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Avoid 401k withdrawal tax penalty for foreign worker?

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cavefish
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« on: June 07, 2010, 07:22:15 pm »

The company I worked for went bankrupt and quit all of it's employees in Q4 of 2008.  I was legally employed as a foreign worker, via a H-1B work visa.  We all received a distribution package and there was no option to retrieve our 401K money without penalties.  I rolled over my funds to Fidelity.  My visa sponsorship had ended so I had to leave the US and return to my country of citizenship.  I am not contributing to my 401K and won't be returning to the US and I want extract my 401K funds without penalties or with the least amount of consequences.  I had been employed for 7 years, and my 401K initiated in 2001.

Does anyone have any advice on avoiding penalties?
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« on: June 07, 2010, 07:22:15 pm »

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steven
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« Reply #1 on: June 08, 2010, 08:24:47 am »

If you withdraw from your 401k plan before age 59 1/2, you are subject to additional 10% tax penalty on the withdrawal. You might be eligible for an exception, if that is the case, you would see a code 2, 3, or 4 in box 7 on your Form 1099-R (but most people do not get this; see Form 5329 Instructions, page 2, middle column for a list of exceptions when the additional 10% tax penalty on early 401k withdrawal does not apply). 

You report your additional 10% tax penalty on early withdrawal on Form 1040, line 58. Some cases are required to file Form 5329 (for example if code 1 in box 7 on your 1099-R was missing).

See here for more details Tax on Early Distributions and for a list of exceptions too. Read instructions for Form 1040, line 58, and Form 5329. Sorry to hear about your company.
« Last Edit: June 08, 2010, 08:27:35 am by steven » Logged
cavefish
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« Reply #2 on: June 08, 2010, 04:35:05 pm »

Thank you Steven.  Very quick response.
I'm looking at the Form 5329 instructions which you pointed out, and the only thing that might reduce my tax penalty is is my IRA was rolled over from a Simple to Roth IRA. 

I'll have to dig deeper.
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steven
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« Reply #3 on: June 09, 2010, 07:33:54 am »

You are welcome. You can also review all the exceptions at the irs.gov site (the link I posted earlier), they are listed lower on that page.
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