In article <1ee74c78.0404101032.69667d79[at]posting.google.com> ,
FAD <fdautzen[at]hotmail.com> wrote:
- quote -

To make proper planning you'd need to find out how the tax system of
the country where you will be living treats US IRA accounts. Whether
it simply ignores them (so not tax is ever involved), or "looks thru"
the IRA arrangements and taxes gains dividends or cap gains as they
are received/realized inside the IRA, or (as in case of Canada) goes
along with the US income deferral, so that you only have taxable
income there when you have US taxable income (i.e., make a
withdrawal). There may or may not be a way to use a foreign tax credit
mechanism in that country to credit any US tax paid against the
domestic tax liability.

If foreign taxes are not an issue (say, living in a country with no
income taxes, or one that only taxes income sourced in that country or
remitted into the country from abroad), the most sensitive approach
from the US taxation point of view seems to gradually convert the
regular IRA into a Roth IRA, at the rate of $3000 per year - just to
fit into your annual standard exemption. As a non-resident alien, you
won't have a standard deduction, but still will have a personal
exemption every year. I believe that the US tax law treats IRA
distributions and trad-IRA-to-Roth-IRA conversions of non-resident
aliens as "income effectively connected with the US trade or
business". (You may want to consult a professional to make sure that
is always the case, of course). If that is the case, the conversion
amount would be a page-1 item on Form 1040NR, and your personal
exemption can be used against to it. Thus, by fitting annual Roth
conversions within your standard deduction, and then making
withdrawals from the Roth IRA when it's allowed penalty-free (i.e., in
retirement age) you seem to be able to never have a US tax liability.

Of course, this procedure may or may not make sense if the tax
liability in the country of your residence is taken into account.

If you do decide to simply withdraw funds from your IRA and pay the
penalty, it seems to make sense to do it at the $3000/year rate as
well. At least this way you pay only 10% penalty but no additional
tax.

There is also a provision for taking the funds from the IRA in
substantially equal annual amounts over one's life expectancy,
penalty-free. Of course at your age those amounts may be quite small,
but I suppose it is possible to combine these withdrawals with
additional withdrawals at 10% penalty.



--vladimir

Hi, hoping someone might help me on this issue... I am a German
citizen who is going to be moving to Europe (UK) permanently. I have
about 25K in a rollover IRA. What is my best course of action? I do
not want to remove my money but am not sure if I will have to pay
double taxes (US and foreign country) when I withdraw my money in 30
years. If this is the case, it would make sense to take the 10%
penalty now. Furthermore, I am not sure if I should add $3000 into a
tax-deferred IRA account. Any advice is greatly appreciated...