401k: pre-tax to Roth 401k conversion as non-US citizen, Swiss resident, non-EU passport

Taxes
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Hi MP Forum -

Next year will be a low income tax year (compared to prior years) and I am looking into optimizing my 401k portfolio in the US. I am coming up against some tax related concerns / uncertainty and I am hoping others on this forum have some personal experience of the same.

I currently have less than 10% of my portfolio in a pre-tax 401k (low fees, invested in 90% equity). In the long term , post retirement age, I expect to either retire in Switzerland or in my home country (non-EU, in Asia).

Thought process: I am considering slowly converting my pre-tax 401k into Roth 401k - about 40k USD per year over the next few years. Intent is to reduce my tax burden during retirement (i.e. after 59.5 years in the case of US) as neither the principal nor the growth will be taxed at the time of withdrawal.

Questions:

  1. Any obvious or not-so-obvious flaws in this thought process?
  2. Another recommendation I have read is to withdraw the entire 401k and bear the penalty plus additional tax as I have no intention of returning to the US at any point in the future. Has anyone here done this?
  3. Tax considerations:
  • In my home country, any type of 401k withdrawal is considered taxable income.
  • I believe in Switzerland, pre-tax 401k withdrawals are considered tax exempt but Roth 401k withdrawals are considered taxable income even at retirement age. In such a scenario, the only advantage of Roth conversion I see is the possibility of savings on US taxes in the future due to changing tax brackets.
  • In that case, is it even worth pursuing this now?
  1. I have spoken to my cantonal tax authority to get some clarification on the taxation situation. They were unable to give me a straight answer and suggested that I go ahead and see how its treated when I file my taxes next…
  2. Any other options I should consider?

P.S. I currently do not file US taxes but do have DA-1 dividends and some bank interest from the US. I believe I would need to file a tax return if I convert my pre-tax 401k to Roth 401k.

Thanks in advance!

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How are 401k assets treated in regards to gap in the 2nd pillar that can be bought into? Would withdrawing the 401k and buying back into a Swiss 2nd pillar be an option?

Regardless, I think for such specific tax advice, the experience of specialized professionals may be worth the price depending on the size of the assets. With the caveat that my understanding is that tax offices have some discretion as to how they handle US retirement plans, so there may be differences from a Canton to another and the cantonal tax policy may change from now to the time of your retirement.

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Didn’t search too long but Tax treatment in Switzerland of US retirement plans seems like a 401k withdrawal would generally be taxed similar to pillar2 lump sum.

edit: after looking more at the article, I’m not sure what you’d gain by converting. If you’re staying in Switzerland (DTA says Switzerland gets to levy the tax), I think you should apply the same reasoning as buy-in/cashing out pillar2 (do you want to be taxed now and keep paying income tax on the growth of the Roth IRA, or delay the taxation and do the lump sum at retirement)

4

Roth conversion is suboptimal for Switzerland retirement due to unfavorable tax treatment. Prioritize preserving traditional 401(k) assets while clarifying your retirement jurisdiction. Engage a cross-border financial planner to run location-specific tax simulations before proceeding.

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