Reporting UK pension contributions on a US tax return

I was thinking some more about this today. WEP is primarily aimed at US residents who worked for US employers who were exempt from paying into SS (FICA), and also provided a final salary pension scheme. It is possible that these FICA exempt employers also provided a DC plan such as a 401k, which is what my company did, although it also paid into FICA. 

If you did work for an organization that did not pay FICA but had a DC plan, is that plan also considered when evaluating WEP?

As I stated above, my wife applied for SS through the FBU at the US Embassy in London and she was told that it is when you actually start receiving the foreign pension that WEP is applied, and that is what happened with her OAP but I’m sure it would also happen with a UK private pension. She also completed SSA form 308, which she sent to the FBU in London, and on that form it does ask for the date you become eligible for a pension but not the amount and then also the date and amount of the pension when you start receiving it. So I still don’t know for certain. I know that I was eligible for my UK pensions long before I chose to receive them because the longer I waited the more it was.

I could be wrong here, but I think WEP applies when you are entitled to your UK pension and not necessarily when you take it.

Deferring the UK pension has the added benefit of increasing what you're eligible for. I did my own calculations however and worked out that I almost need to be 100 before it was financially beneficial!. Life's too short to defer, I'd rather take it now (which I have done for both US & UK pensions) - while trying not to tap in too much to my private SIPP and using that for when I want it - at least that can be passed on to my wife & kids through inheritance if I kick the bucket too soon!

I wonder what would happen if you 'cashed out' a U.K employer pension prior to taking SSA?

I could be wrong here, but I think WEP applies when you are entitled to your UK pension and not necessarily when you take it.

Deferring the UK pension has the added benefit of increasing what you're eligible for. I did my own calculations however and worked out that I almost need to be 100 before it was financially beneficial!. Life's too short to defer, I'd rather take it now (which I have done for both US & UK pensions) - while trying not to tap in too much to my private SIPP and using that for when I want it - at least that can be passed on to my wife & kids through inheritance if I kick the bucket too soon!

Ah, but pensions, including a US SS pension CAN be passed on which is why I am deferring my SS to maximize the payment and why I deferred my one of my UK private pensions. When a spouse dies the survivor gets the higher of the 2 SS pensions. US and UK pensions are also usually passed on to the surviving spouse which is why an older, much higher compensated spouse, might delay taking their pensions so that the younger surviving spouse is not too badly hit financially. (The surviving spouse will lose their OAP and their own SS)

So many variables....I did a spreadsheet and I would have been better off deferring my US pension when I reached 84. That was the break even point. I took into account WEP etc. But - if wanted to maximize my pension I would have been better off working until I was 67 - then I would have had no WEP  but bugger that - I stopped at 58. So I took ,y US at 62 and will take UK and =start SIPP drawdown at 66 when I will be max WEPed anyway, more or less.

RE passing pensions on - am I correct that a pension can be passed onto a spouse, as Durhamlad pointed out, but those benefits stop when the spouse passes obviously, whereas a SIPP has a $ value which goes into an estate and could be left 100% to spouse as a cash value and therefore benefits are not lost when spouse dies....

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RE passing pensions on - am I correct that a pension can be passed onto a spouse, as Durhamlad pointed out, but those benefits stop when the spouse passes obviously, whereas a SIPP has a $ value which goes into an estate and could be left 100% to spouse as a cash value and therefore benefits are not lost when spouse dies....

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Correct. The same goes for IRAs and Roth IRAs.  In the UK I will be in the 40% tax bracket once I start drawing my SS , plus RMDs from my IRA would be at 40% as well which is why, over 10 years after retirement, I converted my IRA to a Roth while my income was much lower.  The Roths, mine and my wife’s, will pass on tax free to our children after we die.

Yeh I did the same rollover into a Roth as well over a long period - best thing I did. But I hadn't considered the tax advantages RE inheritance...so the Roth passes on tax free? Nice...mind you I plan on spending most of it...

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Yeh I did the same rollover into a Roth as well over a long period - best thing I did. But I hadn't considered the tax advantages RE inheritance...so the Roth passes on tax free? Nice...mind you I plan on spending most of it...

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I think the law changed recently requiring that a non-spouse beneficiary has to withdraw it over 10 years, but the growth within the Roth plus all withdrawals will still be tax free.

Hi, this is really useful. I need to calculate when to take SS and UK pension and wondered if anyone would be kind enough to explain how to do that, a spreadsheet would be perfect.Thanks

Hi, this is really useful. I need to calculate when to take SS and UK pension and wondered if anyone would be kind enough to explain how to do that, a spreadsheet would be perfect.Thanks

I don’t have a spreadsheet but something to consider is this. I believe you have less than 20 years of SS contributions so you will be subject to full WEP on the portion of your UK OAP due to earnings, as opposed to voluntary contributions. WEP will also be applied considering any private UK pensions. Since WEP only gets applied once you are receiving foreign pensions then it may well be worth taking SS at 62 at holding off OAP and any other pensions until later. The maximum WEP is around $500 I think.

Here is a calculator including WEP.  Your SS statement will show exact amounts of all your past earnings.

https://www.ssa.gov/benefits/retirement/planner/anyPiaWepjs04.html

I said earlier in this post but I believe that WEP applies not on when you actually draw your OAP but when you are entitled, which in the UK is currently at age 66.

I took my USS SS at 66 years and 2 months, my UK OAP at 66. MY US SS is subject to maximum WEP (which I fully understood and expected - I only have 42 credits).

I did all the maths on deferral(either UK or US or both)  but this was only became viable for me if I lived well into my 90's - I considered this too much of a long shot and started taking at at full entitlement.

I did download the SS detailed calculator (a bit clunky) but it does allow you to play out various scenarios on when you choose to retire - it also included the WEP elimination. Details are here : https://www.ssa.gov/OACT/anypia/anypia.html

Like I say, it's clunky software and not exactly user friendly - but it did collaborate my own expectations and confirmed the actual amount I receive - because SS don't explain their calculations when they advise you of your entitlement.

 

I believe WEP applies when you draw your pension not on some future projection. That is precisely what the man at the FBU in London told my wife when she applied for her SS, and she did in fact receive her SS without WEP until she started drawing her OAP.  There is a  form to be filled in for submission to WEP.  Her payments were indeed reduced immediately when she started receiving OAP and not before.

I wrote a thread on the whole process giving details.

https://talk.uk-yankee.com/index.php?topic=99441.0

3. Once she actually starts receiving her OAP she needs to contact them again and have filled out form SSA-308 (below) and this form contains the dates for which she paid voluntary contributions as they don't count towards the WEP calculation. (Windfall Elimination Provision). He said that they at the FBU would contact the DWP to confirm which contribution years were from paid employment.  Her SS payments would then be reduced accordingly.
https://www.ssa.gov/forms/ssa-308.pdf

Personal or private pensions that have nothing to do with work won’t be included in any WEP calculations