US pension funds are quite flexible in allowing access to monies. However, such access may bring forward the taxes that need to be paid to the IRS and (especially if under age 59 1/2) trigger early withdrawal penalties.
Moving retirement monies internationally can happen in one of two ways. For some countries - such as QROPS transfers from the UK and Trans Tasman Portability Scheme transfers from NZ (effective 01/07/2013) the gross monies are moved directly from an overseas sending to an Australian receiving fund. Transfers from the USA are not like that. The second way involves withdrawing the UK entitlement with resultant tax ramifications and then transferring the net proceeds to Australia where they are subject to further potential tax imposts. Since the net monies are held by the individual, they need (if desired) to be re-contributed into an Australian superannuation fund subject to the necessary contribution requirements and the caps being met.
There are various types of US retirement funds. "Qualifying" and "non-qualifying" refers to whether they are covered by ERISA pension legislation. The latter tend to be executive top-up funds. Independent Retirement Accounts (IRA) and 401K employer plans are common. ROTH accounts have contributions made post tax with no tax on distributions. The traditional accounts have contributions made with pre-tax monies and distributions taxed at normal personal income tax rates.
ATO Interpretative Decision 2008/36 confirms that the amount received should be included in the individual's income for Australian tax purposes after provision has been made for the corpus of the trust i.e. contributions and gains assessed under FIF/FAF provisions. Foreign pensions received in Australia are not assessed under the ITAA 1997 but rather are treated as assessable income under the ITAA 1936 with a deductible amount representing the return of contribution capital made. Article 18 of the US-Australia Income Tax Treaty provides for a zero US withholding tax.
Whilst NetActuary focuses on UK and NZ transfers, we also want to build a series of technical notes covering other countries.
The NetActuary Team