# USA: Tax on IRA



## Buzzcut (Sep 14, 2016)

I could use some advice about IRA withdrawals.

I used to live in the States. I’m not an American citizen, but I’m still a “US person” for US tax purposes. Because I’m now thinking of remaining outside the US for good, I may officially expatriate from the US in the next year or two. (I’m optimistic the IRS wouldn’t stick me with the dreaded “covered expatriate” status since I’m retired, I’m not rich, and I don’t owe them any back taxes.)

Anyway, the reason I’m writing is that I still have money in the US in several IRAs (both traditional and Roth) from decades past. I’m over 60 now, so I should be able to make IRA withdrawals without penalty. 

While a part of me says I’d simply like to just cash out my IRAs now in one fell swoop so I’m free of any future tax worries, another part of me says not to cash out everything at once but rather to spread things out over several years to reduce the tax bite.

What do you think? Is there a good reason to totally cash out the IRAs now while I’m still considered a “US person”? Or, if I don’t cash out soon and if I become a non-resident, would still having those IRAs pose extra, more serious US tax issues for me later on? What exactly?

Any advice?

And heaven forbid, if for some reason I can’t foresee the IRS was able to stick me with “covered expatriate” status, what might that mean for tax on my traditional IRAs (or possibly even for the Roth? Can they tax a non-resident’s Roth IRA?) if I were still holding onto my US retirement accounts and wanted to cash out later as a non-resident?


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## Bevdeforges (Nov 16, 2007)

It's not a matter of resident or non-resident so much as "US person" vs. non-US person.

Assuming that you are in a country that has a tax treaty with the US, chances are that the treaty acknowledges IRAs Roths and 401Ks as equivalent to a "government pension" and thus taxable only by the US. (There are a few tax treaty countries that do these things differently, though, so check.)

If you are subject to US taxes, then it's the US that gets to tax any and all withdrawals from those funds, and your state of residence should have some means of exempting or crediting you for taxes paid on your local income tax declaration or return. If you are a non-US person (i.e. no longer subject to US taxation), then any and all withdrawals from your US retirement funds will be withheld at a rate of 30%. It may be possible to reclaim some of this by filing an 1040 NRA form each year - but I've only just started looking into this and I'm not sure of that. (And that will also apply to any US social security benefit you may be entitled to receive.)

The "popular" countries that have different arrangements for pensions from the US are the UK and Italy, but there are about a dozen in all, as far as I know. Check the IRS website for the publication on US Social Security and pensions for more details. And check the tax treaty for whatever country you're currently resident in.
Cheers,
Bev


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