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DeluxeXL t1_jegk5lf wrote

Reply to comment by Share_noob in Roth backdoor - Withdrawing money before retirement by Share_noob

There is no capital gain tax treatment in a retirement account. If a portion of withdrawal is subject to tax, it is going to be ordinary income tax.

  1. Withdrawing contributions: No tax, no penalty.
  2. Withdrawing taxable conversions: No tax. 10% penalty within 5 years.
  3. Withdrawing nontaxable conversions: No tax, no penalty.
  4. Withdrawing earnings: Taxed as income. 10% penalty for unqualified withdrawal.

How much do you expect the Roth IRA to grow before you withdraw?

Also, are you going to become "nonresident alien"?

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Share_noob OP t1_jegpi74 wrote

Thanks a lot for your responses. Appreciate it.

Yes, I'll become non-resident alien. And these are just estimates but looking at average 7% return on SPY, I expect those to grow by ~40% in 5 years. Say I invested total $10000, it might grow to $14000 by the time I withdraw. Assuming ordinary tax bracket of 25%, sounds like I'll need to pay 25% tax + 10% penalty on earnings of $4000.

That basically leaves me with 5% gain.

Instead if I invested same $10000 in taxable brokerage, I'll have to pay 15% taxes on earnings of $4000.

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DeluxeXL t1_jegq5ma wrote

Depends on when you become NRA.

Tax on NRA is different.

  • No standard deduction
  • No tax on capital gain if you aren't in the US for 183 or more days
  • 15-30% tax on dividends depending on the tax treaty with your home country.
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Share_noob OP t1_jegynna wrote

Interesting.. Didn't know about the capital gains tax as NRA. Definitely going with taxable brokerage account then. Thanks again for your inputs!

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