How Are 401(k) Withdrawals Taxed for Non-Residents?

A 401(k) withdrawal paid to someone who is a non-resident for U.S. tax purposes is taxed at a flat 30% federal rate, withheld by the plan administrator before the money reaches you.¹ A tax treaty between the United States and your country of residence can drop that rate — sometimes to zero — but only if you file the right form with the plan first. If you’re under 59½, add a separate 10% penalty on top, which can push your total federal hit to 40%. So how 401(k) withdrawals are taxed for non-residents depends on three things: your treaty country, your age, and the paperwork you get in on time.

Who the 30% Rule Applies To

You are a non-resident alien for federal tax purposes if you are not a U.S. citizen and you fail both the green card test and the substantial presence test for the calendar year.² The green card test looks at whether you hold lawful permanent resident status. The substantial presence test counts your days in the United States over a three-year weighted period.

Someone who worked in the U.S. on a temporary visa, contributed to a 401(k), and has since gone home usually meets this definition. Once you no longer pass either test, the flat non-resident withholding regime applies to any retirement distribution you take.

The Flat 30% Federal Withholding

The IRS classifies 401(k) distributions paid to non-resident aliens as fixed, determinable, annual, or periodical (FDAP) income.³ FDAP income is taxed at a flat 30% on the gross amount. No deductions, no personal exemptions, no graduated brackets.⁴ A U.S. resident might owe 12% or 22% on the same withdrawal after the standard deduction. You pay 30% on every dollar.

The plan administrator withholds at the source and sends the tax to the IRS. You receive only the net. The 20% mandatory withholding that applies to eligible rollover distributions for U.S. residents does not apply here — the 30% non-resident rate takes its place.⁵

How a Tax Treaty Can Lower the Rate

The United States has income tax treaties with dozens of countries, and many reduce or eliminate withholding on pension and retirement distributions.⁶ Depending on where you’re a tax resident, the rate might fall to 15%, 10%, or zero.⁷ The relevant provision usually sits in the pension or annuity article, often Article 17 or 18, though the numbering varies from treaty to treaty.

Watch for the lump-sum trap. Most treaties that exempt pensions from U.S. tax apply the exemption to periodic payments but not to lump-sum distributions.³ If your plan is to cash out the whole balance at once, check the specific treaty language before assuming a reduced rate applies. The U.S.–U.K. treaty is one commonly cited example where the pension exemption does not extend to lump sums.

Treaties also include limitation-on-benefits provisions.⁶ You generally need a permanent home, physical presence, or real economic ties in the treaty country. A mailing address alone is not enough.

The 10% Early Withdrawal Penalty

On top of the 30% (or treaty rate), Section 72(t) adds a 10% penalty on any distribution you take before age 59½.⁸ The statute applies to “any taxpayer” and the IRS does not carve out an exception for non-resident aliens.⁹ Moving overseas does not waive it. If both the full 30% rate and the penalty apply, your combined federal tax reaches 40%.

Several exceptions can eliminate the penalty even under 59½:

Separation from service in or after the year you turned 55, for distributions from that employer’s plan.
Substantially equal periodic payments based on life expectancy, continued for at least five years or until 59½, whichever is later.
Total and permanent disability as defined in the tax code.
Distributions to an alternate payee under a qualified domestic relations order in a divorce.
Unreimbursed medical expenses above the deduction threshold, up to the deductible amount.

The age-55 separation-from-service exception is worth a close look. Many non-residents drawing on a 401(k) have already left the U.S. employer that sponsored it. If you were 55 or older in the year you separated from that employer, the penalty does not apply to distributions from that plan.

Roth 401(k) Distributions

If your 401(k) has a Roth component, the treatment turns on whether the distribution is qualified. A qualified Roth distribution — the account has been open at least five years and you are over 59½ — is not includible in gross income, and because Section 1441 withholding only reaches taxable income, a qualified Roth distribution should not trigger the 30%.

A non-qualified Roth distribution is different. Your original contributions come out tax-free because you made them with after-tax dollars, but the earnings portion is taxable and hits the same 30% flat rate. The 10% early-withdrawal penalty under Section 72(t) can also apply to that earnings portion if you are under 59½.⁸ Some plan administrators withhold 30% on the entire Roth distribution by default and leave you to claim the excess back on your return, so confirm the plan’s approach before you file the paperwork.

Rolling Over Instead of Cashing Out

You are not required to take cash. A direct trustee-to-trustee rollover into a traditional IRA moves the funds between tax-deferred accounts with no withholding and no penalty. This works from abroad, provided you can find a U.S. brokerage that will open or maintain an IRA for a non-resident. Not every firm will; several large custodians do.

Timing matters if the plan sends the check to you instead of directly to the IRA custodian. You have 60 days to deposit the funds into an IRA. But the plan is still required to withhold 30% on any distribution paid directly to a non-resident alien, so you would need to replace that 30% from other funds to complete the rollover and then claim the withheld amount as a refund on your return.¹ A direct rollover avoids the whole problem.

