Declaring US retirement accounts (Roth IRA) for NZ taxes

[Harbinger3]

Hi all - I am nearing four years as an NZ tax resident, and am unsure how to go about declaring my (meager) Roth IRA for NZ tax purposes. I file my own US taxes/FBAR as I earn within the Foreign Earned Income Exclusion and don't own properties anywhere (or any other complicating matters). I am hoping to be able to file any NZ tax docs on my own after being taught. Can anyone recommend an NZ tax accountant who could walk me through how to approach?

[Super_BQ]

Hi all - I am nearing four years as an NZ tax resident, and am unsure how to go about declaring my (meager) Roth IRA for NZ tax purposes. I file my own US taxes/FBAR as I earn within the Foreign Earned Income Exclusion and don't own properties anywhere (or any other complicating matters). I am hoping to be able to file any NZ tax docs on my own after being taught. Can anyone recommend an NZ tax accountant who could walk me through how to approach?

If your IRA accounts is less than $50K NZD in account value, then there's no tax requirement under IRD's FIF tax (apart from dividends and interest still have to be declared as income in NZ). If it's over $50K, then you'll need to declare under FIF (IRD's has an FIF handbook that you can follow to do your self declaration). What you won't like is the taxing of paper gains each year on the entire account value. Normally most under FIF use the 5% FDR rate. The greater problem for those caught under FIF is paying the tax obligation as their NZ income alone may not cover the FIF tax on their foreign investment. For eg. wealthy migrants with accounts over $1M under FIF would declare 5% of the account value or $50K as taxable income. If the person had no other source of NZ income, they would be forced to sell a portion of their investment account just to pay the tax liability. This IMO is no different to how mutual or hedge funds charge management fees; as in the investment work, high fees = lower compound returns on the portfolio and NZ's FIF does exactly that. Since NZ has no capital gains tax approach like the US does, you'll find the investors in NZ that invest for retirement in schemes like Kiwi Saver will have a much smaller nest egg than the US investors that pays tax on the capital gain AT retirement age (because it makes sense that at retirement, salary or wage income is little and the pensioner can structure an annuity from their investments to stay in the low income tax bracket). Unfortunately NZ's way of taxing in Kiwi Saver does not address age; meaning no matter what stage of life you're in, the Kiwi Saver investor that is rich or poor ends up having a Kiwi Saver fund that pays the same amount of tax (because under FIF, these managed funds are bound to pay the FDR rate regardless of the individuals income tax bracket).

Any tax accountant will do if you search online ; just be prepared to pay a hefty price. We're not talking rates that you would see at H&R Block. lol.

[KiwiME]

Sounds easier just to move back to the states.

[richsadams]

Sounds easier just to move back to the states.

I wouldn’t recommend that to my worst enemy at this point. Just sayin’.

[KiwiME]

I know you’re joking but It’s entirely possible to have very good life there if you can can ignore the politics and pick the right area. But of course you receive nothing useful from your federal taxes unlike NZ.
I think OP’s IRA is an employment based retirement scheme and as such falls under the tax treaty. This is what I was told by one of those pricey consultants.

[richsadams]

I know you’re joking but It’s entirely possible to have very good life there if you can can ignore the politics and pick the right area. But of course you receive nothing useful from your federal taxes unlike NZ.
I think OP’s IRA is an employment based retirement scheme and as such falls under the tax treaty. This is what I was told by one of those pricey consultants.

Ha, I truly wish I were joking, but I'm not.

We've lived in cities here and around the world and now retired in a small U.S. coastal community. We have family spread out across the country. The toxicity, both literally and figuratively, is everywhere. There is no "right area" to live in any longer. There is no peace. It is absolutely impossible to ignore the unrest, sickness, death and divisive politics, even in a small town. Unemployment is higher than depression era levels. Tens of millions of people are sick (including family members) and worse, over 125,000 dead in less than five months.You cannot go anywhere without worry. Whatever you're hearing or seeing on TV there, it is worse in person. I'm not being hyperbolic or on a political rant, it's the reality of living in the U.S. right now. We truly fear for this country's future. I'm not kidding when I say that I've never seen anything like this in my 60 plus years. It's very bad. Trust me, we're here and dealing with it daily. Count your blessings that you are where you are right now.

[JandM]

Bless you, richsadams, and I hope you keep safe. It's bad here in the UK, too.

[richsadams]

Bless you, richsadams, and I hope you keep safe. It's bad here in the UK, too.

Thank you for the kind words!

It's likely a year or more before we'd be able to return to NZ (COVID has made the RE market a nightmare), but we've finally scheduled a consultation with Dave at US Global Tax in AKL to try and sort out the impact on our financials if we do shift house. Even if we have to dial back our lifestyle we feel it would certainly be worth it at this point.

Many blessings sent your way as well.

[Super_BQ]

I know you’re joking but It’s entirely possible to have very good life there if you can can ignore the politics and pick the right area. But of course you receive nothing useful from your federal taxes unlike NZ.
I think OP’s IRA is an employment based retirement scheme and as such falls under the tax treaty. This is what I was told by one of those pricey consultants.

ROTH IRA are TAX FREE schemes for using after-taxed income. The investments grow tax free and compounded. Furthermore the biggest advantage is after 5 years holding a ROTH-IRA and the person is over 60, the withdrawals are 100% tax free. This is NOT to be confused with a 'traditional IRA' where there are employers making contributions.

Withdrawals of earnings work differently. The IRS considers a withdrawal to be "qualified"—and thus tax-free and penalty-free—if you've had a Roth IRA for at least five years, and the withdrawal is taken:

When you're age 59½ or older
Because you have a permanent disability
By a beneficiary or your estate after your death
To buy, build, or rebuild your first home (a $10,000 lifetime maximum applies)



What we have in NZ is Kiwi Saver and it's a total robbery by IRD and the administrators of these managed funds.