[suebeenz]

I was wondering if any Americans in NZ have experience contributing to 401K or IRA. I don't really know where to start, but a few questions come to mind.

Specifically,
1) In the US 401K reduces your US taxable income. If you come to NZ and still work for US company, from a US perspective, are you legally still allowed to participate in the company's 401K plan?

2) When reporting US taxable income to NZ, are IRA and 401K contributions considered tax exempt?

3) From a US perspective, can one still contribute the maximum IRA contribution if one isn't still in the US? I would assume if not paying full taxes on the year, one wouldn't be.

Any experience wisdom here would be much appreciated. Thanks! :nice1

[Howie]

Afraid I can't be of much help, but I just wanted to add my experience. I am a Canadian with 401k's in the US and RRSP's in Canada. I called up the tax people in NZ and they asked me a bunch of questions and determined that I didn't need to file taxes. I believe I mentioned my foreign tax sheltered investments, but didn't go into any detail. But I must admit, I have no idea what the actual tax law states.

My RRSP's in Canada seem to be fine. I can't touch them as I'm not a Canadian resident. That means I can't even move them into different plans, so everthing's in a super managed plan - that means when the foreign content % changed a couple of years ago, the plan automatically adjusts.

I'm trying to convert my 401k's to an IRA. But since I am not a US citizen and no longer a resident they gave me a scary tax form to fill out before I can make the switch to an IRA. It's a W-8BEN - Certificate of Foreign Status of Beneficial Owner for US Tax Withholding. I have absolutely no idea what it means, but I'm just going to fill it out as best as I can and hope for the best. Ya, maybe not the best tax strategy. But I believe NZ and US have tax treaties, so I'm hoping it shouldn't be a problem unless I actually want to cash it out when I retire.

[jo-and-jeff]

Honestly, suebeenz, I think you're going to want to consult with a professional, because your situation is complex enough that you're not going to want to try to do it yourself. You are probably going to have to file both U.S. and NZ tax returns.

Whilst it wasn't easy doing the filing myself when we were in the U.S., our 2006 return is going to be an absolute mess, and it's going to be impossible to do it myself this year.

Are there any people from the U.S. here who can recommend a Tax Accountant experienced at dual filings? If you can recommend someone, or know someone her from the U.S. who could make a recommendation, please do post that information!

Thanks!

Jo

[suebeenz]

Hi guys thanks for your replies. I definitely was planning on filing in both countries. Sounds like to get my questions answered, I really need two tax specialists. One for NZ and another in US. Ugh.

Well, I'll let you know once I find out.

Thanks again :)

[ElizabethD]

I believe you only pay taxes to one of the two countries (whichever is higher) but you file with both. Since NZ taxes are higher than U.S. taxes you them if you live most of that year in NZ. You should hire an accountant. I suggest Price Waterhouse Coopers because they work with international accounts in NZ.
Iraj

[arentol]

Suebeenz,


Greetings, I may be in a similar situation as yourself if our migration ideas work out according to plan. After you consult with an attorney(s), would you mind posting the process you had to follow? Just so that we can all learn more.

Thanks!


Aren :nice1

--

I was wondering if any Americans in NZ have experience contributing to 401K or IRA. I don't really know where to start, but a few questions come to mind.

Specifically,
1) In the US 401K reduces your US taxable income. If you come to NZ and still work for US company, from a US perspective, are you legally still allowed to participate in the company's 401K plan?

2) When reporting US taxable income to NZ, are IRA and 401K contributions considered tax exempt?

3) From a US perspective, can one still contribute the maximum IRA contribution if one isn't still in the US? I would assume if not paying full taxes on the year, one wouldn't be.

Any experience wisdom here would be much appreciated. Thanks!

[Junnifer USA]

Hello,

I lived in Japan for 10 years before we moved here. I am not an accountant, but can tell you our experience.

1. Yes, we always contributed to our 401K and IRA in full while overseas.

2. Yes, you do have to file your US taxes each year. You do not get to choose which country to file for...US or NZ... based on where the taxes are higher. However, you are not going to be double taxed, in general. To accomplish the double filing, it has been easier and cheaper for us to maintain our US accountant, and faz over the info he needs each year. The longer you are away, the less complicated your US taxes become, generally, as you are not an active investor, or not creating tons of deductions,.. in the US.

Hope this helps some.

JJ

[wanderingoregonian]

If you do learn anything helpful, please add me to the PM list. Getting the tax stuff sorted is also on my list.

