How is my US 401(k) or IRA taxed if I move to New Zealand?

What is New Zealand's category for a 401(k) or an IRA?

Foreign superannuation. Inland Revenue defines it broadly: "Foreign superannuation are funds created outside of New Zealand to provide retirement benefits to individuals."

Before going further, hold on to one caveat that runs through this whole guide. Inland Revenue's public pages on foreign superannuation do not name 401(k) plans or IRAs anywhere. They describe a category, and whether your particular plan sits inside it is a threshold question about your plan rather than something the guidance settles for you. Everything below describes how New Zealand taxes a foreign superannuation scheme.

Does it matter how I take the money?

Enormously. New Zealand splits the question in two.

Regular payments from a pension or annuity are ordinary income. Inland Revenue's instruction is plain: "You'll need to pay tax on these amounts when you file or approve your tax return." No special calculation, no special rate.

Lump sums are different, and this is where the special rules live. A lump sum withdrawal, or a transfer into a New Zealand or Australian scheme, is taxed under either the schedule method or the formula method, and neither taxes the whole amount.

The distinction is worth thinking about before you act rather than after. Drawing the same money as income and drawing it as a lump sum are not the same transaction under New Zealand law.

What is the four year exemption?

A window at the start of your New Zealand tax life in which lump sums are not taxed here at all.

Inland Revenue: "A 4-year tax exemption can apply to lump sums. You will not have to pay tax in relation to transfers and withdrawals made within the exemption period."

The dates are specific, and they are not simply four years from your arrival. The start of the exemption is the earlier of two things: the first day of the 183 days, where you were present for more than 183 days in total in any twelve month period, and the day you establish a permanent place of abode in New Zealand. Note the backdating. The period is measured from day one of that 183, not from the day it was reached.

The end of the period is the earlier of a set of dates, four years after the end of the month in which the 183 day test was met being the leading one.

If you were ever going to move a US retirement account into New Zealand, this window is when it costs least. It closes quietly and does not reopen.

How does the schedule method work?

It taxes a fraction of the lump sum, and the fraction grows the longer you have been a New Zealand resident.

The pieces, in Inland Revenue's own terms:

• Your super withdrawal is the amount you are withdrawing or transferring.
• Your contribution amount is, broadly, the recognised contributions that went in, reduced by earlier withdrawals. Contributions count as recognised when made under the mandatory rules of the scheme, and employer contributions must have been subject to employer superannuation contribution tax or fringe benefit tax.
• Your assessable period starts on the later of becoming a New Zealand resident who owns the scheme, or the end of your exemption period. It ends when you take the money, and it excludes any time you were not resident.

Assessable income is the super withdrawal less the contribution amounts. You then multiply it by a year fraction that depends on how many income years your assessable period has run, and the result goes into your return. The fractions themselves are published in Inland Revenue's guide IR1024 rather than on the web page.

The design intent is to approximate the tax you would have paid year by year had the money been in New Zealand all along, with an allowance for the fact that the tax was deferred until you took it.

And the formula method?

It taxes your actual gains rather than an approximation of them, which sounds fairer and is much harder.

Inland Revenue's own view is worth quoting as guidance rather than fact: the formula method is complex, and they recommend getting advice from a tax professional to use it.

The schedule method is the default. The formula method is a choice you make when your real numbers beat the approximation and you can prove them.

Is there a way to pay the tax out of the money itself?

Yes, if you are transferring into a New Zealand scheme that offers it.

The calculation produces what Inland Revenue calls your assessable withdrawal amount, the taxable portion of the transfer. If your New Zealand superannuation scheme offers the "scheme pays" option, you can ask them to pay 28% tax on that amount to Inland Revenue on your behalf, out of the transferred funds.

That matters for cash flow. Without it, a transfer can produce a tax bill in a year when no cash reached your bank account.

A contrast worth noticing

Australian superannuation is exempt from all of this. Inland Revenue states it directly: "You will not be taxed on withdrawals or transfers from an Australian superannuation."

So the two foreign systems a New Zealander is most likely to be carrying are treated completely differently. Australian super passes through untouched. A US scheme goes through the machinery above.

What this guide does not tell you

It does not tell you what the United States will do. Moving country does not end your US tax obligations, particularly if you are a US citizen or green card holder, and a withdrawal can be taxable there as well as here.

That makes the double tax agreement between the two countries central, and this guide has not read it. Inland Revenue flags the point themselves, noting that a double tax agreement may be in place and that you or a tax professional will need to check, because it can change how you are taxed. Anyone with a real decision to make should start there.

Also left alone: whether a Roth account is treated differently from a traditional one, how the foreign investment fund rules interact with all this, what happens to contributions you make after moving, and the position for someone who is a tax resident of both countries at once.

Where the published guidance runs out. We could not find Inland Revenue guidance naming 401(k) plans or IRAs specifically. The rules above are the general treatment of foreign superannuation. If your plan's status is the thing your decision turns on, that is a question for a New Zealand tax adviser or a binding ruling, not for a web page.