401k in the US

What did you do with your 401k when you left the USA?

Has anyone rolled their 401k into an IRA since moving here?

I haven't left the US yet (that's next year), but in preparation I've set up a Roth IRA and transfered all the post-tax 401k contributions into it. This is a non-taxable event in both the UK and US.

(Roth IRAs are better than Traditional IRAs for most scenarios, so if you only have an Traditional IRA, get yourself a Roth one as well. I can't name a provider who will let you open an IRA (of either type) if you are not US resident, so if you've already left the US it may be too late).

After returning to the UK, I'll start rolling my remaining pre-tax 401k balance into the Roth IRA chunk-by-tax-efficient-chunk over multiple years. This is a taxable event, but only on the US side. Some well respected folk on this forum recommend mentioning it in the notes section of you UK return, but as far as we know it's not a requirement.

I think the following applies to all providers, but I can only confirm for mine (Fidelity): You can't rollover stock directly - it has to sold, the cash transferred, then you can rebuy inside the IRA. Depending on your 401k provider, they may do the first two steps for you. Depending on you providers, the list of stocks available for purchase in the IRA may be different to the ones that were available in your 401k.

Lastly, whatever you do, make sure it's a direct rollover, not one where they send you a cheque from the 401k which you then send back as a deposit into the IRA. This happens more often than you think (particularly if your 401k provider is small and your IRA is with someone else) and you only have 60 days to get that check into the IRA. If the international post is slow, and you exceed 60 days, it's considered a withdrawal, with all the assorted penalties.

I pretty much did, am doing, what Daveb suggests. My IRA is now fully converted to Roth, and later this year we will make the last IRA to Roth conversion for my wife’s IRA.

With our 401k rollovers to an IRA my wife’s provider was able to do the rollover directly to her IRA. With my 401k the custodian said that the rules required a paper cheque to be sent to me at my address on record. So, in talking with my IRA provider I had the 401k provider make the cheque out to the new provider with my account number on it. I then received the paper cheque and immediately sent it via FedEx to my IRA provider.

My son came back to the UK a few days after quitting his job so he initiated his 401k to IRA rollover immediately and it completed after he was in England. His 401k provider was also able to send the money directly to the new IRA provider.

Does anyone have experience of making extra contributions to a UK pension, either through AVCs or another route, in order to compensate for years spent working in the US?
Withdrawal from our US retirement funds may best suit our circumstances; we are aware of the early withdrawal penalty.
Thank you.

Making AVCs sounds like a good plan to me. My wife and I retired early in the USA at age 55 and made additional  Voluntary Contributions to our UK State pension for the next 11 years. I would expect AVCs to a private pension plan would be better value but I don’t know, never having had the option in the UK. While in the USA we both paid AVCs into our company 401k plans.

@durhamlad Thank you!

Does anyone have experience of making extra contributions to a UK pension, either through AVCs or another route, in order to compensate for years spent working in the US?

Presuming we're talking primarily about the UK state pension:

I've actually spoke to HMRC about this earlier this month, posted off form CF83, and waiting to officially hear back on costs and eligible years (I already know the years and the cost down to a few pounds, but I have to wait for HMRC's official 'offer'). The online HMRC page for NIC gaps (https://www.tax.service.gov.uk/check-your-state-pension/account/nirecord/gaps) only shows the figures for (and only talks about) Class 3 contributions, If you worked in the UK before working in the US, you are probably entitled to make the (much cheaper!) Class 2 payments instead.

Before speaking to HMRC, I spent a couple of days modelling what the same amount of money would do invested in my other accounts, and concluded AVCs are almost always worth it. I had to use an after-inflation investment rate of 7% combined with an investment start date 20 years before pension age in order for Class 3 AVCs not to win out. I'd been posting to a some forums, and they pointed out that as I worked in the UK immediately before working in the US, I could make Class 2 AVCs (£160/year) instead of Class 3 (£800/year). At which point there was no point running any further models. Note: Class 2 is usually reserved for the self-employed, but not here!

Reading between the lines, it sounds like you may be thinking about taking money out of your US retirement funds to make AVC payments. If you have a small IRA / 401k and you want an excuse to shut it down to simplify the paperwork, fine, but otherwise, personally, I'd been doing whatever I could to find the money from a non-tax advantaged account.

While comparing growth with a tax-advantaged account was not a scenario I ran (I'm already maxed out), I'd personally do it to make Class 2 contributions. If only Class 3 was on the table, I'd think about it longer, but personally still do it, because it's a guaranteed return vs stock market probabilities.

