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Thread: IRA distributions from US - how to file US and NZ taxes?

  1. #1
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    Default IRA distributions from US - how to file US and NZ taxes?

    Does anyone understand the process of taxing and reporting (conventional) IRA distributions for a US person (60+) who has been a long-time NZ tax resident with no contributions to the IRA made since arriving? I'm thinking of one or two payments a year.

    My understanding is that normal income taxes are paid to NZ on each distribution and then an equivalent credit is taken towards US taxes due on form 1116, allowed by the tax treaty.

    I could employ a tax advisor but I feel that this common situation should be straightforward enough to handle myself, plus it is a relatively expensive option for the low income involved.

  2. #2
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    Hi KiwiME. We're in the exact same boat. I've asked similar questions in various forums here but never received any answers. Hopefully a knowledgable member will stumble across this thread with some good advice.

    We've retired and are about to return to NZ so we'll be dipping into our IRA's, Social Security and investments. Knowing the details of what-all will be taken into consideration, particularly other's real-life experiences would be great info.

    In the meantime I did find an accounting company that specializes in this sort of thing. Since we don't have an exact date to move we haven't contacted them yet, but they look like they know what they're doing.

    NZ US Tax Specialists - http://www.nzustax.com

    These articles in particular help, but really raises more questions:

    http://www.nzustax.com/knowledge-cen...ment-accounts/

    http://www.nzustax.com/knowledge-cen...and-tax-traps/

    If you happen to make contact with them, anything you can share would be most welcome!
    Last edited by richsadams; 18th March 2018 at 09:13 AM.

  3. #3
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    Last week I reached out to David Tzimenakis at NZ US Tax Specialists (http://www.nzustax.com) regarding our situation and how retirement accounts including IRA's, Social Security, etc. are handled. He responded right away, suggesting that we have a consultation via phone or Skype to address the various things we needed to be aware of. Their consultation fees are NZ$400 for 1/2 hour and NZ$598 for a full hour.

    Although that seems pretty pricey their folks are federally authorized United States tax practitioners which means that they have the authority to represent US taxpayers before the Internal Revenue Service. Of course they're also New Zealand Chartered Accountants so I would expect they'd have a very good handle on the subject matter.

    When our time to re-immigrate draws closer we'll probably give it a go unless someone has some alternative suggestions.

  4. #4
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    Hi Rich,

    At those prices they should be able to walk on water as well. The problem with all this is that it's far too expensive for myself, the average Joe, to employ these services despite wanting to get it right.

    However, for the IRA and SS I think you have it relatively easy and may be able to do these yourself since both those income sources are covered under the tax treaty. Or get them done once by the specialist and copy the results in later years.

    What is far less simple is KiwiSaver, but you probably won't get involved with that nightmare.

    I did notice that H&R Block do foreign taxes now but I can't seem to find the fee schedule to compare.


    If anyone out there knows the process to report conventional IRA distributions and US SS income for NZ residents we would be grateful.

  5. #5
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    Agreed, NZ US Tax Specialists are probably not the least expensive option however if it means keeping us legal it's worth the price of entry, for us anyway.

    At one point we employed two different NZ accounting firms to handle our U.S. and NZ returns for our personal and business taxes. Both had different ideas about how things should be handled which as you can imagine made us more than a little nervous. One represented themselves as knowledgeable about both U.S. and NZ law but after spending a few thousand dollars with them it was clear that they were using our case to learn how things actually worked. When we politely brought that notion to their attention they sent us a polite letter saying that they would no longer be handling our affairs. They did not offer to refund any of our fees either. Lesson learned. Find someone that truly knows what they're doing or potentially pay the price later. The other firm we used was a tad more expensive, but they did indeed know what they were doing. Unfortunately the owner retired and they are no longer in business.

    Since our IRAs and SS are only part of our retirement income we're willing to spend a bit more for the peace of mind. Anything to avoid that niggling feeling that we're going to "owe" anyone anything, particularly penalties, in the future is worth it...for us that is.

    We're familiar with KiwiSaver, but will be avoiding it this time around.

    Best of luck and we'll look forward to other's experience and advice as well!

  6. #6
    Join Date
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    New Zealand
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    I haven't visited here in a while but am still amazed at how complex and stressful an expat's finances can become when moving abroad, especially for US citizens.

