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Subject:  Re: Effect on Roth IRA when leaving US? Date:  9/28/2000  4:07 PM
Author:  paulholister Number:  25164 of 88448


I too have an interest in the consequences of moving abroad and even expatriation (giving up my US citizenship, which means little to me since I've been abroad most of my 40 years, until last year). I am still unsure about tax on payouts from retirement funds (but suspect that the rules will be similar to Holland, where they will tax you at source unless you are living in a country with which Holland has a tax treaty, in which case that country will tax you on the income). If you've found out more since your original posting, please let me know.

A word of warning on tax, if you don't know it already. It seems that the IRS don't share EZ's sentiment that "there's no place like the US of A", and behave as if people are leaving in droves and have to be stopped. As a US citizen or LTR (long-term resident, the qualifying factors for which I don't know), you are obliged to file US tax returns for the rest of your life, no matter where you live. As someone who has worked and lived in many foreign countries (which require tax returns only when you live / earn there), I was shocked when I discovered this draconian attitude, but worse was to come.

I thought I could escape just by giving up my US citizenship (I have British too, and my wife and children are Dutch) but there's a rule that says that if you are deemed to be leaving for the purpose of tax evasion (US tax, that is), you have to carry on filing returns and paying tax for ten years even after you've renounced your citizenship. Castro would be proud of such measures.

However, it's not quite as bad as it at first seems. Though you have to keep filing, you may not have to pay tax. If you earn less than a certain amount ($78,000 this year, I think) while permanently resident abroad, you don't have to pay US tax (but watch out for being self-employed). Moreover, on amounts earned above that, you can count tax paid abroad as a credit against your US tax liability on that portion (if the country has a tax treaty with the US). The calculation the IRS uses is a bit unfair (taking average tax rate instead of tax rate on the portion over the 78K) but you would find in most European countries, for e.g, that the tax rates are enough to wipe out your US liability and you owe Uncle Sam nothing, apart from the paperwork, of course.

Additionally, there are exceptions to the 10 years post-expatriation rule for certain cases.

IRS publication 54 has some basic info and a good FAQ. See also publication 593 and search their site ( for "Instructions for Form 8854", which is about expatriation.

Anyone else out there know about the laws on taxation of payments from IRA's or 401(k) in relation to tax treaties with foreign countries in which you are resident?

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