Moving to Australia - what to do about retirement accounts

[jcmacs]

I'm mid-thirties, married with a kid. We're moving to Australia, to stay indefinitely. We may come back. May not. Wife is EU citizen, I'm US citizen.

We have a decent amount in a wide range of Roth IRAs/401(k)s/SEP/403(b)/...

Does anyone have experience with how Australia would treat these accounts? My understanding is that they would tax capital gains and dividends (but perhaps at a reduced rate?). Many of these would be taxed by the US when the money is taken out of the account. So paying Oz tax when capital gains/dividends occur and US tax when withdrawn would be less than ideal.

Is there a way to avoid double taxation? I'd like to do as little as possible. Withdrawing the money and moving it to Australia would trigger a lot of taxes, and may be counter-productive if we later move back. The one thought I've had is to convert the dividends/capital gains to Roth IRAs. Then pay Australia tax on the dividends/capital gains and claim that against the US taxes triggered by the conversion. This leaves everything taxed once.

Mostly, I'm looking for someone with experience on this who can at least point me in the right direction. I assume I'll end up talking to a professional at some point, but want to be more informed first.

 

[mbooth]

Hi jcmacs, I have no direct experience in this, but the link below may prove a decent starting point on what the Oz tax implications might be.

Paying tax on foreign investments | Australian Taxation Office

Cheers - Mick

 

[jcmacs]

Thanks for the response. This certainly helps, but unfortunately I wasn't able to find the information I really need. I think the questions I have (in order of importance) are:

1) How are 401(k)s, Roth IRAs, Trad IRAs, SEPs, 403(b)s, individual 401(k)s treated by the Australian tax system? Must I pay tax? How much?
2) Assuming I have to pay tax on them - how do I prevent the IRS from later taxing them?
3) If there is no way to avoid this with money still in the US accounts, is there a way to transfer them to accounts in Australia without significant US taxes (I'm mid-30s, so would normally pay large tax penalties for withdrawals)?

This link you provided certainly gives me a lot of information I didn't have and is pretty useful, but it doesn't get at these questions.

 

[explanade]

Got no info. on your questions but have one of my own. How do you get to stay in Oz indefinitely?

Are you becoming a citizen there or getting a visa that would require paying taxes on your US assets and income?

What if you just visited? Maybe have to stay at most 90 days at a time, then leave, then return at a later time. Some Americans do this with Schengen countries but of course, flying back and forth between Australia and the US is more pricey.

You can apply for residence visas, like Italy supposedly offers visas to people who have the means to support themselves without working in Italy. However, that may make you liable for paying taxes on your US assets.

 

[jcmacs]

I'm moving there for a long-term job. For those who might be interested: Australia does have some visas available if you've got enough cash. I think you have to buy 500K worth of Australian bonds (amount varies by where you live - I think it goes up to 1,000,000 worth of bonds). You may be required to have health insurance with this program. There are other options, but I don't recall all details.

But anyways, for me - it's a long-term open-ended job. So we'll have a permanent resident status. Definitely have to pay Australian taxes.

 

[explanade]

Well I think US citizens earning income abroad are allowed to exempt like the first $80-90k of that income from US taxes.

But as far as cap gains on US assets, I guess you would have to consult some tax attorney who've dealt with taxation for people who have been in a situation similar to yours.

 

[jcmacs]

The problem is I still pay US tax when I take out the earnings of my IRA (particularly if I come back to the US). My understanding is that Australia taxes any earnings that occur while I'm there. So those earnings are taxed (by Australia) when they occur and (by the US) decades later when they are distributed. This double taxation is what I'm trying to avoid.

 

[target2019]

There are reciprocal tax agreements, and you will not be double-taxed. There are threads here and elsewhere about it. Look for expat taxes and the country abbreviations and you'll find quite a bit online. Some of the information online is erroneous, so always double check the facts. Maybe even consult a specialist while down under.

 

[Alan]

I would start by searching for US expats living in Australia forums to ask some of these questions. I have received a lot of good information for my planned move to the UK regarding taxes, treatment of IRAs etc. on similar forums for US/UK expats.

I see that the USA has a tax treaty with Australia just as it has with the UK so that should be a good place to start looking at how your income streams and assets are treated in each country.

http://www.irs.gov/pub/irs-trty/aus.pdf

 

[meierlde]

Based upon this web site it appears that the answer on retirement accounts is it depends on what kind they are:
US Pension Transfers - Withdrawals | Exfin - The Australian Expatriate's Gateway
this is the blurb on 401ks
"If your 401K is employer sponsored then you may keep it in the US and there will be no Australian taxation issues until you actually start to withdraw the fund as a pension or lump sum when you retire. At this time the pension you withdraw will be subject to tax in Australia, less a credit for any tax paid in the US, if applicable. You also need to seek confirmation from your Fund that membership can be retained by a non-resident."

 

[target2019]

I found the following site to be useful: http://www.greenbacktaxservices.com/blog/us-expat-taxes-australia/

Another article linked within that one has additional commentary on taxes.

As mentioned previously, check what you read and hear against tax law.

I have no interest in that tax service, and I'm not suggesting you use them or any other service.

 

[jcmacs]

Thanks for all the responses. This has been helpful.

 

[Throwdownmyaceinthehole]

Good on ya mate! I spent 2 years outside of Perth, just came back in Feb. There are alot of issues with the Aussie tax system that you need to be aware of, in particular the new taxation of Fringe Benefits - housing, vehicles, parking, etc and who picks it up, you or your employer. Then if you will be a foreign worker and will receive 401k, or superannuation as an Aussie. I don't believe you can become a citizen overnight, it takes several years, and you first become a resident for tax purposes. And they will tax you inclusive of health insurance, but require you to have it elsewhere until you become a citizen. If you are on a 457 visa, you are tied to your employer for at least 2 years, and if you terminate, you have to be out of the country in 28 days. They don't want anyone over 50 staying! Really do your homework, but if I was young like you, I'd never leave Aus! I loved it.

 

[John_Q_Public]

Australia Bound:

Just an FYI: It was hot as hades when I visited Australia back in January, February 2006 . In Late Feb. we went over to New Zealand and it was much cooler there. The locals say EU/USA homesteaders usually start out their adventure in Australia, then move to N.Z. for the climate and other incentives.

 

[target2019]

I think most of us forget how large Australia is, covering six climates. It is the world's 6th largest country.

File:Australia-climate-map MJC01.png - Wikipedia, the free encyclopedia

In March/April, the tropics near Great Barrier Reef were not so overwhelming with regard to heat and humidity. OTH, Sydney was very moderate, with cooling in the evening. New Zealand's South Island was devoid of snow as far as we could tell, with the exception of surprisingly icy blasts when you approached various glaciers.

 

[John_Q_Public]

In January, February 2006 I traveled by car along the coastal roads from Sydney up to the Gold Coast and beyond, back down to "Snowy River" ski area, where it was in the high 90's, to Eden on the coast. Very hot all !