# US tax on retirement account, now living in Australia



## cooperplace (Aug 5, 2018)

I'd be grateful for advice. I lived in the US for 5 yrs in the 90s and contributed to a retirement fund, as did my employer. Now I live in Australia, where I'm a citizen. I'm 62 yrs old. I'd like to withdraw the balance in my US retirement fund. I suspect that this "distribution" as I think it is will attract US tax, as its tax deferred $$.
Is it as simple as me withdrawing the money, and then filing a US tax return for the income? I still have a job in Australia but I think that if I pay US tax, that frees me from the need to pay Oz taxes. 

Do I have to pay a state tax? I used to live in IL. 
Could I reduce my tax bill by withdrawing over a couple of years?
Can I claim the standard deduction when I no longer live in the US?

Any advice would be appreciated.

Thanks


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## Bevdeforges (Nov 16, 2007)

It depends a bit on the type of retirement fund. If it is one of the US sanctioned "deferred taxation" funds (like an IRA, 401K, etc.) chances are you'll have to pay US taxes. Though you should check the US-Australia tax treaty to see what that has to say about retirement accounts and which country gets to take them.

I'm going to move this over to the Expat Taxes section, where I think you may draw a bit more advice on the Australian side of this issue.
Cheers,
Bev


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## Moulard (Feb 3, 2017)

Unfortunately you don't get to choose which country you get to pay tax to. 

As it happens the US-Australia treaty is pretty poor when it comes to retirement accounts much to the chagrin of all of us with Superannuation, IRA or 401(k) type plans or all of the above. They are not referred to at all, and therefore get no beneficial treatment, unless it is in fact a pension or annuity rather than a retirement account.

If you are now a tax resident of Australia then I believe Australia will have primary taxing rights on the income under article 21 of the treaty. Which means that under article 22 of the treaty you would be able to gain a foreign tax credit on your US for any taxes paid in Australia on the income. This may or may not result in a full refund of any US taxes paid. 

One thing to consider on early withdrawal is that while Australia does recognize foreign retirement funds as the equivalent of Superannuation (and thus distributions are tax free) the ability of early withdrawal of these US retirement funds means that they do not meet the statutory definition of a foreign super fund and thus are taxable as ordinary income. 

Long and the short of it, in Baker vs Federal Commissioner of Taxation (2015 ATC 10-399), it was ruled that an IRA the flexibility of monetary withdrawals from an IRA is such that the scheme does not qualify as one for the payment of benefits upon retirement or death within the meaning of s 305-55(2) of the Income Tax Assessment Act (1997).

Given the nature of the ruling I believe any US scheme (whether it is an IRA, 401(k) or similar) so long as you could withdraw funds prior to retirement it would get no preferential income tax treatment in Oz. Thus the distribution would be taxed in Australia according to your marginal rate.




> Do I have to pay a state tax? I used to live in IL.


That would depend in part on whether Illinois still considers you a resident. I would assume no, if you have been back in Oz for the last 15-20 years. 



> Could I reduce my tax bill by withdrawing over a couple of years?


Maybe. It probably depends on when the funds are considered vested (i.e. there is no longer a substantial risk of forfeiture) and that could depend on the type of retirement fund you are talking about. It might also depend on exchange rate fluctuations (both in terms of conversion into AUD as income, and conversion of Oz taxes back into USD for the purposes of foreign tax credits. But generally, marginal tax rates are higher the greater your income so in theory evening it out might reduce the overall tax burden.



> Can I claim the standard deduction when I no longer live in the US?


If you are a nonresident alien, you cannot claim the standard deduction. 
If you happened to have a green-card during those 5 years, and did not return it, then technically you can claim the standard deduction, but you would have to be asking yourself should you have been filing US tax returns since you left the US.


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## cooperplace (Aug 5, 2018)

thank you, that has been very helpful. I called my retirement fund and they said I need to fill in a W8-BEN form which I've done, and they will determine the tax to be withheld, according to the tax treaty between US and Oz.

We will see what happens. Right now 30% is withheld, and I suspect it will stay at 30%.


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