US IRA and J Taxes
Posted: Thu Aug 30, 2018 12:04 am
Hello,
I am a US citizen and long-term resident of Japan. I am following all of the rules regarding taxes, which is a hassle and requires 2 accountants. I have questions regarding US issues that Ben will not know about, but it would be great to hear from someone has experience in these areas. Eventually, I will work with my accountants. Don’t fear that I will take your advice as my legal guidance! But is anyone dealing with an IRA?
I have recently turned 60 and so I now have access to money in my US IRA. This IRA long pre-dates my residence in Japan, and I have managed it but have not had to deal with it in either my US or Japanese tax filings. Looking over my questions I see that there is an overriding question and I am going to ask that first:
1. Does the Japanese tax system recognize anything special about US IRAs (Roth or regular)? Or do they simply treat an IRA as any other overseas brokerage account?
Here’s a simplified version of my case. Let’s say I have an IRA at Vanguard that dates back over 20 years. It started with $50k (pre-tax money). It’s grown to $200k, through index funds and ETFs. I’ve never sold a fund, so it’s all unrealized capital gains and nothing related to it has ever appeared on either my J or US tax returns. I also have a regular, non-IRA brokerage account at Vanguard.
The US tax rule for IRAs is that the money is taxed as ordinary income when it is withdrawn. There are no considerations of capital gains, dividends, anything. No tax has been paid on any of the money and it is simply taxed as income at whatever bracket you are in. If I move it from an IRA to the regular account at Vanguard, I don’t need to sell the fund. But it is a taxable event.
2. If I sell a fund and realize capital gain, and it all remains in the IRA, the US doesn’t recognize this as a capital gain. They are not going to tax it until the money comes out of the IRA. How about Japan? Do they want to tax this as a capital gain?
3. If I take money out of my IRA, it is taxed as regular income on my US tax form. How about in Japan? Let’s say I cashed it in and took out the whole $200k, the US would tax the whole thing. Would Japan want to tax the $150k gain? What if I took it all out without selling the funds, moving the funds to a regular account at Vanguard? Again, all taxed in the US. How about Japan?
4. With a Roth IRA, the initial deposit is post-tax, and the gains are never taxed in the US. (This is why it’s a good deal.) Will these gains be taxed in Japan?
Obviously, taxes are really important. I’d like to keep as much of the $200k as I can. My thinking has always been to look on this fund as money I’ll use as late in life as possible, to take advantage of the tax deferred growth. Maybe I’ll be out of Japan when I withdraw, you never know.
But this blog post describes a strategy that my accountant says will work for me and may work for others on this list:
http://www.rem-co.com/remcycle-blog/201 ... ing-abroad
You don’t need to be retired to do this, since you may be able to convert to a Roth IRA. This is what I plan to do. So the issue will come up earlier for me, I think.
I acknowledge that US citizens cannot open or contribute to an IRA from overseas. But I can move IRA money from an IRA to a Roth IRA.
If anyone has actual experience with these issues,I’d love to hear about it.
I am a US citizen and long-term resident of Japan. I am following all of the rules regarding taxes, which is a hassle and requires 2 accountants. I have questions regarding US issues that Ben will not know about, but it would be great to hear from someone has experience in these areas. Eventually, I will work with my accountants. Don’t fear that I will take your advice as my legal guidance! But is anyone dealing with an IRA?
I have recently turned 60 and so I now have access to money in my US IRA. This IRA long pre-dates my residence in Japan, and I have managed it but have not had to deal with it in either my US or Japanese tax filings. Looking over my questions I see that there is an overriding question and I am going to ask that first:
1. Does the Japanese tax system recognize anything special about US IRAs (Roth or regular)? Or do they simply treat an IRA as any other overseas brokerage account?
Here’s a simplified version of my case. Let’s say I have an IRA at Vanguard that dates back over 20 years. It started with $50k (pre-tax money). It’s grown to $200k, through index funds and ETFs. I’ve never sold a fund, so it’s all unrealized capital gains and nothing related to it has ever appeared on either my J or US tax returns. I also have a regular, non-IRA brokerage account at Vanguard.
The US tax rule for IRAs is that the money is taxed as ordinary income when it is withdrawn. There are no considerations of capital gains, dividends, anything. No tax has been paid on any of the money and it is simply taxed as income at whatever bracket you are in. If I move it from an IRA to the regular account at Vanguard, I don’t need to sell the fund. But it is a taxable event.
2. If I sell a fund and realize capital gain, and it all remains in the IRA, the US doesn’t recognize this as a capital gain. They are not going to tax it until the money comes out of the IRA. How about Japan? Do they want to tax this as a capital gain?
3. If I take money out of my IRA, it is taxed as regular income on my US tax form. How about in Japan? Let’s say I cashed it in and took out the whole $200k, the US would tax the whole thing. Would Japan want to tax the $150k gain? What if I took it all out without selling the funds, moving the funds to a regular account at Vanguard? Again, all taxed in the US. How about Japan?
4. With a Roth IRA, the initial deposit is post-tax, and the gains are never taxed in the US. (This is why it’s a good deal.) Will these gains be taxed in Japan?
Obviously, taxes are really important. I’d like to keep as much of the $200k as I can. My thinking has always been to look on this fund as money I’ll use as late in life as possible, to take advantage of the tax deferred growth. Maybe I’ll be out of Japan when I withdraw, you never know.
But this blog post describes a strategy that my accountant says will work for me and may work for others on this list:
http://www.rem-co.com/remcycle-blog/201 ... ing-abroad
You don’t need to be retired to do this, since you may be able to convert to a Roth IRA. This is what I plan to do. So the issue will come up earlier for me, I think.
I acknowledge that US citizens cannot open or contribute to an IRA from overseas. But I can move IRA money from an IRA to a Roth IRA.
If anyone has actual experience with these issues,I’d love to hear about it.
