Out of the Country, Out of Luck?

Here's a question I'm sure you've never encountered. I am 50 years old. I worked in the USA from 1987 - 1995. During this time period I was employed and contributed to a 401k plan along with my employer. In 1995 I moved to Europe (Greece) with my family and have since been employed in the private sector (no affiliation with USA what-so-ever). My question is as far as the 401k plan I left behind (worth $40,000 now) what can I do about it other than wait out my retirement? Can I contribute to it from where I am?

Nick from Greece

Answer

Dear Nick: From your e-mail, it sounds like you are a non-US citizen. Generally, qualified retirement plans, such as a 401(k) are non-transportable (i.e. they cannot be rolled over to a qualified plan in another country). Your first course of action should be to obtain a copy of the Plan document and review the options available at termination of employment. If you have the option of taking a full withdrawal, you may be subject to U.S. as well as Greek taxes, and of course, you would have to pay the 10% early withdrawal fee if you take the funds before age 59 1/2.

As far as the ability to contribute to that 401(k) from where you currently are, you would not be able to make additions to it unless you are still employed by the same company and are being paid in U.S. dollars.

My advice would be to review your 401(k) plan document and then consult a tax adviser to determine the tax implications of taking a full withdrawal if that option is available to you. Otherwise, waiting until after age 59 1/2 may be your best course of action.

Good luck, and if your circumstances differ from what I surmised from your e-mail, please give me more details, and I will try to be of additional assistance to you.

Out of the Country, Out of Luck? (follow up)

Thank you Jan, By the way, I am a US citizen (dual citizenship). I dont think that changes anything from what you described though. Are you aware of any list of overseas tax advisors? There must be since there are US resident employees who work for US companies here.

Nick from Greece

Answer

Dear Nick:
You are correct, the dual citizenship alone does not change anything. The only way you would be able to roll your 401(k) to an IRA is if you have a US residence.
As far as a tax advisor, I would recommend you go into a local bank or brokerage firm and ask to speak with a Financial Advisor. Most banks have Financial Advisors who can assist with matters such as these.
Good luck!

Roll Over

With so much being written and talked about regarding Roth IRA conversions, you may be wondering whether you can “roll-over” your qualified retirement plan directly into a Roth IRA. The simple answer is “yes,” because of the passage of the Pension Protection Act of 2006. The new legislation allows eligible qualified retirement plan assets to be rolled over directly into a Roth IRA beginning January 1, 2008. There is no longer a requirement that the qualified plan be rolled over to a Traditional IRA and then converted to a Roth IRA. However, there are rules that must be followed when rolling over qualified assets to a Roth IRA:

0. The assets must meet the retirement plan’s definition of “eligible rollover distributions”. Be sure to check with your plan administrator for the plan’s definition and rules regarding rollover distributions.
0. At the time of the rollover, you must have a written “irrevocable” election of the rollover.
0. The rollover can be either “direct” or “indirect.” A direct rollover is when a check is made payable directly to the receiving institution. An “indirect” rollover is when the check is made payable to the participant, however, the rollover must occur within 60 days of the distribution.
0. Pretax and after tax assets may be rolled over to a Roth IRA. All pretax money is taxable in the year of the rollover.
0. If you rollover retirement plan assets prior to January 1, 2010, you must have a modified adjusted gross income of $100,000 or less, and if married you must be filing joint income tax returns.
0. For inherited qualified retirement plans, a spouse can rollover the plan assets to his/her own Roth IRA or an inherited Roth IRA. Non-spouses who inherit retirement plan assets, can only rollover to an inherited Roth IRA and it must be a “direct” rollover.

A rollover to a Roth IRA may be worth considering for you because qualified distributions from Roth IRA are tax-free and penalty-free. Be sure to check with your plan administrator to determine whether you qualify for a Roth IRA conversion.

Should I Convert?

I’ve been hearing and seeing a lot about “Roth IRA conversions” recently. I think taxes will be increasing in a year or so, and am thinking about converting my traditional IRA to a Roth IRA now, so I can take tax-free distributions when I retire in about 7 years. My taxable income this year will be approximately $110,000 and I am currently age 61. My questions are: 1) am I too old to think about an IRA conversion and 2) should I think about “converting” my IRA this year or wait until next year?

Fred from Milwaukee, WI

Answer

Fred: Your thinking about taxes increasing in a couple of year unfortunately is probably pretty accurate and given your time horizon for needing to access your IRA, a conversion to a Roth IRA is probably a good idea for you. However, you will not be able to convert to a Roth IRA this year (2009), because you cannot qualify for the conversion since your income is over $100,000. However, beginning next year, 2010, anyone will be able to convert to a Roth IRA regardless of income or filing status. As you are making the decision whether or not to convert to a Roth IRA, keep the following factors in mind:

1. The tax bracket you anticipate being in after you retire – the higher you think your tax bracket will be, the more you will benefit from the conversion.
   
2. Whether or not you have funds set aside to pay the income taxes when you convert. Remember the amount you convert will be added to your income in the year you convert, and you should always pay the taxes due from non-IRA funds. The advantage of converting in 2010 is that you will be able to spread the taxes due on the converted amount over 2 years, the 2011 and 2012 tax years.
   
3. The time horizon before you will need to access the IRA funds. Since you do not plan to use your IRA during the next 7 years and you are over age 59 1/2, you are in a good position for a conversion.