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Old 23.07.2015, 00:47
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Swiss or US taxes on rollover to Roth IRA?

I am a Swiss resident (B permit) and I am NOT a US citizen.

I have some money in a 401k account in the US, and I was planning to convert it into a Roth IRA account (post-tax pension account).

If I were in the US, I would have to pay income tax on the money affected by the conversion, of course. However, I am now a Swiss resident, therefore it is not clear to me whether I have to pay US or Swiss taxes (or both) on the rollover.

Does anyone have direct experience in this sense?
The only thing I could understand from the treaty is that pension distributions are taxed in the country of residence. I am not sure if the rollover is considered as a distribution in the treaty.

Thank you very much!
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Old 23.07.2015, 12:41
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Re: Swiss or US taxes on rollover to Roth IRA?

If your conversion from a 401k to a Roth IRA is considered a distribution (I think it is), as a non-US citizen/ non-US greencard holder, then you should only be taxed in Switzerland, according to the below:

"US Tax Qualified Plans & Taxation in Switzerland

If you have a US IRA account, live in Switzerland and are no longer a US tax payer (e.g., you gave up your green card properly or you renounced your US citizenship) then by my understanding of Article 18 of the US-Swiss Income tax treaty (see technical notes of the treaty too) only Switzerland has the right to tax your IRA distributions. If this is the case and you decide to take out your entire IRA distribution, you can generally get lump sum taxation (as though you were distributing a 2nd pillar) and pay a tax rate in the neighborhood of 6% to 12%. My suggestion is that if you are planning to do this, please get an expert opinion from a US tax professional and a Swiss tax professional if you plan to make a large distribution in this manner." (from p.6):

http://static1.squarespace.com/stati...ered_Truth.pdf

Edit:
You will probably have to pay Swiss cantonal capital taxes on the value in the Roth IRA. If you converted the 401k to an rollover (ordinary) IRA, you would probably not have to. Would it make more sense to convert the 401k to an ordinary IRA?

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Old 23.07.2015, 13:39
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Re: Swiss or US taxes on rollover to Roth IRA?

I tend to agree with your interpretation, thank you for confirming that.
At least for US residents, rollovers are considered distributions when filing form 1040.
As such, it seems that I would have to pay taxes in Switzerland. I know that some other countries do not consider plan-to-plan distributions as "taxable distributions" (UK) but that seems more like a specific (and unwanted) loophole.

Thank you for your advice on the lump sum distribution and on the wealth tax.

The reason why I wanted to convert to a Roth IRA is to make a good use of a low marginal tax rate for this year, which I assume might be lower than the marginal tax rate at retirement. I am assuming that Roth distribution are tax-free also for other countries, not only for the US.
Does it make sense to you?

Thanks a lot
Saverio
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Old 23.07.2015, 15:55
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Re: Swiss or US taxes on rollover to Roth IRA?

This is the way I see the taxation of a 401k conversion to a rollover IRA or Roth IRA for a non-US Person resident in Switzerland:

401k to rollover (ordinary) IRA:
US income taxes: none
Swiss income taxes: none
Swiss capital taxes: none

401k to Roth IRA:
US income taxes: not taxable in US, as provided by US-Swiss Tax Treaty. (However, may need to file 1040NR (Non-Resident) claiming treaty treatment).
Swiss income taxes: taxable, but at Swiss cantonal/Federal special pension rates.
Swiss capital taxes: annual capital taxes going forward

Keep in mind that this is a message board. Especially if there is a lot of money involved, you should consider taking the advice of the financial planner from above: "My suggestion is that if you are planning to do this, please get an expert opinion from a US tax professional and a Swiss tax professional if you plan to make a large distribution in this manner."
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Old 23.07.2015, 19:15
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Re: Swiss or US taxes on rollover to Roth IRA?

It's not a lot of money involved, unfortunately!
But seriously, thank you for the advise, and for the comment about professional advising. I will keep that in mind.

At this point, the 401k to Roth IRA conversion seems interesting only if the special pension rates apply. Do you have any good resource to read on this point?

The capital tax sounds like a lesser problem, given the amount involved.

Thanks a lot!
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