deal with tax issues and all the sorts of restrictions that come with a retirement account. However, this process is not easy. US income tax regulations often prohibit the transfer of retirement accounts to foreign based entities. Transferring between plans within the US can be easy– for example, from a 401k to a Roth IRA. However, going from US to non-US is not easy. Although transferring a 401k type plan from US to non-US is rare, there are some specially structured corporate pension plans which may be able to. Check with your financial advisor if you believe your plan may fall into this category.
Removing the Money from your Retirement Plan.
If you are transferring residence from the US to another country, it may make sense to remove some or all of the money in the account. However, with this option, there will be a hit on the plan’s bottom-line. Withdrawing funds from your retirement plan may result in loss of your tax-deferral benefits– a huge loss. In addition to that, you may receive a 10% penalty for early withdrawal if you have not met the 59 ½ year age requirement. 401ks and Traditional IRAs could take the biggest hits to their bottom line because early withdrawal of these plans leads to taxes due on amounts that have been contributed pre-tax to the plan.