Note that while you normally can only make payments for years within the last 6, due to the 2016 shake-up of the pension system, most folks can (until 5th Apr 2022) make payments back as far as tax year 2006-2007.

My personal worse-case assumption is that the UK State Pension will become means tested before I reach pension age, and that I (hopefully!) won't qualify for it. So I think of it more as an fallback thing. Your NIC history also controls you eligibility to a few other benefits (none that currently interest me), but it wouldn't surprise me to see that benefit list expand in the future.

If you worked in the US long enough to qualify for Social Security (10 years of paying in), having a UK state or company pension will almost certainly reduce you Social Security cheques due to a US regulation called WEP. This reduction only applies to pensions that the employer contributed to, which means historical months funded solely by AVC payments are not subject to WEP. While WEP can be as much as 50% of your in-scope UK pension(s), you'd be unlucky to get anywhere near that number. For example, in my case (13 years of existing NICs, 14 years of planned Class 2 AVCs, 8 years of future Class 3 AVCs, 13 years of max-capped US Social) the penalty worked out at $45.85 per week (£32.50 per week). Due to the... interesting... way WEP is calculated, the penalty does not increase with inflation (even if your UK pensions does) nor change with the exchange rate - it's dollar value is literally snapshotted once and fixed for all eternity (the only exception being if the UK pension is completely stopped).

While I'm dropping links:

• HMRC NI38: Social Security Abroad
• Official WEP Online and Offline calculators

edit: Fix broken link

Thanks for the detailed analysis DaveB 

I was pleasantly surprised when my wife recently applied to start her SS to find that when she starts her UK OAP that the form advising SSA to reduce her SS for WEP actually includes a section to list how many voluntary contributions have been made. She has 30 years towards OAP, only 9 of which are from work.

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

@DaveB Thank you for such a detailed response! Apologies for the delay in responding to you.
We are looking to move funds from a 401k for AVCs in a UK employer pension; we’re in an awkward position of a withdrawal meaning we would have to pay a penalty for early withdrawal, although we’ve enough in there to be concerned about it but we also don’t have enough in there to warrant the 30 years of monitoring it before we reach pensionable age.
That being said, you’ve given us something extra to think about re. HMRC and making up shortfalls for the state pension and how to look into weighing up the benefits of making up shortfalls. I am up to date but my partner is not so this advice is very relevant.

I haven't left the US yet (that's next year), but in preparation I've set up a Roth IRA and transfered all the post-tax 401k contributions into it. This is a non-taxable event in both the UK and US.

(Roth IRAs are better than Traditional IRAs for most scenarios, so if you only have an Traditional IRA, get yourself a Roth one as well. I can't name a provider who will let you open an IRA (of either type) if you are not US resident, so if you've already left the US it may be too late).

After returning to the UK, I'll start rolling my remaining pre-tax 401k balance into the Roth IRA chunk-by-tax-efficient-chunk over multiple years. This is a taxable event, but only on the US side. Some well respected folk on this forum recommend mentioning it in the notes section of you UK return, but as far as we know it's not a requirement.


I think the following applies to all providers, but I can only confirm for mine (Fidelity): You can't rollover stock directly - it has to sold, the cash transferred, then you can rebuy inside the IRA. Depending on your 401k provider, they may do the first two steps for you. Depending on you providers, the list of stocks available for purchase in the IRA may be different to the ones that were available in your 401k.

Lastly, whatever you do, make sure it's a direct rollover, not one where they send you a cheque from the 401k which you then send back as a deposit into the IRA. This happens more often than you think (particularly if your 401k provider is small and your IRA is with someone else) and you only have 60 days to get that check into the IRA. If the international post is slow, and you exceed 60 days, it's considered a withdrawal, with all the assorted penalties.

I wouldn't recommend Charles Schwab to do this.  They also don't let you buy many ETFs even in the tax sheltered account (only stocks and bonds) if you have a UK address.  They don't let you convert IRA to Roth without a) withholding quite a lot of tax, and b) withholding an extra 10% if you are under 59 and a 1/2.  The latter results in issues with money being viewed as a withdrawal rather than a rollover.  They wouldn't let me pay the mandated withholding from funds in my brokerage account, thus triggering the "withdrawal".  Very frustrating but that is what there system is set up to do.  No flexibility for expats despite them offering expats accounts! I do believe that Fidelity allows this but I am having to get a US based 3rd party advisor to help me set up Roth conversions and I believe that they will have to move my IRA to Fidelity first.  Fidelity would not deal with me when I moved to the UK and required me to move my 401k to another company via an IRA rollover.

