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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?

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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.

  • Are you talking about regular 401k withdrawals or premature 401k withdrawals. I would think the former is FDAP but the latter is connected to a business in the US.... – xyious May 7 at 15:40
  • @xyious I'm referring to regular withdrawals, OP has already asked about 401k in linked OP question (and others in linked question referenced early withdrawal penalty) but OP's scenario is for taxes on a nonresident alien. Not sure what you mean by 'connected to a business'. – Morrison Chang May 7 at 15:57
  • I mean "Income that is Effectively Connected with a trade or business in the United States". Because premature withdrawals are neither fixed, nor determinable, annual or periodical – xyious May 7 at 16:59
  • I would argue that it would be FDAP based on: irs.gov/individuals/international-taxpayers/… but that would be for another question. – Morrison Chang May 7 at 17:08
  • After reading it again (3 times) it seems like you're most likely correct. Though it's still ambiguous. – xyious May 7 at 17:27

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