Wow, this thread is scary as I think I'm heading for the same problems.
To explain:
- UK citizens who are currently living in the US on green cards and have been here 16 years
- Planning to return to the UK next year for good
- I will be 50 this year
- I have a 401k with Fidelity
- No longer employed by the company I came here with
- Company pension that is also administered by Fidelity
My original plan was to start the pension at 55 and then take regulars distributions from the 401k once I reached the age where there would be no penalties. I had read about the high likelihood that Fidelity would withhold tax regardless of the instructions given and I would have to claim back. I'm now however even more concerned that from what I've read here that I won't even be able to do regular distributions.
Any suggestions or advice? and please let me know if any additional details would help.
Firstly you have a huge advantage in that you are finding out the problems now, while you are still in the US and can deal with them.
I would agree that the first thing to do is contact Fidelity. However their refusal to even consider periodic distributions of an IRA to a foreign address is actually printed on the IRA distribution form that you can download from the Fidelity site itself, and I myself have been told this will be universally applied, on three separate occasions. How they treat company pension schemes as regards periodic distributions I do not know, however they will not apply tax treaties either.
Moreover keeping an IRA with Fidelity means you cannot purchase mutual funds, making it more difficult to manage your IRA holdings as years go by. This may get worse, as a letter from Fidelity warned me that greater restrictions may in future be applied to IRA holders overseas
up to and including being restricted to no transactions at all other than selling existing holdings.Moreover beware that the average customer service representative at, for example Fidelity branches, will have no idea and no experience of dealing with foreign distributions, and will likely not know anything about it. On my visit to the US the combined efforts of the local representative and the international wire "specialist" that he was talking to on the phone resulted in the complete messing up of the wire to my UK bank owing to them changing all the information I filled in (completely correctly) on the form, and not understanding what a correspondent bank was.
This is par for the course for the US, where many financial institutions seem to be unfamiliar with the common mechanisms and procedures of international banking, so beware, even of what you are told by Fidelity themselves.
My advice is change your IRA NOW from Fidelity to another provider that will allow rebalancing your holdings, will do periodic distributions, understands and correctly applies tax treaties and can perform international wires correctly!
If you have been in the US for 16 years your IRA is likely to be an amount that it would incur a prohibitive tax bill to convert to a tax free ROTH, as you have to pay all the tax-deferred from your IRA contributions on the entire amount you convert. However this too (and the likely UK tax treatment of a ROTH distribution ) is worth investigating now.
I would also advise you to free yourself of the IRS and the obligation to complete tax returns for life by abandoning your green card at a US Embassy using form I-407, and filling in a form 8854-Initial and annual expatriation tax statement.
Unless you are worth more than $2million (this includes the amount in your IRA), or have paid more than about $150,000 income tax each year for the last 5 years you will not be subject to expatriation tax.