this post was submitted on 16 Dec 2024
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US ex pat in Denmark; Roth IRA is poison? (sopuli.xyz)
submitted 2 days ago by frank@sopuli.xyz to c/personalfinance@lemmy.ml
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Hi all–

Just had a tax meeting today in Denmark, and the Danish government like a fair few other governments, recognize 401k/trad IRA investments as retirement, but not Roths. This means you have to pay annual tax on the gains for your Roth, that you can't touch until you're 59.5.

This leaves us looking at pulling the money out and eating the tax/penalty. And my questions in case anyone knows are:

  1. is that money income in the US?
  2. is there anything particularly good to do with the money? Beyond the obvious of buying a house (here)
  3. how has no one told us about this in all the posts/threads, financial advisors, etc that Roths are fairly commonly not acknowledged and are absolutely terrible if you plan to leave the US?

Thanks in advance. Sorry for my grumpy tone... I'm certainly grumpy

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[–] kryptonianCodeMonkey@lemmy.world 3 points 2 days ago (1 children)

Grain of salt here, but this is my understanding:

  1. You already paid taxes on the income that went into your Roth, so the principal doesn't get income taxed. I also don't think it is subject to an early withdrawal penalty no matter when you withdrawal. But if you withdraw the growth without meeting the qualified distributions requirements, you will pay the 10 percent penalty on the full sum of growth and then income taxes on the remainder. That being said, if you withdrawal in Denmark and have to pay capital gains tax, you will pay 42 percent. Which of the two is preferable depends on the sum of growth you have. You will want to research exaxtly how you will be taxed on that growth in Denmark and then do that math to figure out which leaves you the most money.

  2. I don't know about any special programs in Denmark specifically. I would definitely research to see what will be available to you when you move there. But from a US perspective, with that big of a lump sum, I don't think you are going to see a significant tax advantage in investing it into a traditional retirement account. You will meet your annual maximum contribution and still have plenty left to worry about. You can still hit that max and worry about the rest after, but other than investing in property like you said, or starting up a business, the best way to earn growth on that big a sum would just be opening a brokerage account and investing in mutuals or CDs (depending on your desires for growth and risk).

  3. Honesty, it is news to me as well. I can see why that might be the case though since Roth pays taxes upfront while 401k and traditional ira pay on the withdrawal. They don't get anything from a Roth if you already paid taxes to the US for it. But taking an initial look at it, it doesn't look as simple as just paying tax on the growth. I would speak to a tax professional that deals with immigration financials before you make any big moves.

[–] frank@sopuli.xyz 1 points 2 days ago

  1. you're exactly correct, so it's money but not like all of it or anything. It is a bummer, cuz I would've put in all into traditional if I had known, since leave the US was always a medium-term goal.

  2. this is an immigration tax specialist (specifically US/DK financials) who told me and was like yeah, might wanna get the money out of a Roth. Housing (here) is certainly an option for it, or general savings/investments, but either way it doesn't seem there is a great way to like turn it into what it's intended to be (retirement savings)

It is true for a fair few countries other than Denmark, so I guess my general advice is to be aware if you're considering leaving the US, specially in regards to a Roth