Wooden spoons

Mixing up your Retirement Planning - IRA Rollovers for Expats

Every day in the United States thousands of retirement savers, whether they are Americans, resident aliens or non-resident aliens, reach retirement age and face the question of what to do with their employer-sponsored 401k. Do you leave your pension pot alone, or do you give it a stir?

There are some obvious options:

  • Leave the money in the 401k
  • Roll the 401k into an Individual Retirement Account (IRA)
  • Cash out the whole 401k as a lump sum and pay the appropriate level of tax
  • Convert the fund into a Roth IRA for potential tax-free growth

Reasons to rollover

What a saver decides to do will depend on their particular personal, family and residency status, as well as, of course, their ultimate retirement planning goals. However, it is worth bearing in mind that there are a number of potential benefits to rolling over a 401k into an IRA.

For many, the biggest attraction of a rollover is the advantages in inheritance and legacy planning – for example, tax liability can be spread across the lifetimes of your beneficiaries while, unlike a 401k, you can have the option of naming a trust as beneficiary. Further flexibility is to be found in the fact that it is possible to split an IRA into multiple separate accounts for the benefit of your various chosen beneficiaries, including charities, if you so wish.

Inheritance and estate planning is not the only flexibility afforded by a rollover. It is also worth considering that by keeping your money in a 401k you have no choice in respect of how the money is invested; rolling over the fund into an IRA means you (and your financial adviser) can begin to make important decisions about how and where the fund is invested.

A rollover can also provide a reassuring level of simplicity. This is because you can both consolidate multiple employer plans into a single account and simplify the process of required minimum distributions by boiling multiple accounts down into just one vehicle.

Similar to a 401k, if you make a withdrawal from your IRA before you reach age 59½ you will incur a 10% tax penalty, but with an IRA you have greater room for avoiding this penalty. This is because exceptions can be made for such things as first-time home purchases, medical expenses and disability.

As an expat, it is essential that you factor in the 10% federal withholding levy on IRA distributions sent to addresses outside of the United States. There are, however, certain ways around this, but you will need to discuss them with your financial advisor to determine whether they are available to you. Transferred funds are likely to be subject to a treaty rate of your country of residence – this ranges from 0% to 30%.

Lastly, it may be possible to transfer an IRA into a retirement fund in your own country. Once again, your financial advisor can discuss the implications of this in greater detail.

Retirement account advice from Blacktower (US) LLC

Speak to Blacktower (US) LLC today so that we can determine whether, based on your cross-border situation, income, assets, family and long-term goals, it makes sense for you to rollover your 401k or to follow some other route to realising your retirement goals.

We can help you at all stages of the process, from creating a retirement account all the way through to cashing out and returning to your country of origin. Get in touch with us today so that we can help you achieve the growth and security you desire.


Disclaimer: The provision of information in this communication is not based on your individual circumstances and does not constitute investment advice. Blacktower makes no recommendation as to the suitability of any of the products or transactions mentioned.

Back to Top