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Transferring my 401k amount to Australia

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Newbie

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Hi,

 

I am an Australian citizen and a resident for tax purposes for the last 4.5 yrs.

 

I worked in the US and have a 401k account. I wish to withdraw my 401k and move the money to my Australian bank account. I wish to use that amount for a house deposit. I do not want to transfer/add it to my super.

 

I will pay the necessary tax in the US when I withdraw the 401k. 

 

What are my tax obligations in Australia? any additional information or gotchas I should be aware of? 

 

Thanks in advance.

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Community Manager

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Hi @mark78,

 

Thanks for bringing this to our attention; we have edited our previous post to provide accurate information.

 

You are correct 401k is not considered a foreign super fund therefore the way it is taxed in Australia is different.

 

When an Australian resident takes money out of their 401k they need to add the accumulated interest portion to their income tax return as it is assessable income and it will be taxed at marginal tax rates.  They do not need to add their own or their employer contributions (the principle) to their income tax return as this is not assessable.  We have two rulings on the legal database that refer to the relevant legislation 1051218124123 and  1051517688400.

 

You would also be entitled to the Foreign income tax offset for tax withheld in the United states.

 

Thanks

 

KylieS

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Taxicorn

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The following post explains how a lump sum should be treated when paid by a foreign super fund. It is important to note that not all overseas retirement accounts are considered to be ‘foreign super funds’ as defined in Australian legislation. Our latest post in this thread explains how a payment from a US 401k account should be treated for tax purposes.

 

Hi @friday_boi,

 

Thanks for your post.

 

When receiving a lump sum from your foreign super fund, you’ll need to work out if your lump sum includes any:

  • applicable fund earnings, and/or
  • assessable foreign fund amount.

The applicable fund earnings are essentially how much your foreign fund has grown since you became an Australian resident for tax purposes.

 

The assessable foreign fund amount of your lump sum is any amount that is more than was vested in you at the time the amount was paid.  The vested amount is the amount you’re legally entitled to when you leave the fund. So as an example, if you were legally entitled to a lump sum of $40,000 from your foreign fund but they paid you $45,000, then the $5,000 extra that you received would be the assessable foreign fund amount.

 

Assessable foreign fund amounts are less common when receiving a payment from a foreign fund.

 

When the lump sum has been paid to you directly, you’ll need to include both the assessable foreign fund amount and the applicable fund earnings in your tax return. Both these amounts are assessable income and will be taxed at your marginal tax rate.

 

The remainder of your lump sum isn’t subject to tax.

 

So for example, let’s say you receive a lump sum payment from your foreign fund for your total balance of $25,000.  Of this $25,000, we'll say $5,000 is the applicable fund earnings. 

  • You’ll need to include $5,000 in your tax return and this amount will be subject to tax at your marginal tax rate.
  • You don’t need to declare the remaining $20,000 in your tax return as it isn’t assessable income.

If you’re unsure what your applicable fund earnings and/or assessable foreign fund amount is, you can seek advice from a registered tax practitioner.  You can also apply for a private ruling for us to calculate your applicable fund earnings.

 

It’s worth keeping mind that if you’ve paid tax on your lump sum, you may be entitled to claim a foreign tax offset in your tax return.

 

Thanks, NicM.

 

 

 

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@NicATO, the question was regarding a US 401k account. Your response assumes a 401k is a foreign super. The ATO says 401k is not a foreign super. It won't let me post the ATO advice because the URL contains a TFN, but google "Is the US Fund a foreign superannuation fund according to the definitions in subsection 995-1" and it will be one of the first results.

 

Can you please clarify?

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Community Manager

Replies 10

Hi @mark78,

 

We will look into this and get back to you as soon as we can.

 

Thanks

 

KylieS

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Replies 9

Thank you, looking forward to it. Another question about @NicATO 's advice above... He says it's taxable at your marginal rate, but google "Is any part of the lump sum payment from your retirement account held in Country A assessable under section 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?" and the first result is ATO advice which says it's eligible for capital gains treatment (if it's held a year, etc.). Does CG apply to 401k/IRA distributions?

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Most helpful response

Community Manager

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Hi @mark78,

 

Thanks for bringing this to our attention; we have edited our previous post to provide accurate information.

 

You are correct 401k is not considered a foreign super fund therefore the way it is taxed in Australia is different.

 

When an Australian resident takes money out of their 401k they need to add the accumulated interest portion to their income tax return as it is assessable income and it will be taxed at marginal tax rates.  They do not need to add their own or their employer contributions (the principle) to their income tax return as this is not assessable.  We have two rulings on the legal database that refer to the relevant legislation 1051218124123 and  1051517688400.

 

You would also be entitled to the Foreign income tax offset for tax withheld in the United states.

 

Thanks

 

KylieS

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Newbie

Replies 6

Hi,

 

Firstly, thank you for all the helpful information posted previously.

 

Am I reading the previous information correctly? For Australian residents, it seems that Australian Taxes are to be paid on the INTEREST portion (not principal) of the DISTRIBUTION of funds from a United States 401k.

 

What if the Australian resident does not withdraw funds from the 401k? Are year-to-year increases in value of the 401k fund taxed by the ATO if no distribution is made to the Australian resident?

 

Thanks again for your insight!

Jason

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I know they used the word “interest” in the previous response, but that’s misleading. The distinction is between contributions and gains. Gains may be from interest, dividends, increase in stock price, etc. I leave the rest of the question to the experts.

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Community Manager

Replies 4

Hi @jpel,

 

Yes, you are correct only the earnings/gains are taxed when they are withdrawn from the fund.

 

Thanks @mark78 you are spot on, appreciate the feedback.

 

Thanks

 

KylieS