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USA Retirement Plan Distributions-Living in another country

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Ang0905
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USA Retirement Plan Distributions-Living in another country  Reply with quote  

Hi,

I have a defined benefit Pension/Retirement plan, a 401K, and a Traditional IRA which I will receive distributions from when I retire. If I move to another country, from the USA to Costa Rica for example, or anywhere else, how do the taxes work on the distributions?

Do I have to pay US Federal Government taxes on the income distributions, or tax to the USA and Costa Rica?

Thanks. Very Happy
Post Wed May 27, 2015 9:58 am
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Wino
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Re: USA Retirement Plan Distributions-Living in another coun  Reply with quote  

quote:
Originally posted by Ang0905
Hi,

I have a defined benefit Pension/Retirement plan, a 401K, and a Traditional IRA which I will receive distributions from when I retire. If I move to another country, from the USA to Costa Rica for example, or anywhere else, how do the taxes work on the distributions?

Do I have to pay US Federal Government taxes on the income distributions, or tax to the USA and Costa Rica?

If you look at my stats to the left, you'll see I live in Dubai as a US citizen. I'm sorry to tell you, but where you live has zero effect on taxes you pay in some respects.

Basically, any income you EARN overseas can be offset against a $99,200 exclusion; however, you will not be earning the income overseas, so it does not count. Therefore, there is zero tax benefit to moving overseas for the sources you mention.

If you get a job to supplement your income, such as working at a bar, then any income you earn there can be excluded, up to that year's limit. If you own the bar (business) yourself, though, you need to file your sole proprietor paperwork to pay the self-employment tax, but the amount up to the exclusion is allowed to be treated as income and excluded.

Next case, you use your money to buy a bar, but you don't work there, and you let someone else manage it. In this case, your money is just paying back as unearned income, and cannot be excluded.

The simple rule is that if it is money you earn by your efforts, you can exclude it, but if it is money that comes to you through pensions or investments, you cannot exclude it.

I've been trying to figure this out for about 4 years. It's still not crystal clear to me, so you'd be best off to find a good tax firm that specializes in US citizens overseas and filing taxes.

In any case, though, you MUST file a tax form. Failure to do it, even if you owe nothing, can get your some kind of failure-to-file charge when you return. Remember, going to an embassy to get your passport renewed is "returning" to US soil, so don't think, "I'll never come back, so I don't have to file."
Post Wed May 27, 2015 1:17 pm
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Wino
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One item I left out. If you have over $10,000 in TOTAL in ANY or ALL of your foreign accounts, you MUST file the F-BAR. If for even one second your total amount was more than $10,000, you have to file. this is an electronic form, so you do it online, but you have to do it. If you do NOT file, and they find out, they can take 25% of the total amount for each year you did not file, EVEN if the money is legal and declared and all that folderol. Since you're retiring overseas, it is likely you'll hit this threshhold, so look up the F-Bar and follow its rules.
Post Wed May 27, 2015 1:20 pm
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