Smaller balances may not give you a choice. Plans can generally force a distribution without your consent when your balance falls below $5,000, though for amounts between $1,000 and $5,000 the plan must roll the money into an IRA on your behalf if you don’t make an election.¹⁰ Under $1,000, the plan can simply cut you a check with the 30% held back.

Required Minimum Distributions From Abroad

Living outside the United States does not excuse RMDs. If you still have money in a former employer’s 401(k), you generally must start annual withdrawals by April 1 of the year after you turn 73.¹¹ Under the SECURE 2.0 Act, the age rises to 75 for individuals born after 1960.

Missing an RMD carries a 25% excise tax on the amount you should have taken.¹² The excise drops to 10% if you correct the shortfall within two years by taking the missed distribution and filing the appropriate return. The RMD itself is still subject to the 30% (or treaty rate) when you eventually take it, so ignoring an RMD stacks the excise on top of the income tax you will still owe.

State Tax Does Not Apply

Federal law bars any state from taxing retirement distributions paid to someone who does not live in that state.¹³ As a non-resident living abroad, you are not a resident of any U.S. state, so no state income tax applies to your 401(k) withdrawal. If a plan administrator tries to withhold state tax, push back and clarify your status. Your only U.S. obligation is federal. Whatever tax you owe in your country of residence is a separate question governed by that country’s law.

The Paperwork You Need to File

Form W-8BEN for the Treaty Rate

To get a reduced rate under a treaty, submit Form W-8BEN to your plan administrator before the distribution is paid.¹⁴ Without it on file, the administrator must withhold the full 30%. The form asks for a U.S. or foreign taxpayer identification number: an SSN, ITIN, or foreign TIN.

The treaty claim goes on Part II. Line 9 identifies the country where you are a tax resident under the treaty. You then enter the specific treaty article number and the withholding rate you’re claiming.¹⁵ Line 10 is for cases where the treaty imposes additional conditions. The plan uses this information to reduce withholding from 30% to whatever the treaty allows.

Form W-7 if You Need an ITIN

Without an SSN, you’ll need an Individual Taxpayer Identification Number to claim treaty benefits and file a return. Apply on Form W-7, submitted with your tax return and documents proving identity and foreign status, such as a passport or national ID.¹⁶ Applicants abroad can mail the form with certified copies of documents or work through a Certifying Acceptance Agent who verifies originals so you don’t have to mail them.

Form 8833 With Your Return

When you file your return and take a treaty-based position, you may need to attach Form 8833 disclosing that position.¹⁷ This is separate from the W-8BEN you gave your plan; the 8833 goes to the IRS with your 1040-NR. Failing to disclose when required carries a per-position penalty. The W-8BEN instructions themselves flag this disclosure requirement for certain treaty claims.¹⁵

Filing Form 1040-NR

After the distribution, the plan will issue Form 1042-S showing the gross amount and the tax withheld.¹⁸ You then file Form 1040-NR, the non-resident income tax return, to reconcile what was withheld against what you actually owe. If the plan withheld the full 30% because your W-8BEN wasn’t on file in time, the 1040-NR is how you claim the excess back.

The filing deadline for non-resident aliens who receive no U.S. wages is June 15 of the year after the distribution, rather than April 15.¹⁹ Attach the 1042-S to document the withholding. Paper international returns take several months to process. Some tax software now supports electronic 1040-NR filing, though availability shifts year to year.

1
Internal Revenue Service. Plan Distributions to Foreign Persons Require Withholding
2
Internal Revenue Service. Determining an Individual’s Tax Residency Status
3
Internal Revenue Service. Publication 515 (2026), Withholding of Tax on Nonresident Aliens and Foreign Entities
4
Office of the Law Revision Counsel. 26 USC 1441 – Withholding of Tax on Nonresident Aliens
5
Office of the Law Revision Counsel. 26 USC 3405 – Special Rules for Pensions, Annuities, and Certain Other Deferred Income
6
Internal Revenue Service. Tax Treaty Tables
7
Internal Revenue Service. Table 1 – Tax Rates on Income Other Than Personal Service Income Under Chapter 3
8
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
9
Internal Revenue Service. Substantially Equal Periodic Payments
10
Internal Revenue Service. 401(k) Resource Guide – Plan Participants – General Distribution Rules
11
Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs)
12
Office of the Law Revision Counsel. 26 USC 4974 – Excise Tax on Certain Accumulations in Qualified Retirement Plans
13
Office of the Law Revision Counsel. 4 USC 114 – Limitation on State Income Taxation of Certain Pension Income
14
Internal Revenue Service. Claiming Tax Treaty Benefits
15
Internal Revenue Service. Instructions for Form W-8BEN
16
Internal Revenue Service. Instructions for Form W-7
17
Internal Revenue Service. About Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b)
18
Internal Revenue Service. Instructions for Form 1042-S
19
Internal Revenue Service. Taxation of Nonresident Aliens