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I am in the process of changing citizenship from the U.S. to Norway. When I told my financial advisor about this he said I would have to close my 401k account there but he didn't really offer any advice on what to do with it. Is this correct that a citizenship change will require a 401k to be closed or is that something perhaps particular to the rules of that financial institution? It seems very difficult to find any practical information on this.

Chris W. Rea
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Chrome2222
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3 Answers3

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There is no relation between changing citizenship and 401k, and no need to act on it because of a change in citizenship.

Depending on you specific situation and the size of the 401k, there might be some tax consequences anyway; but closing it is for sure not required.

Aganju
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My guess is that it's not a rule, it's just that the 401k manager doesn't want to deal with FBAR / FACTA reporting requirements for those with foreign assets.

Peter K.
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The one item to be aware of is if you are considered a covered individual and are therefore subject to an exit tax. If you are then you while you can keep tax deferred accounts open, you must pay tax on the value of the account as if it was a full distribution (but at least no penalty). Also non-qualified investments will be considered to have been sold on the day prior to renouncing your citizenship.

The thresholds for the exit tax appear to be $2 million in assets (including property) or somewhere around $150k in salary.

Good google search terms for finding information are "us exit tax" and "renouncing us citizenship tax deferred account".

I would recommend working with an international tax expert who does exit taxes if you might be hit by this tax.

Eric Johnson
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