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George Saenz, the Bankrate.com Tax Talk columnistIRA taxes for a foreigner

Dear Tax Talk,
If I make an IRA contribution and later become a nonresident of the United States, how is my IRA taxed? I might move back to Argentina when I retire and I only have a green card now and may never become a citizen.
-- Cristina

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Dear Cristina,
If you move back to Argentina and eventually give up or lose your "green card" status you are considered a nonresident for income tax purposes. Pension income and the investment earnings thereon, attributable to services rendered in the United States, are treated as income from U.S. sources.

The U.S. source income of nonresident aliens is taxed either on a gross basis or net basis. Gross basis means that the appropriate tax is withheld at the source and if so, no tax return is due. The most common example is the 30 percent withholding applicable to dividends received by a foreigner.

Net basis taxation means that the foreigner has to file a U.S. income tax return to report his or her U.S. effectively connected income. Pension or IRA distributions, whether lump sum (an entire distribution of the account) or periodic, are considered effectively connected income.

The IRA custodian will withhold a tax at graduated tax rates similar to those that apply to U.S. residents and citizens. You'll need to file an annual tax return to determine if additional tax is due or if you are entitled to a refund.

To ask a question on Tax Talk, go to the "Ask the Experts" page and select "taxes" as the topic.

Bankrate.com's corrections policy-- Posted: Dec. 27, 2006
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