I wouldn't recommend Charles Schwab to do this.  They also don't let you buy many ETFs even in the tax sheltered account (only stocks and bonds) if you have a UK address.  They don't let you convert IRA to Roth without a) withholding quite a lot of tax, and b) withholding an extra 10% if you are under 59 and a 1/2.  The latter results in issues with money being viewed as a withdrawal rather than a rollover.  They wouldn't let me pay the mandated withholding from funds in my brokerage account, thus triggering the "withdrawal".  Very frustrating but that is what there system is set up to do.  No flexibility for expats despite them offering expats accounts!

When I first researched rollovers, it seemed like every 2nd hit on Google was someone's personal horror story - and I'm talking about regular people here, not ex-pats and foreigners. All companies seemed bad, with Charles Schwab and Vanguard featured the most, but Fidelity and Interactive Brokers weren't that much better off. Some of the most frustrating issues to read about were those who only wanted to rollover a tax-efficient amount each year, where, after weeks of complaint and escalation, they got it resolved only to go through exactly the same process from scratch the following year.

The general advice seemed to be to keep enough cash on hand to replace the tax and penalty if mistakenly applied (the cash going into the target account is fungible - it doesn't literally have to come from the 401k, just not exceed the amount you took out of the 401k), then claim it back at tax time. I don't know about you, but even if I had that much cash just lying around uninvested, my first though of how to put it to work wouldn't be as an interest free loan to the US government.

I do believe that Fidelity allows this but I am having to get a US based 3rd party advisor to help me set up Roth conversions and I believe that they will have to move my IRA to Fidelity first.

I was able to do it using just the Fidelity advisors, but my 401k, IRA, and Roth IRA are all with Fidelity. My employer was a big international who use Fidelity to manage their 401k plan, so Fidelity had no issue working with them to do the rollover.

Fidelity would not deal with me when I moved to the UK and required me to move my 401k to another company via an IRA rollover.

I've never really understood the relationship between the employer offering the 401k and Fidelity. I *think* Fidelity's 401k is offering more of a 'packaged service' management wrapper over the company's offering. When I wanted to do certain things, the Fidelity folk I spoke to required me to talk to my company's payroll/401k folk directly, but at other times were able to talk to them on my behalf.

As such, perhaps it was your employer rather than Fidelity that didn't want the hassle of having someone abroad in their 401k plan. If you weren't offered the option to rollover to a Fidelity IRA, then this idea holds no water and Fidelity for some reason doesn't want your business.

The authors of most anecdotes I've read don't include whether they are US citizens, how much they have invested with that broker, and whether the overall company's 401k business was worth to the brokerage. I rather suspect these three things have significant impact on whether brokers want to keep you as a client, and hence the uneven treatment folk seem to be getting from their brokerage under otherwise apparently identical situations.

Fidelity have told me I can keep all my accounts open (Brokerage, 401k, IRA, Roth IRA, HSA) when I move to the UK, with certain trading restrictions. I have the Fidelity Credit Card as well, but I have to check on that separately because its not actually run by Fidelity. Based on warnings from other ex-pats, I did look into keeping a US address (other than a mailing address) and simply not tell my broker I was moving, but it seems dishonest, and I'm not sure I could keep the pretense up. So I've told them I'm traveling the world and don't know when/if I'll be back in the US. Time will tell if honesty is the best policy after all...

I wasn't totally accurate when I said Fidelity required me to close my accounts.  In the US they had assigned me an account manager who met with me annually and provided advice on various financial topics.  They were no longer able to offer this service when I moved, and indicated that I would be restricted on what I could do as far as purchasing new investments.  Schwab indicated they could deal with me in the US and in the UK, provide annual reviews of my account, and initially I could buy stocks, bonds, ETFs. Now I believe can only by individual stocks and bonds, unless going through this 3rd party institutional manager.

Has anyone rolled their 401k into an IRA since moving here?
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I’m trying to open a new 401k account from the UK, but I’m being treated like a leper! I still have an address in the US. Does anyone have any experience with doing this from the UK? I’ve contacted a few companies in London for advice, but getting nowhere. I thank anyone in advance that might have advice or guidance.😊