[suebeenz]

Thanks guys for added info. If I find anything else out, I'll be sure to let you guys know. On a somewhat related note, I just read that we can pull money out of a Roth IRA penalty free. Hopefully it won't come to that.

[barryp]

As long as you are a US citizen living in NZ, you will have to file a US tax return every year, unless you renounce your US citizenship. Non-citizen residents have the same condition, until/unless their US residence expires.

It is possible to contribute to a 401(k) or other qualified plan whilst living in NZ, but your permissible amount depends on your USA income (AGI). In my case, I anticipate earning all of my money in NZ for this year, and am therefore ineligible to contribute to a 401(k). I am still eligible to contribute to a Roth, however, up to US$4k per annum.

If your NZ income is from salary and your US income is similar in type to what you used to earn (ex. savings account interest, rents/royalties, etc.) then your USA taxes are computed exactly as they always were, except you exclude the first US$80k of annual income from all overseas sources.

If you have a business in NZ and another in the USA, your life is going to be very complicated, and you will need to hire a specialist. IMO.

[Super_BQ]

suebeenz,

Dr. Cullen (Finance Minister of NZ) is going pass law that will change the freedom of NewZealanders on how they can invest overseas (with the exception of NZ and Australian listed companies).

You may consider cashing in all your 401K/IRA plans in the US after reading this:

www.taxpolicy.ird.govt.nz/publications/files/vol3offrep06.doc

In short it's ok for the IRD to claim taxes on paper profit gains but when in years when you make a paper loss, they make no mention of claiming the loss. Sound draconic? how much does $50,000 in your portfolio buy today? Don't bet on that amount for retirement.

If you're well aware of reducing risk in a stock market portfolio, every portfolio manager knows that you just can't look locally for maximised return/risk ratio. The same products we consume such as KFG, CocaCola that are listed on the NYSE or Nasdaq, New Zealanders can not participate in these companies. Those familiar to CAPM by the guys Markowitz, Fama & French know exactly what I mean.

In simplistic terms, you can invest in say NZ companies for retirement and pay not tax on their gains. But as soon as you step foot outside (exception of Australia), we want to tax your compound gains.

barryp is correct. As long as you're a US citizen, regardless where you live in the world, you're required to file a US tax return to the IRS every year for as long as you live. If you don't then don't be surprise on your next visit to the US you may get some hassles at the boarder.

No double taxation - each tax return allows you to claim "Foreign Tax Credit". By no surprise the net result is you end up paying more tax in NZ than if you were to stay in the US.

BQ

BQ

[Nathan]

What I 'learned' today....

I got this from the website of an attourney who is in the business of assisting US expats with their tax issues.

This is a paraphraesd list:
SEVEN TAX TIPS FOR AMERICAN EXPATS

1) If you are a permanent resident in a foreign country on December 31, you must pay your taxes by 15.Apr, but you have an automatic extension ‘til 15.Jun to file.

2) You can claim an exemption from US Income tax of up to $82,400 for 2006 and $85,700 for 2007 income while residing outside of the US for a full calendar year. Both you and your spouse can each separately claim this exemption for up to $164,800 in US tax-free income for 2006.

3) You can claim a dollar for dollar US tax credit for foreign income taxes you pay in another country.

4) The US has tax treaties with many nations throughout the world (NZ is one). All contain provisions exchange of tax information.

5) If you reside outside of the US and your spouse is not a US Citizen or permanent resident), your spouse does not have to pay US income taxes if you don’t file a joint return.

6) When you live in a foreign country you can obtain a social security number for your children by obtaining Form SS-5-FS through the Social Security Admin website at www.ssa.gov Social security is a whole other can of worms for expats!!!

7) While living abroad, if you take the proper steps to terminate your tax domicile, you can avoid filing or paying state taxes. The rules vary from state to state.

I'm very interested in how the proposed new law wouls affect 401(k)s and IRAs. Would we have to pay early withdrawl penalties, and US taxes, or both or one or the other if we moved the funds to NZ? If it's only the penalty it might be worthwhile to get the money moved and invested in the 48 month time-frame rather than several years down the road.

I'm so confused!! Thanks for all the information. It helps.

[Park City Partner]

I looked at the US Consulate website and called a few of the recommend accountants on their list. I met with Peter Chatfield from Smith Chilcott Bertelsen Harry for about an hour. I was very impressed with him and plan to use this firm to prepare my NZ return. For this year (2006) I will use my US accountant for my US return due to selling my biz and houses etc. and Peter's firm to do my NZ one. Then probably just the Kiwi firm moving forward. You can contact Peter at 09 379 8035 or via email peter@scbh.co.nz.

Good luck!