This question is somewhat related to this one.
I'm a non-US person (mid 30s) currently living and working in Europe. Previously, I lived and worked in the US (Massachusetts) for >3 years. In order to save for retirement, I entered in my employer's 401(k), where a modest amount (~10k) now sits.
Having left the US (with no plans to return), I'm trying to get a sense of my options handling this account, and the fiscal consequences of each option. An important consideration is that I've built up retirement savings (and paid income taxes) in several countries over the years, and more countries may follow. So beside thinking about the bottom line, the administrative burden of having retirement savings and potentially filing taxes in multiple countries is an important factor. Here's what I've pieced together so far:
Option 1: leave the money where it is until retirement age. I think this means no annual US taxes would have to be filed between now and retirement, although I might need to list the 401(k) funds in my annual returns in my country of residence. After retirement, I'll need to start paying income tax on the distributions. However, I'm not sure whether this tax would be levied by the US, my country of residence (or both, but then a tax treaty would presumably kick in to avoid double taxation). Regardless, I suspect I'd have to file US federal and maybe even state tax returns for as long as I take distributions.
Option 2: take out all the money and place it in a retirement account in my country of residence. This would result in a 10% penalty and I'd pay income tax in the US and/or my country of residence (again, hoping that a tax treaty prevents double taxation). After filing US taxes for the year of withdrawal, I'd be free from all US fiscal matters. However, the country of residence would likely add another round of taxation when it's distribution time, meaning that there's still double taxation.
Option 3: "roll over" the funds to a similar deferred taxation solution in my country of residence. This seems ideal as it would allow me to consolidate funds in one place, but the interwebs indicate limited options for a true international roll-over that retains tax benefits. But not sure.
I've also seen mentions of ways to avoid the 10% penalty in certain cases when cashing out (option 2) but without being specific about the requirements.
I'm not asking for advice on what option to pick. Rather I'd like to know:
- How accurate is the above account? Am I missing important details?
- Is there an altogether different option I haven't considered?