Getting deduction benefit from investing in IRA and than breaking it when not working in USA?

Question

To save on my US tax return
If I invest say 4000 in IRA now, than I get a deduction of same amount in my tax returns. So effectively as per my tax bracket I save {15% federal and 6% state tax = 21% total saving which will be around $800 savings}..

Now assume I go back to my country and break the IRA in some year when my USA income is zero. So I pay no income tax since I will fall under the limit of {standard deduction + exemption}.
The only thing I pay is 10% penalty which will be around $400.

So effectively I saved $800 - $400 = $400 by investing in to IRA and breaking it when going back.

So my question is that is this calculation correct ?? or
I will not save this amount ??

Pls advice. ??

Answer 1

That might just work. I don't see why it wouldn't. Wouldn't work for most people, since they'd still be in the US so all of their income would be taxed for the year they withdrew the money from their IRA, so they'd probably be paying income taxes too.

Check to be sure there's not some special withholding required for distributions for people in other countries - I seem to remember something about something like that but can't find any info now.

Answer 2

When you withdraw the funds, there will be a 20% federal income tax withholding since the proceeds will not be to a qualified rollover entity. The refund result depends on your citizenship and/or residency status which affects the amount of the standard deduction and exemption, if any. I would suggest consulting a CPA with specifics prior to investing.