US's 401K/TIP transfer to the UK - HELP

Hello,

I has been the US for six years and I have just moved to the UK.

I have a vested balance of less than $5000 in my Thrift Incentive Plan (=401k) in the US.

Now, I need to decide whether to rollover the money in the US, rollover to the UK or get a lump sum.


I am originally from Spain. So, I would prefer to roll over the money back to Europe. I will have a pension plan in the UK with my current employer. I also want to minimize the tax payment.

Can I do this? Tax implications and steps? What can I do?
I will appreciated your help

JOSE

1)  You can't roll it over outside the US.
2)  You can cash it in, but you'd pay a 10% penalty tax for cashing it in early.  That's $500.
3)  If you have no other income that year, it's under $300 of income tax too.
4)  The UK has a tax treaty with the US which allows the UK to tax the pension, but only if you remit it to the UK.  So cash it in, and keep it outside the UK, and you'll pay no UK tax.

Thanks Lizzit,
Another question:

I worked/lived until April 2005 in the US and we moved permantely to UK in April/05. I think that in 2005, I will be dual-resident for tax purposes (resident alien in US until April, and non domiciled resident in UK from April)

I have already ordered the early distribution of my pensions benefits. Can I deduct any tax withholdings in my 2005 tax return? What about the tax penalty?

Do I have to request the "departure permit" (sailing permit), or I can wait until 2006?

Is it my tax year in the US from 1/05 to 4/05, and in the UK from 4/05 to 4/06?

Thanks,
Jose

Jose,

Alas, doing things and then getting your advice is a bit pointless.  Taxes are determined by facts and circumstances.  Once you've done something, the number of options you have are severely narrowed.  The time to seek your advice is before you've done something, so you can maximize your options.

You'll pay at your regular rates and get whacked with tax in the USA.  If you had waited until next year, your US tax would be under $300.  How much you pay in the UK depends on your residence and domicile status for 2005.

US years are Jan-Dec.  If you are a greencard holder, that's what you'll be doing.  If you are not a greencard holder, you can file as Dual Status Alien (DSA) for just the period you spent in the USA.  DSA returns and greencard abroad returns are very complex.  You should probably seek an international tax preparer who specialises in this sort of tax return.

UK years are Apr-Apr.  You may use a short year if you arrived mid-April, but it will be effectively the same.

The answer to your original post was quick and easy.  The answers to your second post would take me about a half an hour, and be more substantial in nature.  Space and time does not permit me to answer fully.

If you're looking for good starter sources of free information for the US, try http://www.irs.gov/businesses/small/international/index.html

For the UK try http://www.taxationweb.co.uk/guides/residence_and_domicile.php - another place where I post replies to tax queries.