How To Roll Over a 401k to Australia: A Strategic Guide for Expats

This guide provides a comprehensive overview of the process and limitations involved in transferring a 401(k) to Australia.

We explain if you can roll over a 401k to Australia, outline the tax implications under both US and Australian law, compare 401(k) plans to the Australian superannuation system, and offer strategic alternatives to help you make informed decisions across borders.

Does Australia Have a 401(k)?

Australia does not have a direct 401(k) equivalent in Australia. Instead, Australians contribute to a compulsory retirement savings system known as superannuation, or “super.”

Under current legislation, employers are required to make mandatory contributions, referred to as the Superannuation Guarantee (SG), equivalent to 11.5% of an employee’s ordinary time earnings.

This rate is scheduled to increase to 12% from 1 July 2025. Ordinary earnings include salary, bonuses, allowances, and paid leave.

You’re eligible for the superannuation guarantee if you meet the following conditions:

• Be a temporary or permanent Australian resident.
• Be 18 years or older.
• Work 30 hours or more per week.

In addition to the SG, employers may make further voluntary contributions, and individuals are permitted to make personal contributions, either before or after tax.

These contributions are typically invested in a diversified portfolio of assets to grow retirement savings over time.

The following table outlines the five types of super funds:

Can You Transfer Your 401(k) to Australia?

A direct rollover of a 401(k) to an Australian superannuation fund is not permitted. The Australian Taxation Office (ATO) does not recognise a 401(k) as a foreign super fund for tax purposes.

While superannuation can receive transfers from approved foreign pension schemes, a 401(k) does not qualify.

As a result, transferring your 401(k) to Australia involves the following steps:

• Withdraw the funds from your 401(k) (this is a taxable event in the US),
• Then contribute the funds to an Australian superannuation account, subject to contribution caps and Australian tax rules.

US Tax Implications on Withdrawal

• If you are aged 59½ or older, withdrawals are taxed as ordinary income.
• If you are under 59½, you will also incur a 10% early withdrawal penalty, unless an exemption applies.

Once withdrawn, your contribution to superannuation is treated as a non-concessional contribution (after-tax), and is subject to the current cap of AUD 120,000 per financial year. If your 401(k) balance exceeds this amount:

• You may contribute up to the cap in the current year, and
• Roll over the remaining balance into a US-based Individual Retirement Account (IRA) for staged access or future withdrawal.

Are You Liable for Australian Tax When You Transfer a 401(k) to Australia?

Yes, potentially, depending on your Australian tax residency status at the time of the transfer.

If you are classified as an Australian tax resident, the ATO may consider the remitted 401(k) funds as foreign income, even if you have already paid tax in the US.

If you are a non-resident, you are generally not taxed on foreign income, and the transfer may not be assessable.

The ATO treats US retirement accounts such as 401(k)s as foreign trusts, and distributions from foreign trusts are taxed at your marginal income tax rate, which ranges from 19% to 45%.

Can You Avoid the Taxation of a 401(k) Transfer to Australia?

While you cannot avoid paying tax in the US on 401(k) withdrawals, you may be eligible for a Foreign Income Tax Offset (FITO) in Australia, which helps prevent double taxation.

To claim the FITO:

1. You must have actually paid tax on the amount in the US.
2. The income must be included in your assessable income or classified as non-assessable non-exempt (NANE) income in Australia.

If eligible, the FITO reduces your Australian tax liability on the remitted amount in the financial year the funds are received.

Additionally, the Double Taxation Agreement (DTA) between Australia and the US aims to ensure income is not taxed twice.

The DTA typically assigns taxing rights based on residency, but the treatment of pension income can be complex, and advice should be sought before remitting funds.

What Are the Key Differences Between 401(k) and Superannuation?

While both 401(k) plans and Australian superannuation are tax-advantaged retirement savings vehicles designed to grow your wealth through diversified investments, they differ significantly in the following areas:

1. Employer involvement.
2. Contribution limits and tax treatment.
3. Withdrawal rules and penalties.
4. Ongoing taxation and compliance.

Employer Involvement

The primary difference between 401(k) and Australian super is that 401(k) isn’t mandatory.

