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Topic: UK/US 401k issues  (Read 4373 times)

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UK/US 401k issues
« on: November 15, 2004, 04:01:22 AM »
I'm a UK/US dual citizen and after 18 years in the US I'm beginning to plan my return to the UK. All my financial assets are in the US so I have many questions about how to organize things.

1) Does anyone know of a good one stop place for US/UK expat financial advice?

2) I have my retirement funds in US 401k, IRA and a couple of US pension funds. Is there any way to move these to the UK without incurring tax penalties sort of a US to UK rollover?

3) I imagine 2) would be pretty difficult to do so does anyone have experience of keeping retirement funds invested in the US and then getting income from them in the UK. How would this income be taxed?

4) I also have money from the sale of a house and invested in US mutual funds. What's the best way to move that to the UK.

Thanks
« Last Edit: November 15, 2004, 04:14:45 AM by nun »


Re: UK/US 401k issues
« Reply #1 on: November 19, 2004, 03:28:53 PM »
I must move this off zero responses...........


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Re: UK/US 401k issues
« Reply #2 on: November 19, 2004, 08:13:36 PM »
1) You can always go to a major, international corporation, but it will be expensive.  I know HG on this site does US and UK tax, but I don't think she does financial advice per se.  You could contact here and see if she knows someone. 

2) When you say move to the UK, do you mean to a UK company?  Do you have to do this?  If you want to investing in UK type finds, you may be able to do this with your existing companies.  Personally, I would rollover your 401(k) into your IRA and turn it into a Roth, depending on your age and income tax bracket.  I would look for a company that has UK subsidiaries and ask your account person about transfering.  As long as it is a rollover, you should be ok on penalties.  If you find an international company, I would think the transfer would be easier.

3)  I have kept my IRA in the States.  I did so because I personally know more about investing in the UK and feel more comfortable making these decisions.  When I take out this money, I would be taked in much the same way I am taxed now.  My US income doesn't count for the UK.

4) It depends on what you want to do with it.  Do you want to keep it in mutual funds or do you want the cash?  If you want the mutual funds, see #2, or just cash out and then reinvest the money in the UK.  The transfer of cash should not be taxed.  You will have tax on cashing out the mutual fund though, if it is just a regular investment (not an IRA or whatever).


Re: UK/US 401k issues
« Reply #3 on: November 20, 2004, 05:07:43 AM »
1) You can always go to a major, international corporation, but it will be expensive.  I know HG on this site does US and UK tax, but I don't think she does financial advice per se.  You could contact here and see if she knows someone. 

2) When you say move to the UK, do you mean to a UK company?  Do you have to do this?  If you want to investing in UK type finds, you may be able to do this with your existing companies.  Personally, I would rollover your 401(k) into your IRA and turn it into a Roth, depending on your age and income tax bracket.  I would look for a company that has UK subsidiaries and ask your account person about transfering.  As long as it is a rollover, you should be ok on penalties.  If you find an international company, I would think the transfer would be easier.

3)  I have kept my IRA in the States.  I did so because I personally know more about investing in the UK and feel more comfortable making these decisions.  When I take out this money, I would be taked in much the same way I am taxed now.  My US income doesn't count for the UK.

4) It depends on what you want to do with it.  Do you want to keep it in mutual funds or do you want the cash?  If you want the mutual funds, see #2, or just cash out and then reinvest the money in the UK.  The transfer of cash should not be taxed.  You will have tax on cashing out the mutual fund though, if it is just a regular investment (not an IRA or whatever).


Thanks Sara,
1) I was thinking if anyone had experience with places like WT Fry or the big banks in the UK like HSBC, Halifax, Barclays etc for investing and tax advice for UK/US dual citizens. Or if there are any good US firms that know about the UK aspects.

2) I'm thinking of retiring back to the UK, and just for convenience I'd like to move as much of my finances with me. However,  I don't want to move my US tax deferred retirement funds if it means early withdrawl penalties. I don't imagine there's a way to roll over US tax deferred retirement funds into a UK equivalent tax deferred fund, just though I'd ask.

3) I too think that I'll probably end up leaving the IRAs and 401ks in the US. So I assume that any income I eventually take from them will be taxable in the US, but not in the UK. I know that the US doesn't tax the first $70k of foreign earned income, is there a similar limit for the UK on foreign earned income deriving from tax deferred funds?

4) What I wanted to know in 4) was the practicalities of moving large amounts of money. Once I cash in the mutual funds, sell the house etc and have a big bank balance is it best to open up a UK offshore account, and spread the money between dollar and pound denominated investments, or is it easier just to transfer it straight to a UK bank account.


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Re: UK/US 401k issues
« Reply #4 on: November 20, 2004, 12:49:01 PM »
1) You can always try like a Merrill Lynch type compnay for financial planning advice and one of the Big 4 Accounting firms for accounting advice.  Again, the bigger the company = more expensive, but it would be one stop shopping.

2)  See I think you are making assumptions here.  There is nothing I can think of off the top of my head that would make the transfer to a UK account any different than transferring to a US account.  I think it is absolutely possible to do this.  If your current company has UK branches, than I would start by talking to them.  It could be relatively easy.  There could be one thing to complicate the issue, so I won't say for certain either way, but don't make the assumption that it can't be done.

3) Broadly speaking, the UK will not tax your US funds, because you are a US citizen/resident.  Even if you live in the UK (and will then be a deemed UK resident), your US earned income won't be taxed.

