I’m interested in what would happen if I took an early withdrawal from my 401k, i.e. below age 59.5, while also being a non-resident for tax purposes. American tax living in Germany.
As far as I know the general case is that there should be a 30% withholding tax, then I would have to file a non-resident tax return and the actual tax would be based on the tax brackets on US income plus a 10% penalty tax.
But being a resident of Germany, I guess the tax treaty changes things. It’s just not clear to me how. I think Article 18.1 of the tax treaty says that the taxation of pensions is the responsibility of the country of residence.
- Does this mean that the withholding tax rate should be set to 0? It is under the assumption that I disclose my residence in Germany through a W-8BEN form.
- Does this also free me from the 10% early withdrawal penalty?
- If the withholding is correct, does this exempt me from filing a non-resident US tax return?
- Do I have to set up monthly distributions or can I withdraw the full account value all at once? If I needed to set up monthly distributions, would it be acceptable to withdraw the entire account in one calendar year?