some questions, have you done this?

Hi I am UK/usc and will be moving to N Ireland in a few months after many years in California, have looked but cant get clear answers, couple of things, hoping someone has done this and can advise
1: i am renting out my house in Ca for $2800 per month which will net me a profit of approx $800 per month, (a) will this cause me problems at tax time?
2: i have looked at cashing in my 401k, after prepayment and 20% i will get approx $100,000 back from approx $130,000,.... question, anyone who has done this, did you get hit for additional / state tax the following year and how bad s
was it?
all answers appreciated
regards
Garth
 

Do you have a California Living Trust?

Why do you want to cash out your 401(k)?

I wouldn't take a total distribution of my 401(k) unless I was on my knees. The penalties, if you're under 59.5 and then having the amount subject to ordinary income. It's a great deal of money to sign away

1: i am renting out my house in Ca for $2800 per month which will net me a profit of approx $800 per month, (a) will this cause me problems at tax time?

You will have rental income and expenses in CA. You should find out about CA residency and domicile rules and whether you'll have to file as a resident or non-resident. As a US citizen you'll have to file a 1040 and as you'll have foreign income you'll have to do a UK self assessment too.

2: i have looked at cashing in my 401k, after prepayment and 20% i will get approx $100,000 back from approx $130,000,.... question, anyone who has done this, did you get hit for additional / state tax the following year and how bad s
was it?
all answers appreciated
regards
Garth
 

It's generally a bad idea to cash in a 401k early because of the 10% penalty and the big increase to your taxable income in the year you cash out. You will pay the 10% penalty to the IRS and then be tax on the income. If you do it before you move to the UK you'll pay that tax to the US and CA. Once the tax is paid you will only have to pay tax on any gains, interest and dividends etc that it generates.

Do you have a California Living Trust?

No  dont know what that is

Why do you want to cash out your 401(k)?

i dont have a lot of faith in the dollar or markets and would use money towards another house

You will have rental income and expenses in CA. You should find out about CA residency and domicile rules and whether you'll have to file as a resident or non-resident. As a US citizen you'll have to file a 1040 and as you'll have foreign income you'll have to do a UK self assessment too.

It's generally a bad idea to cash in a 401k early because of the 10% penalty and the big increase to your taxable income in the year you cash out. You will pay the 10% penalty to the IRS and then be tax on the income. If you do it before you move to the UK you'll pay that tax to the US and CA. Once the tax is paid you will only have to pay tax on any gains, interest and dividends etc that it generates.

can you expand on your last sentence

can you expand on your last sentence

If you invest the 401k money you will have to pay tax on any gains, interest and dividends that it generates. You will have to comply with US tax laws (as a US citizen) and UK laws if you are a UK resident. If you keep that cash in an non-interest account there won't be any tax due, but you will have to comply with US FBAR and FATCA rules if it is in the UK. If you buy a house with the money you would have to comply with capital gains rules when you sell it.

You say you have looked at cashing your 401(k) out and you will lose $30,000...do you really have such little faith in the dollar and markets that you think it's worth losing that much money?  You can invest your 401(k) in things that avoid both the dollar and the equity and bond markets.  I agree wholeheartedly with:

I wouldn't take a total distribution of my 401(k) unless I was on my knees. The penalties, if you're under 59.5 and then having the amount subject to ordinary income. It's a great deal of money to sign away

Please take advice from a qualified professional before making such a big decision.