Generally, when you withdraw funds from a U.S.-based retirement fund –
such as a 401(k), 403(b), Individual Retirement Accounts (IRAs), and even
an executive Non-Qualified Deferred Compensation (NQDC) Plan – there’s
a 20% withholding tax. In addition to that, if you’re under the
age of 59 and six months at the time of the withdrawal, there’s
an additional 10% early withdrawal penalty, which is designed to discourage
people from withdrawing funds prior to retirement age. For nonresident
non-U.S. citizens, there’s a gross-basis 30% withholding tax. In
just about any scenario, you’d be looking at losing 30% (nearly
one-third) to the IRS.
As long as you’re not a U.S. citizen, attorneys for tax-free extraction
of U.S. pensions from Castro & Co. can get your effective income tax
rate down to 0% in both the U.S. and your country of residence.
In the absence of planning, an individual will pay 30% tax to the U.S.
Although your country of residence will likely grant you a tax credit
for the 30% paid to the IRS, you could end up owing additional tax in
your effective income tax rate in your country of residence is greater
than 30%. For example, let’s say you’re an Australian tax
resident with an effective Australian income tax rate of 35%. Although
you would get credit for the 30% paid to the IRS, you may still owe an
additional 5% to Australia without proper planning.
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