401K question

nibanny · June 24, 2015 6:27AM

I am moving back to Italy in August.
My wife and I have some money in our 401K's. (very small amounts)
Should I close them, pay the taxes and penalties or move them to an IRA and forget about them for 20 years?

Thanks for any advice.
MM

derryb · June 24, 2015 6:38AM

seek advise of a professional. Many credit unions offer this service.

One thing to consider is converting (not a Roll Over) to a Roth. Taxes will be due on the converted amount, but all IRA's get taxed sooner or later. With a conversion you only pay the taxes one time and then all gains are tax free because it is now a Roth. During the conversion you have the option of taking out enough cash to cover the taxes and the additional taxes on the cash withdrawal. Penalty on the cash may or may not apply. The rest never touches your hands during the conversion process. I did this with a self managed on-line brokerage (Scottrade) and now am in full control of my IRA investments, buying and selling whatever and whenever I choose. Be aware that IRA brokerage accounts have a rule that says you cannot sell a position that was bought with unsettled funds until those funds settle, usually about three days after the initial sale. I usually just wait for the funds to settle before spending them so that I don't get caught holding a position that I can't sell while it is tanking.

Also be aware of any wierd tax rules concerning assets held back in the US.

If your 401k amounts are small enough, easiest thing to do is close them and take the tax or penalty hit and be done with it.

nibanny · June 24, 2015 7:03AM

Thank you derryb, you covered pretty much all the scenarios!

mariner67 · June 24, 2015 7:32AM

Leaving the USA permanently?.....close out and take the tax hit...sounds like small accounts anyway.
Most financial advisors will tell you to never convert to a Roth unless you have enough cash OUTSIDE the accounts to cover the tax hit.
Using monies from the accounts to cover the conversion tax hit puts you in too deep a hole.

Baley · June 24, 2015 7:32AM

Yep good answer. Depending on the dollar amount relative to your other investments and whether you plan on coming back to the US and working some more, as well as your plans for managing and using the funds, you might just want to leave them to roll the funds into another 401k later, take control as derryb suggests, or just cash and carry, all good answers depending on the context.

Was in Italy exactly one year ago for a week of business, spent time in Milan, L'aquilla, and Rome, beautiful and historic country, have a wonderful time Matteo! How long were you in the US?

nibanny · June 24, 2015 11:30AM

<< <i>Yep good answer. Depending on the dollar amount relative to your other investments and whether you plan on coming back to the US and working some more, as well as your plans for managing and using the funds, you might just want to leave them to roll the funds into another 401k later, take control as derryb suggests, or just cash and carry, all good answers depending on the context.

Was in Italy exactly one year ago for a week of business, spent time in Milan, L'aquilla, and Rome, beautiful and historic country, have a wonderful time Matteo! How long were you in the US? >>

Glad you liked Italy, Baley. Next time you (or anyone else) happen to visit, let me know. I will be based near Florence, where I used to live 10 years ago before I moved to the US.
I will miss this great country of yours. I hope to come back in the future, since my two kids have dual citizenship.

Back to the 401K, I will probably close them both since I have very little there.
I was thinking to leave the money invested and forget about them for twenty years or so. But it is not going to be easy to react to any emergency while abroad.

Thanks again to you all for the piece of advice.

ranshdow · June 24, 2015 12:11PM

Ignored 401k's have a way of growing quietly over the decades. If there wasn't much to begin with, it should be easy to leave it alone.

Stork · June 25, 2015 5:44AM

Unless you are going to be moving back here, they may not be worth the headache of dealing with for taxes. U.S. Tax code is confusing enough for expats and dual citizens (this may become VERY tricky for your children, and wife if she is a U.S. citizen and going to Italy with you). I have no idea how much more complicated it would be (or not) as a non US citizen with investments. From what I casually read in the past, Uncle Sam may feel entitled to know about all your (and the expats) finances.

Good luck with the move! It's funny, I had thought you were from Italy from awhile back, but when you had a U.S. mailing address I figured it was just my bad memory. Let us know if there is a moving sale IIRC you have posted some cool coins over in the World coin forums

streeter · June 25, 2015 3:09PM

Nibanny,
If I was leaving the USA then I would close out my business here. If you have financial assets here then you will be forced to keep abreast of these tax laws.

BAJJERFAN · June 25, 2015 11:23PM

<< <i>Nibanny,
If I was leaving the USA then I would close out my business here. If you have financial assets here then you will be forced to keep abreast of these tax laws. >>

If you rolled it over to an IRA, you could invest with no tax consequences until you withdrew funds. The best and simplest thing is to just cut your ties and be done with it.

OperationButter · June 26, 2015 10:21AM

Convert to a roth IRA, pay taxes now, and invest it in a dividend paying stock with auto reinvestment. It might make that small 401k number look much bigger in 20 years with compounding. Not sure which other brokerage comps do this, but I know Scottrade does this for free.

jmski52 · June 26, 2015 11:12AM

Please let us know your experience in taking whatever of your gold you decide to keep with you. I'm interested to know if you have to jump through a bunch of hoops.

nibanny · June 26, 2015 11:16AM

<< <i>Please let us know your experience in taking whatever of your gold you decide to keep with you. I'm interested to know if you have to jump through a bunch of hoops. >>

I don't have much left in the US, I brought some abroad during my last few visits. I am planning to give some to my relatives since they will come visit in July and bring the rest when I go back. The max is €10K (cash or gold). I may end up being little heavier but...usually they don't check the kids backpacks and strollers!

Stork · June 27, 2015 1:58AM

I had accumulated about 20 X 1/10 ouncers when transferring from Japan to Spain, with a stopover in Dallas. rather than put in my military move, or into a registered mail package, I threw them into my change purse. Granted it was under the limit so no rules getting broken...but I did't want any attention. Not sure anyone really notices 'dimes' on the X-ray...

401K question

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