When you leave the United States, it’s easier to move your belongings and cash accounts than it is to tap into your 401k plan if you’re under age 59 1/2. Even though you’re leaving the country, IRS tax rules will follow your plan wherever you go. Because penalties for early access are high, you should explore less expensive options if you don’t qualify for one of the exceptions available for persons under 59 1/2.
Review your situation. If you’re over age 59 1/2, you’ll only pay income taxes as if you earned the money this year. Those under age 59 1/2 will pay a 10 percent penalty unless the withdrawal qualifies as a hardship, is used for unreimbursed medical expenses, health insurance premiums while unemployed for at least 12 weeks, a total disability or qualifying higher education expenses.
Call your 401k plan administrator. The phone number is usually located on a 401k plan statement. Ask them the procedure to remove funds from your 401k plan. If you can make withdrawals over the phone, request funds immediately. Let the representative know if you qualify for an exception to the IRS penalty or are over age 59 1/2.
Complete paperwork if the 401k administrator won’t allow telephone redemptions. To speed up the process, ask the company to email or fax the forms. Also, ask the 401k administrator if the company accepts faxed or emailed scans of the documents. If so, you may receive your funds more quickly.
File the receipt attached to your check after verifying your withdrawal was completed correctly. Review the withholding and any penalty withholding. If anything is incorrect, don’t cash the check. Call the 401k provider and ask questions until you’re satisfied that your withdrawal was successfully administered.
File your income taxes before the normal filing date. You’ll receive a 1099 detailing your 401k withdrawal. This will show the amount of taxable income received and tax withheld. This form is due regardless of your current location because the money was sheltered in the United States. If you don’t file a return, you’ll be subject to failure to file penalties and interest on any tax owed. If you’ve already had money withheld for taxes, you won’t receive a refund of this cash without filing.
As a former financial advisor to companies and individuals for 16 years, Joe Andrews knows financial planning and marketing from start-ups to personal budgets. He also writes on motor racing, board games and travel. Andrews received his B.A. from Michigan State University in English. He is currently working on a young adult novel.