401k to Roth IRA Rollover - Taxes Due

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expatriated
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401k to Roth IRA Rollover - Taxes Due

Post by expatriated »

I am a Non-Resident of the US and in 2022 I performed a 401k to Roth IRA rollover. I received a 1042-S and would like to file US taxes to pay the taxes owed.

My question, which line of the 1040-NR should I put the income from the 1042-S? The income is coded as 15 (Pensions, annuities etc.)

It looks like line 5a/b would be the right place, can anyone confirm?

Thanks!
nelsona
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Re: 401k to Roth IRA Rollover - Taxes Due

Post by nelsona »

Are you a Cdn resident? because if you did this while resident in Canada, you have basically broken your Roth, making it taxable every year om internal income.

But, to your question, you have a choice. By most treaties, this income is indeed considered pension income, subject to a flat rate tax. It would be reported on the NEC portion of the 1040NR. If the 1042-S has a country code on it, and the withholding was done correctly, you may not even have to file a return,

The other choice you have , since this was related to work you did in US, is to report it on the pension line, and calculate the tax based on the tax tables for 1040NR.

You would choose the method that yields the lower tax
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expatriated
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Joined: Fri Jan 01, 2021 5:32 pm

Re: 401k to Roth IRA Rollover - Taxes Due

Post by expatriated »

I am a tax resident of Germany. In regards to pensions, the German-USA tax treaty states:

"Article 18 (1) Subject to the provisions of Article 19 (Government Service), pensions and other similar
remuneration derived and beneficially owned by a resident of a Contracting State in consideration
of past employment shall be taxable only in that State."

There is also further clarification which mentions that 401k to Roth IRA rollovers are not taxable in Germany, but only in the US.

This leads me to believe I do not need to use the Schedule NEC, since the only tax rate I could enter on there would be 0%.

The pension comes from my work in the US, so I would consider it to be effectively connected income. I am inclined to enter the total amount on line 5a/b of the 1040NR and calculate the tax solely based on the tax tables, do you think this is reasonable? The amount is less than $41775, so the effective tax rate would be around 11-12%.
nelsona
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Re: 401k to Roth IRA Rollover - Taxes Due

Post by nelsona »

This is of course a CANADA-US tax forum. Might have been more useful to mention these facts up front.

You do not *need* to file 1040NR (as I already said, since withholding was done correctly), If it was not (ie. if some tax was mistakenly withheld) you would use the NEC to report the income, and the ZERO tax by treaty, to get the refund.
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nelsona
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Re: 401k to Roth IRA Rollover - Taxes Due

Post by nelsona »

Please re-read what I said earlier. Since you are not taxable in US on the pension, there is NO ADVANTAGE to filing it as effectively connected income (the treaty overrides this).
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
expatriated
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Re: 401k to Roth IRA Rollover - Taxes Due

Post by expatriated »

No tax at all was withheld, so I cannot imagine that I owe nothing on this.

The tax treaty simply states that it should be taxed in the US, not that it should be taxed at a rate of 0% overall. And the way for it to be taxed in the US, should be as effectively connected income using the tax tables, at least that is my understanding.
nelsona
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Re: 401k to Roth IRA Rollover - Taxes Due

Post by nelsona »

Your understanding is incorrect.

The reason there was no tax withheld, was because the payor knew you were German resident, and looked up the treaty tax rate for Germans receiving US pension and found it to be ZERO. It would have been illegal for them to not withhold tax unless the taxrate was zero.


0% percent tax is the same as non-taxable.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
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