If I move my retirement (IRA, ROTH IRA, etc) to/from the US – what tax impact will it have?
The following article aims to answer the following questions:
1. Is there a penalty for moving retirement funds from the U.S. to abroad?
2. If so, how can these penalties be avoided?
3. Are there any cases where the penalty is waived?
4. How can TFX help me find out my cost of doing this?
Can I move funds between my U.S and non-U.S. financial accounts?
Technically, moving funds across border can be done in either direction – to and from the U.S. In general, there are no U.S. tax consequences or penalties associated with the actual cross-border funds transfer.
Cross-border transfer of retirement accounts is far more complicated
Withdrawal of funds from a U.S. employer retirement plan (i.e. 401K, 403b) or U.S. Traditional IRA is ALWAYS treated as ordinary income because Traditional IRA was funded with pretax money. If you are younger than 59 ½ then you will pay 10% early withdrawal penalty in addition to your regular tax rate.
Only a rollover (i.e. transfer of funds to another U.S. Traditional IRA account) is a tax-free and penalty-free event, regardless of the amount of funds transferred and regardless of your age. The best way to ensure the tax-free character of funds transition is to initiate a direct rollover.
If you accidentally made a withdrawal not knowing about the direct rollover option, you can deposit these funds to a new account or return it to the original account. However, take note that this must be done within 60 days avoid tax and penalties. The designated account must be a U.S Traditional IRA. Retirement plan established in any country outside of the United States does not qualify for a tax-free rollover to or from the U.S.
Original Story at TFE.