Tax Treaty and Overseas Retirement

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

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 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?

Rights of taxation offshore:

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.

[box type=”alert”]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.[/box]

Pre-Retirement Withdrawals:

IRC 401a 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 or retirement plan.

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

However, if an employee switches employers on his own accord, 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 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.

[box]Note: 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.[/box]

Offshore Capital Struture:

There is no off-the-shelf ORS (retirment plan) product that will deliver all of the below results:

  1. Capture company pre-tax profits while providing extra risk protection
  2. Business expense deductible retirement plan contributions
  3. Employee deferred income capital raising
  4. Employee income excluded retirement plan contributions
  5. Securitize your company value in the shortest period of time; In which growth is all a tax free roll-up, in which you increase your tax free future income.

[box type=”info” size=”large” style=”rounded” border=”full”]Sometimes small businesses are small because they think small.[/box]

For example, there’s a “War Chest” strategy that many large companies use. It generates billions in profits pre-tax while providing extra risk protection. This strategy is available to those who want to reap the rewards of ”thinking big” even if on a small scale.

[box type=”tick” size=”large”]The news for you here is that all five results above can be achieved with a tailor made ORS402(b) to increase your tax free future capital.[/box]

The Power of Compounding Pre-Tax Contributions and Accumulations:

For example, a 10% return over 30 years will produce over 4 times the accumulation of a 5% return.

With tax rates approaching or exceeding 50 percent, interest in tax reduction is high. Many are familiar with the opportunity and the advantages of investing business profits pre-tax.

Instead of having reduced income to invest and losing investment earnings to yearly taxation, you put one hundred percent of the income to work and compounds the accumulation at the pre-tax rate of return.

Anchor chain photo credit: chefranden via Visual hunt / CC BY


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