In the United States, participation in a 401(k) is voluntary. Employers may offer a plan and choose whether to match employee contributions, but they are not legally required to do so.

By contrast, in Australia, employer contributions to superannuation are mandatory. Under the Superannuation Guarantee (SG) scheme, employers must contribute 11.5% of your ordinary earnings to your nominated super fund.

This rate will increase to 12% from 1 July 2025. Employees can choose a super provider based on performance, investment options, and fees.

Contributions

401(k):

401(k) Contributions are generally made pre-tax, reducing your taxable income during the contribution period.

Investment earnings grow tax-deferred, but withdrawals are taxed as income in retirement.

2025 contribution limits:

• Employee contributions: USD 23,500
• Employer contributions: USD 45,000
• Catch-up contributions (age 50+): USD 7,500
• Enhanced catch-up (ages 60–63): USD 11,250 (Note: delayed to 2026)
• Total limit: USD 70,000, or USD 77,500 for those over 50

Superannuation:

1. Concessional contributions (pre-tax): AUD 30,000 per year. Payments like the superannuation guarantee and additional employer contributions are typically concessional.
2. Non-concessional contributions (after-tax): AUD 120,000 per year, or up to AUD 360,000 over three years if eligible under the bring-forward rule. Personal contributions and transfers from foreign super funds are considered non-concessional.

Withdrawal Rules

Withdrawal from 401(k) plans and super funds are subject to specific rules as outlined in the table below:

Taxation

Contributions and withdrawals from 401(k)s and Australian supers are subject to different tax treatments.

401(k):

• Contributions are made with pre-tax funds, reducing current taxable income.
• Withdrawals are taxed as ordinary income in retirement.
• Early withdrawals incur both income tax and a 10% penalty unless exempt.

Superannuation:

• Contains both concessional (taxed at 15%) and non-concessional (after-tax) components.
• Withdrawals may be partially or fully tax-free, depending on your age and the source of the funds.
• Individuals with income and concessional contributions exceeding AUD 250,000 in a year are subject to the Division 293 tax, which imposes an additional 15% tax on some or all of their concessional contributions.
• Exceeding contribution caps can trigger penalty taxes up to 47% on excess contributions and earnings.

What Are the Alternatives to Transferring a 401(k) to Australia?

If you choose not to withdraw and contribute your 401(k) to an Australian superannuation fund, there are two primary alternatives to consider:

1. Leaving the funds in a 401(k).
2. Rolling over to an IRA.

Leaving the Funds in a 401(k)

You may opt to retain your 401(k) in the United States, allowing the investments to continue growing tax-deferred until retirement. Withdrawals can begin without penalty at age 59½, and Required Minimum Distributions must commence from age 73.

This approach may suit individuals who:

• Are satisfied with their plan’s investment options and performance.
• Wish to defer taxable income for US or Australian tax planning reasons.
• Intend to relocate frequently or maintain US tax obligations.

However, Australian tax residents must declare 401(k) withdrawals as foreign income, which may be taxed at marginal rates.

Foreign income tax offsets (FITO) or the Australia US Double Taxation Agreement may reduce or eliminate double taxation, but outcomes vary case by case.

Rolling Over to an IRA

Another option is to roll over the 401(k) into an Individual Retirement Account (IRA). This can typically be done tax-free if completed as a direct rollover, provided the IRA maintains the same tax treatment (traditional or Roth).

Unlike 401(k)s offered by your employer, IRAs offer greater investment flexibility than many 401(k) plans. You control the account independently – there is no employer involvement, and you may continue contributing to an IRA while abroad, subject to eligibility.

Types of IRAs:

• Traditional IRA: Funded with pre-tax dollars. Withdrawals are taxable. A direct rollover from a 401(k) is not a taxable event. However, an indirect rollover will trigger a 20% mandatory withholding, which must be reclaimed through a US tax return.
• Roth IRA: Funded with after-tax dollars, meaning qualified withdrawals (including gains) are generally tax-free. Roth conversions may offer long-term tax advantages but can incur US tax upfront and may carry Australian implications.