Rights of Taxation Offshore

06 Nov

anchor taxation

The purpose of a Tax Treaty is to define which of two countries has the rights of taxation.

Good Reason to Transfer, without current tax consequence, your IRA, 401k and 401a into a FASDIRA; but first the education as to why you have reason:

Upon retirement when there is a Tax Treaty with the USA then it is possible for the 3rd Country national to receive withdrawal from his IRC 401k , IRC 401a or IRA without tax or a reduced tax from the USA side but that does not prevent the foreign country from taxing the amount received into that country?

How to prevent the foreign country from taxing the amount received into that country is to register the 401k,401a, IRA (Ordinary or Roth) in the foreign country that does not tax the amount received.

Rights of taxation:

In the absence of a tax treaty exemption, nonresident aliens, nonresident alien beneficiaries, and foreign estates generally are subject to a 30% withholding tax under section 1441 on an IRA distribution.

In the presents of a tax treaty exemption from US Tax the foreign country will tax the withdrawal as income. A tax treaty exemption from US tax means that the foreign country of the individual’s current tax residency will subject the withdrawal to income tax.

Beware: Foreign taxing authorities sometimes require certification from the U.S. Government that an applicant filed an income tax return as a U.S. citizen or resident, as part of the proof of entitlement to the treaty benefits.

Pre-Retirement Withdrawals:

IRC 401k, 401a and IRA withdrawals incur a 20% federal tax penalty unless the employee is 59 1/2, dies, retires, is disabled or rolls over the funds into a qualified IRA, FASDIRA or retirement plan.

Employees can transfer their funds to 401(k) plans or individual retirement accounts (IRAs) or a FASDIRA when they switch employers.

However, if a plan holder retires before the plan’s defined retirement age or needs the money for a financial hardship, the employee incurs a 10% early distribution penalty.


A 401k and 401(a) plan allows 100% vesting of funds regardless of an employee’s years of service. Any contributions an employee makes and any earnings are fully vested. Some employers link vesting to years of service as an incentive for employees to stay with the company.

Beware: Depending on Country of residency, vesting may subject annual growth to be reported as income. Vested plans are not automatically asset protected from claims, creditors, or court order.

Asset Protection Solution: Roll your 401k,401a and IRA’s to FASDIRA where they are not subject to claims, creditors, or court order.

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