4) You can transfer the cash, period, and the transfer itself shouldn't be taxed.  If you want it to just go to the bank account, that will work.  If you want to invest it in an offshore account, that will work.  You can do with it what you want.  You will be taxed in the US on whatever capital gains issues arise (gain on investment, gain on sale of residence - if applicable), but the transfer won't be taxed.

----

If you are still in the US, I would get some financial advice beforehand.  Go to an accountant.  Look in your area for one of the Big 4, or a large regional accounting office.  Depending on what area you live in, I could recommend a decent company.


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Re: UK/US 401k issues
« Reply #5 on: November 22, 2004, 02:18:14 AM »
Hi all,

I am glad to find a forum and topic that tries to address my own concerns too:

What happens if I keep an IRA in the US while living somewhere else (be it in the UK or Greece, which will probably be the case), and I retire there?
Will the rules for distributions/penalties be the same as if I were in the US and never left?

Also - I had asked my 401k management company this and they admitted they didn't really know, and suggested i look online for offshore accounts and the like. Would this make sense?

Thanks a lot for your time.


Re: UK/US 401k issues
« Reply #6 on: November 22, 2004, 05:00:18 PM »
Hi Thunder,
It seems as if we are in a similar situation. You'll have to look at the tax treaties between the US and whatever country
you're in to see how they deal with income from IRAs held in the US. After some reseacrch my understanding for the UK/US is that the US
income from the IRA will be taxed in the US and I'll get a tax credit for that income in the UK so that I won't have to pay
tax on it again. Also any income I get in the UK will get a tax credit in the US up to $70k per annum.

So if you're ok leaving the money in a US IRA it doesn't present too many issues.

My situation is that I'd prefer to organize my funds in one place, but i don't want to pay the early withdrawl penalties
on my  tax deferred acounts, 401k IRA etc.  It seems common for people to accumulate a number
of 401ks as they move from company to company, and as I've changed jobs I've rolled over IRAs and 401ks so
that they are now with a single US company. However, I'd like to get as much of my money into UK investments as
that's where I'll be living and frankly I'm not too confident about leaving my accounts in the US for the next 20 years.
As the UK and US retirement savings systems are totally spearate I don't share Sara's confidence about the ability
to move tax deferred funds. I've asked the IRS, but got no definitive answer, but I believe that plans outside of the US
are not qualified plans. My next move is to ask my current 401k provider. I'll post what they say.



Re: UK/US 401k issues
« Reply #7 on: November 22, 2004, 05:34:45 PM »
I just called my 401k provider and was told that there is no mechanism for moving tax deferred accounts
outside of the US. Bottomline is that you can only do a rollover to a "qualified plan". and by definition
a plan outside of the US is not qualified. The IRS defines qualified plans as

Qualified retirement plan.    For this purpose, the following plans are qualified retirement plans.

    *

      A qualified employee plan.
    *

      A qualified employee annuity.
    *

      A tax-sheltered annuity plan (403(b) plan).
    *

      An eligible state or local government section 457 deferred compensation plan.

I'm not done yet though I'll see if I can find anything about this in the US/UK tax treaty



Re: UK/US 401k issues
« Reply #8 on: November 22, 2004, 06:35:40 PM »
Now I'm really confused.......

The Uk/UStax treaty has quite a bit about pensions (this incluses 401k) and it looks like
I'll be taxed in the UK, and not in the US,on income from US pensions. Also there
is the possibility of being taxed twice on a lump sum distribution. I need professional
advice!!!!!



Re: UK/US 401k issues
« Reply #9 on: November 22, 2004, 07:25:36 PM »
Hi all,

I am glad to find a forum and topic that tries to address my own concerns too:

What happens if I keep an IRA in the US while living somewhere else (be it in the UK or Greece, which will probably be the case), and I retire there?
Will the rules for distributions/penalties be the same as if I were in the US and never left?

Also - I had asked my 401k management company this and they admitted they didn't really know, and suggested i look online for offshore accounts and the like. Would this make sense?

Thanks a lot for your time.

Hi Thunder,
Here is a nice explaination about taxation of US IRA distributions for US citizens living in the UK. If you'll be living in Greece you'll have to check that treaty, but this
explaination may help you in understanding other US foreigh tax treaties.

With respect to distributions from pension plans, the current Treaty generally provides that only the country of the recipient’s residence may tax such distributions.  Article 17(1) of the new Treaty helpfully expands that rule to most “pensions and other similar remuneration”, and clarifies that this includes payments under any “pension scheme” as defined in Article 3(1)(o) of the new Treaty.  This ensures that the rule will apply not only to distributions from retirement plans, but also to IRAs, section 403 annuity plans, and other specified arrangements.  We regard this as a helpful refinement of the current Treaty’s rule.  We also regard as very helpful the Diplomatic Notes’ identification of specific U.S. and U.K. plans with respect to which the two governments have decided to grant reciprocal treatment for purposes of the Treaty’s pension provisions.


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Re: UK/US 401k issues
« Reply #10 on: November 27, 2004, 09:02:41 PM »
Thanks Nun - this is very useful information.

for reference, one can find the US Tax treaties at newcomer link: http://www.unclefed.com/ForTaxProfs/Treaties [nonactive]

The one with Greece, signed in 1950, states...:
"(1) Wages, salaries and similar compensation and pensions paid by one of the Contracting
States or the subdivisions thereof to an individual for services rendered to such State or subdivision shall be exempt from taxation by the other Contracting State.
(2) Private pensions and life annuities derived from within one of the Contracting States by
an individual who is a resident of the other Contracting State shall be exempt from taxation by
the former Contracting State."


Therefore, Greece will tax my distributions on its own terms. I also presume that the 10% early withdrawal penalty, being separate from taxation, will hold regardless.


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