Does US WEP apply to SIPPS?

I have qualified for state pensions in both UK and US. I have 22 years in US so my US social security will affect WEP. I know my UK state pension will cause WEP to reduce my US pension, but will my UK SIPP as well? I am US resident now (green card).

If it does then it makes sense to liquidate my SIPP before taking US social security.  I will have an NT tax code so no tax payable in UK - and little tax in the US as I have a decent basis in the SIPP. And if I liquidate the SIPP in equal substantial payments over several years then I can claim the 25% tax free in the US which I will allocate to the profit portion of my SIPP income.

Anyone been through this?

Art

Contributions to the UK State Pension derived from UK employment cause WEP reductions. Voluntary (Class 2) contributions to the UK State Pension from residents in the US do not cause a WEP reduction.

Under what circumstances did you first establish the SIPP? Was it connected to employment in any way?

I was living in the UK when I established the SIPP, but I was still a US green card holder and US returns filed and tax paid on worldwide income. Not connected to employment  - I don't think they are, are they?  My US accountant has had me list all contributions I have made so we established a basis in it and the opinion of my US tax attorney is only the profits are taxable, and those profits will count towards my 25% tax free allowance (period payments) so in effect my UK SIPP withdrawals will be tax free.

The question is whether any withdrawals from the SIPP will affect WEP? It might not be an issue because I understand I can only loose 50% of the US pension due to WEP - and my UK pension will probably be enough to loose 50% anyway - sigh.

As you are aware, you are talking about 2 completely separate topics: WEP and IRS/HMRC income tax. It's best to discuss them accordingly.

As for WEP, the following page from the SSA site will identify the basis for WEP (see chart at bottom of page).

https://www.ssa.gov/planners/retire/wep-chart.html

Your ELY and years of contributions to US SS establish a maximum WEP amount. It can never be more than that amount. Any pension income above the maximum WEP amount is not reduced. A foreign pension of $15,000/yr. will be WEPed the same maximum amount as a foreign pension of $100,000/yr.  It can be less if the foreign pension amount is below the maximum WEP amount (therefore 50% of the pension amount).

You may use the following calculator to estimate WEP, but for more accurate results, use the detailed calculator:

https://www.ssa.gov/planners/retire/anyPiaWepjs04.html

WEP is generally applied when pensions associated with employment have no FICA withholdings deducted. For example, income from a UK company pension derived from work performed in the UK would cause a WEP reduction to the SS payment. If your SIPP was a stand alone, entirely self funded pension (paid for by yourself only with after tax funds) then the argument would be made it is not subject to WEP. The SSA may disagree, or maybe they won't.

As for income tax, recent changes to UK pension legislation may favour a staged withdrawal utilising partial payments over several years when considering US tax consequences, but the professionals may have additional insights. Any funds contributed to the pension by yourself from after tax income should count as a basis in the pension.

Or how about this for a better solution? Just empty the SIPP with a series of equal large payments over 2 or 3 years before applying for US SS? It's tax free in the UK due to NT tax code, and 25% free in US and the remaining 75% of each withdrawal allocated to the basis I have in the pension?

Simples?