Your residence status can affect your 401(k) plan in two ways: eligibility and withholding on distributions.
Eligibility
All Guideline plans exclude non-resident aliens (NRAs). It is important to distinguish NRAs from resident aliens - not all aliens (non-US citizens) are excluded from participating in a Guideline 401(k) plan. You are generally eligible to participate in your employer’s 401(k) plan as a resident alien as long as the following requirements are met:
You are a US resident
You are earning US sourced income.
You meet the plan's eligibility requirements (applicable to all employees), such as age or length of service requirements.
Provided you meet the requirements above, you will be able to participate in the 401(k) plan with the same rights and benefits as a US citizen.
Withholding
Your residency can also affect how a distribution (or withdrawal) from your 401(k) is treated. If you take a distribution from a Guideline 401(k) and you are not considered a “US Person,” there are specific withholding rules that will apply.
To be considered a US person, you must:
Have a social security number and
A mailing address either in the US or in a county that has a treaty with the US exempting their residents from US tax on retirement plan distributions.
Additionally, distributions from a US-based retirement plan cannot be directly rolled over to a non-US-based retirement plan.
If you are not a US person, the IRS requires that 30% federal withholding apply to your distribution. You cannot waive this withholding. However, your current country of residence may include a different withholding rate in their tax treaty with the US. You can find a list of the current treaty withholding rates here.
For more information about withholding and taxation for non-US persons, see Pub. 515, Withholding of Tax on Nonresident Aliens and Foreign Entities and Pub. 519, U.S. Tax Guide for Aliens.
This information is for general education purposes only and not intended to be tax advice. We encourage you to consult a qualified tax professional before relying on the information provided herein. You may also refer to IRS publications for information about requesting a distribution as a non-resident.