    The problem with tax consultants (as good as they apparently are) is that the costs are the same whether you have 10 dollars or 100 million to your name. One I spoke to told me that his normal clients "have a much higher net worth than (myself)".

    I have still yet to attempt a conventional IRA distribution on my own but am determined to try and figure it out, however it's not as urgent now that Trump has f'ed up the stock market for now.

    1. It seems clear that I withdraw an amount of my choice and have no US tax withheld. It doesn't matter in what country that money is banked. If NZ, it will go via a forex company.
    2. On receipt I immediately pay NZ tax on the full amount at the normal income tax rate to avoid having a deficit of over $2k at filing time.
    3. On my US tax return I fill out a 1116 Foreign Income Credit for that gross withdrawal and NZ tax paid, ticked as "certain income resourced by treaty". Effectively the treaty makes it NZ income with NZ having sole taxation rights.

    4. That seems fine but there are two little issues.
    a) Publication 514 indicates that NZ and AU are different from the other countries with treaties (see link below). There's no explanation other than to write to the IRS.
    b) It's not 100% clear if I have to accompany the claim on 1116 with an 8833 "Treaty-Based Return Position Disclosure". Getting that wrong is a US$1000 fine. Nice, thanks IRS. One tax website says yes, another no because it's not an exceptional case.

    Anyone else have experience with these forms?


    Publication 514, see page 23, Tax treaties. https://www.irs.gov/pub/irs-pdf/p514.pdf

  7. #7
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    Quote Originally Posted by KiwiME View Post
    I haven't visited here in a while but am still amazed at how complex and stressful an expat's finances can become when moving abroad, especially for US citizens.

    The problem with tax consultants (as good as they apparently are) is that the costs are the same whether you have 10 dollars or 100 million to your name. One I spoke to told me that his normal clients "have a much higher net worth than (myself)".

    I have still yet to attempt a conventional IRA distribution on my own but am determined to try and figure it out, however it's not as urgent now that Trump has f'ed up the stock market for now.

    1. It seems clear that I withdraw an amount of my choice and have no US tax withheld. It doesn't matter in what country that money is banked. If NZ, it will go via a forex company.
    2. On receipt I immediately pay NZ tax on the full amount at the normal income tax rate to avoid having a deficit of over $2k at filing time.
    3. On my US tax return I fill out a 1116 Foreign Income Credit for that gross withdrawal and NZ tax paid, ticked as "certain income resourced by treaty". Effectively the treaty makes it NZ income with NZ having sole taxation rights.

    4. That seems fine but there are two little issues.
    a) Publication 514 indicates that NZ and AU are different from the other countries with treaties (see link below). There's no explanation other than to write to the IRS.
    b) It's not 100% clear if I have to accompany the claim on 1116 with an 8833 "Treaty-Based Return Position Disclosure". Getting that wrong is a US$1000 fine. Nice, thanks IRS. One tax website says yes, another no because it's not an exceptional case.

    Anyone else have experience with these forms?


    Publication 514, see page 23, Tax treaties. https://www.irs.gov/pub/irs-pdf/p514.pdf
    Upon leaving the US, did the IRS or your brokerage firm notified you about 'deemed disposition"? It happens when you change your account status as non-resident. Any gains up to the day you leave the US on your portfolio gains becomes taxable.

    As far as disbursements from the portfolio, the broker gives you a slip at the end of the year showing how much you've withdrawn and what income you received (ie capital gains from sale of shares). Your 1st liability is the IRS then in NZ you would elect a Foreign tax credit on the IRD tax return. From what I recall the IRS has an $80K income tax exemption for non-residents.

    Agree about tax consultant fees that are basically fixed and out of the reach for the typical migrant. FYI, when Trump was elected in 2016 (well during the fall of 2016), the DOW index was around 17K. now we're around 26K so by that measure, US equities have benefited tremendously by Trump).

    Also you will have a liability on the NZ end for your IRA account if they exceed more than $50K NZD value. FIF would apply and any paper gains on account will be taxable by one of the FIF tax methods ; most common is the maximum FDR 5% rate that you multiply on the WHOLE account value year on year April 1st of each year.

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