This is untested, but conceptually:
1. Find a highly volatile asset of which bets can be taken in both directions (long / short)
2. Create a brokerage account outside of US, that is subject to your lower tax rules
3. make the riskiest bet possible in your retirement account, then take the other side with your local account.
e.g. long XYZ 3x ETF and short XYZ 3x ETF in your other account
4. repeat until the retirement account is drained, and your non-US account has most of the funds
The cost incurred should simply be account and trading fees, which might be in the low single digit % range.
Has this been done? It seems rather simple conceptually so perhaps it happens quite a bit.
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To help anyone coming across this at a later date, one might want to withdraw your IRA / 401k early and pay the penalty because:
- investment gains in the retirement accnt are highly taxed
- estate planning gets complicated above ~$60K
- you might not get a say if the US or your provider decides to mess with your account. If your time horizon for a retirement account is at 20+ years, companies like fidelity may substantially switch their biz models in a way which is not beneficial to NRAs, or governments may change policies that is detrimental to the account.
Simply withdrawing and paying the penalty can be reduced by doing this over time. For example, the 12% tax bracket currently applies to the <$40k, so withdrawing that amount every year would probably be somewhat tax efficient, although you have to pay a higher tax rate on profits.
Large accounts may also benefit from tax-loss harvesting style strategies where one sells big losers in your taxable account but gets similar exposure elsewhere
There's a guide here: https://hodgen.com/ira-distributions-fo ... patriates/
There are other options discussed, such as moving to a tax treaty country for a year, like Thailand. I don't have details but maybe someone with more experience would like the share.
TedSwippet wrote: ↑Sat Jul 02, 2022 11:32 am Pretty much. Not exactly an encouraging picture, is it? I'll just add a couple of points.
Firstly, if you live in a country with a US tax treaty, and in particular with a US estate tax treaty, then some areas of this are less uncomfortable. For example, most (though not all) estate tax treaties raise the exemption from a miserly $60k to the same level as allowed to US citizens, currently around $11mm (but this of course could change, either upward or downward). And some income tax treaties reserve tax to the country of residence only, which eliminates any US income tax issues.
And secondly, depending on where you plan to live in future, it is worth seriously considering whether it will be worthwhile saving into an IRA or 401k plan at all. Probably sensible to capture the full employer match, depending perhaps on the percentage offered, but may require serious thought before committing beyond that.