# American Expat in France wanting to Withdraw US 401K



## lilinancy

Hello, 

On the same topic, I have a similar question.

I am an American Expat living in France, and would like to withdraw and close my 401K in the US. 

I am married, but currently not working in France. Could this be considered earned income where I pay taxes on the amount in France, but if the sum is under the earned-income allowance not pay taxes in the US other than the 10% penalty fee?

Just wanting to know if anyone has navigated these waters before and has advice prior to my seeking out a professional.

Thanks for any words of wisdom.
Best,
LiliNancy


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## Bevdeforges

I've moved your question over to the Expat Tax section because I think it's probably relevant for lots of US expats all over the world.



> Could this be considered earned income where I pay taxes on the amount in France, but if the sum is under the earned-income allowance not pay taxes in the US other than the 10% penalty fee?


The simple answer is: no. When you withdraw money from a 401K or IRA in the US, it is regular income taxable in the US. 

In France, however, it's not considered income at all - but rather simply a transfer of capital. When you initially earned the income that went into the 401K it was subject to US tax laws - which allowed you to defer the payment of taxes. Same principle applies to the interest earned over the years. So it's not income at all for the French.
Cheers,
Bev


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## BBCWatcher

Some employers offer Roth 401(k) plans, in which case you've contributed post-tax money and qualified withdrawals do not incur U.S. tax. However, most 401(k) plans are traditional, i.e. you contribute pre-tax money.

I notice you mentioned a 10% penalty. A non-qualified 401(k) withdrawal (i.e. one that incurs the penalty) is only something that you would do if there's literally no other choice and you're absolutely desperate. And even if you do it, you would only withdraw as much as you need, no more, to minimize the penalty as much as possible.

If you need the money only for a short period of time there's something called an indirect rollover. Assuming you have a traditional 401(k) (pre-tax), you would ask the plan administrator to close the account. The administrator would withhold some amount for taxes (usually 20%) then send you the rest. You then have a maximum of 60 days to get that money _plus the missing 20% (or whatever was withheld)_ into an IRA. If you do things that way you can fully recover the amount that was withheld using your next U.S. federal income tax return, and the IRA and its tax benefits continue. You would lose the gains on the amount that was withheld until you can get it back from the IRS, so an indirect rollover is not entirely free. But as a short-term loan it's not too bad.

As another possibility, some 401(k) plans offer the option of a "hardship distribution." If you qualify under that definition the 10% penalty is waived. Considering that you really, really shouldn't be withdrawing these funds unless there's absolutely no other choice, you might qualify.

Hope that helps.

On edit: I should probably also mention the other side of the equation. If you are a reasonably high net worth individual residing in France a non-qualified withdrawal could been even more costly. That's because France has a wealth tax. Pulling money out of a U.S. tax-advantaged account could increase the wealth tax you owe. Again, that would be if you're a high(ish) net worth individual, and most people aren't.


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