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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.

  1. 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.
  2. Does this also free me from the 10% early withdrawal penalty?
  3. If the withholding is correct, does this exempt me from filing a non-resident US tax return?
  4. 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?