401k

[joyd]

Just wanted to check if anyone has more info on this. If you are contributing to 401K, to withdraw you pay 10% penalty and the the taxes as per your income bracket, say 30%. But what happens if you migrate back to your home country and withdraw the minimum to not pay taxes, say 10-12K per year, so in that case do you just pay the 10% penalty and not pay any taxes on the withdrawn amount? Basically there's no income for you that year besides the 401K withdrawl. What are the caveats to this?

 

[Gegemon]

Every time when you are making an "early withdrawal" of money from your 401k account - there will be a mandatory 20% tax taken from that amount independent on your overall gross income situation - 10% penalty tax is not taken at the time of withdrawal!

It will be up to you to file your taxes at the end of the year and claim that amount back. And you have to plug in your 10% penalty tax into the equation at that time. And to do that all you have to be considered a US resident for tax purposes - meet either a green card test or substantial presence test.

There are also exceptions for 10% penalty tax rule - if you become unemployed and you are paying for your health insurance then you can avoid that penalty. Also if you are taking your 401k money to buy your first house. About 9 exceptions overall, do not remember all the details. But you are right - if your income is low - you don't have to pay taxes. If your "earned" income is low ("earned" - from salary, etc., not from investments) you are not only getting back all the taxes you payed during that year, plus you are getting more from the government - the so called "earned income tax." And it could be a $3-5k check! HRBlock, where I worked part time (for fun ), is basically makes it's living on those people with low income who are getting earned income tax money as early in the tax season as possible - and they don't mind paying steep tax preparation fees.

EB12-OR
ND: 04-02-2003