Big tIRA distribution now to pay future foreign taxes?

[ItDontMeanAThing]

Next year I'll begin living in a foreign country I'll call Taxlandia. For my target annual income (including SS) I have 2 choices: 23.5k foreign taxes on a 58k tIRA distribution, or zero taxes on 30k from a taxable account (TA). That would drain the TA in 1 year. However, building a TA before 2019 by paying 49k taxes on a 200k tIRA distribution pays for 5 years in Taxlandia at the cost of 2 years of their taxes. (Estimates don't include taxes on interest, dividends and cap gains.)

Other advantages of a tIRA distribution to TA include
- During a bear market, harvest losses followed by a pseudo wash sale.
- Able to establish cost basis for tax advantaged share lot or specific share sales (can't in current tIRA).

Disadvantages include:
- TA distributions may push my US income beyond the 12% bracket. The tIRA distribution would be taxed twice. Obviously the monies would be in tax advantaged funds.
- The loss of long term tax free growth.

I need feedback. Does this make sense? What am I missing?

SS & Assets (Vanguard Idx funds).
SS - 20.4k Age 63
Roth - 206k. 100% equities.
tIRA - 710k. 49% equity, 42% bond, 9% cash
Cash - 32.3k

In Taxlandia:
- A treaty prevents double taxation.
- Zero tax on SS. However, it's added to taxable income to calculate their taxes.
- Both IRA types taxed as income.
- Interest, dividends, cap gains (ST & LT) at 28% in the year they're earned.
- Income tax rates:
First 2.4k beyond SS at 28.5%
Next 23.7k at 37%
Next 46.9k at 45%
Beyond that at 48%

In anticipation of questions:
- My Taxlandia estimates are based on info from their translated tax codes, KPMG and PwC.
- Of course the tax situations in both countries could change.
- Retired and became an expat in 2008. Taxlandia will be my 3rd country of residence.

 

[ocean view]

I don’t understand. You say there is a treaty so no double taxation, yet say that tIRA distribution will be taxed twice in Taxlandia.

US Foreign Tax Credit should be available to you to mitigate double taxation.

If I were you I’d hire a CPA with US & new country experience to help you make an informed decision.

 

[ItDontMeanAThing]

I don’t understand. You say there is a treaty so no double taxation, yet say that tIRA distribution will be taxed twice in Taxlandia.

I don't understand where you see the tIRA distribution will be taxed twice in Taxlandia. Your quoting that would help me see it.

 

[Gotadimple]

Under the heading Disadvantages:
The tIRA distribution would be taxed twice.

 

[ocean view]

I don't understand where you see the tIRA distribution will be taxed twice in Taxlandia. Your quoting that would help me see it.

Here are the two conflicting statements:

<snip>
Disadvantages include:
- The tIRA distribution would be taxed twice.


<snip>
In Taxlandia:
- A treaty prevents double taxation.

 

[ItDontMeanAThing]

Under the heading Disadvantages:
The tIRA distribution would be taxed twice.

The context is the initial tIRA distribution would occur this year. A year in which I'm not living in Taxlandia and thus not subject to their taxes.

Maybe if you'd quoted this:
>- TA distributions may push my US income beyond the 12% bracket. The tIRA distribution would be taxed twice.

You would have seen the cause and effect money flow of: tIRA distribution to TA to TA distributions as taxable income.

FYI, taxed twice is not double taxation. Consider a US tax bill of 5k and a Taxlandia tax bill of 15k on the same income. That's taxed twice. Paying 20k is double taxation. Paying 15k to taxlandia, then the US giving a 5k tax credit is taxed twice with a tax treaty that prevents double taxation.