28 August, 2015

US Pension Transfers - Withdrawals

Transfer of 401(k) and IRA’s to Australia

A 401(k) plan is usually an employer sponsored retirement plan in the United States, and it shares a number of similarities with superannuation schemes in Australia. 401(k) plans allow an employee to save for retirement while deferring income taxes on the saved money and earnings until withdrawal. An IRA (Individual Retirement Account) doesn’t have a direct corollary in Australia, and is analogous to a private pension account although it comes in a varieties of types.

Both accounts share some similarities, including the fact that unless an exception applies (such as being under financial hardship or over 55 and no longer a company employee) withdrawals prior to the age of 59.5 usually attract a penalty of 10% plus a withholding tax of 20 to 30%. There are situations where both the early withdrawal penalty and withholding taxes may not apply to Australians withdrawing funds, but you need to discuss this in detail with our advisor who specialises in US taxes. Note that unlike UK pension transfers these balances do not need to be paid directly into a superannuation account in Australia and you should seek advice as to how the money might be best utilised.

Both 401(k) and IRA accounts can vary in nature quite considerably and you will need professional advice in relation to both the US and Australian tax implications associated with any pension withdrawal. Individual circumstances, and particularly whether you have US citizenship or permanent residency (greencard), will significantly affect any analysis.

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