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This is a follow-up to my previous question.

Let's say you spend 10 years in the US as a non-US citizen and end up saving up $150k in your 401k fund. After 10 years you finish your employment and move back to your home country. A year after moving out of the US, you start withdrawing from your 401k fund while being employed in a company abroad. Would the US want to tax the 401k withdrawals as per your income in the US or as per your worldwide income?

Brythan
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JonathanReez
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2 Answers2

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A non-US citizen residing in their home country may be considered a nonresident alien by the United States IRS.

See link to make sure you qualify:

https://www.irs.gov/individuals/international-taxpayers/nonresident-aliens

So from:

https://www.irs.gov/individuals/international-taxpayers/taxation-of-nonresident-aliens

A nonresident alien's income that is subject to U.S. income tax must generally be divided into two categories:

  • Income that is Effectively Connected with a trade or business in the United States
  • U.S. source income that is Fixed, Determinable, Annual, or Periodical (FDAP)

401k withdrawals would be considered FDAP:

FDAP income generally consists of passive investment income; however, in theory, it could consist of almost any sort of income. FDAP income is taxed at a flat 30 percent (or lower treaty rate, if qualify) and no deductions are allowed against such income.

The IRS only appears to be interested in United States holdings for taxation purposes.

Community
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Morrison Chang
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I dont think the suggested answer is right.

A 401(K) plans is a qualified deferred compensation plan. (many sources mentioned this classification)

And deferred compensation plans for non resident aliens are taxed as ECI as per IRS publication https://www.irs.gov/pub/irs-utl/deferred-compensation-nra.pdf

"For deferred compensation received by an NRA to be taxable in the United States, the individual must be or have been engaged in a U.S. trade or business, such as performing personal services in the United States. IRC 864(c)(6) allows the United States to tax deferred compensation received by an NRA as ECI in later years when he or she is no longer engaged in a U.S. trade or business. "

HaoYuan Jiang
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