Retire US to UK

You might be surprised to find that your NY pension can be a direct deposit to a UK bank, just as can be done with SS. I would check with them about that - it's a relatively sophisticated city government, and this likely crops up more than you realize. Not everyone who worked for NY lives in the USA or maintains accounts there.

If you intend to remain in the UK, severing ties with a state can dramatically alter your tax liability. Breaking domicile ties can be difficult, but worth it in the long run.

Having dealt with my particular branch of NY city government for many years, it would be surprising to you how technically unsophisticated they can be!

Oh I know that there are probably more than a few people who retired from the city and no longer live in the USA & I am sure they were able to make financial arrangements oveseas with their pension to suit them
But since I do not have a UK bank account yet and I still & always will have a lot of US ties ..... the biggest one being a child who is in his first year of college, it just seems simpler and easier for the time being to keep the pension as a direct deposit in a US bank.
 More than likely as time goes by, I will start closing accounts & changing things over to the UK, but for now, if I can, as long as it doesn't cause a huge tax headache or cost, I would like to leave it as is...?

But since I do not have a UK bank account yet and I still & always will have a lot of US ties ..... the biggest one being a child who is in his first year of college, it just seems simpler and easier for the time being to keep the pension as a direct deposit in a US bank.
 More than likely as time goes by, I will start closing accounts & changing things over to the UK, but for now, if I can, as long as it doesn't cause a huge tax headache or cost, I would like to leave it as is...?

You should research NY residency rules and make sure you can avoid NY state tax.

You should research NY residency rules and make sure you can avoid NY state tax.

I know for sure that I won't have to pay NY state tax on my pension, whether I was a NY state resident or not.
Thank you very much Nun, you have been a big help by the way! I am sure I will have other tax questions as things move along 

I know for sure that I won't have to pay NY state tax on my pension, whether I was a NY state resident or not.

Yes if it's anything like my MA state pension it will be free of state tax. Of course if you stay resident in NY you will have to pay NY state tax on the rest of your income, so make sure you understand your situation. Having addresses, bank accounts, close relatives etc somewhere do not help in you in becoming non-resident. I don't know the NY rules, but some states are a lot more difficult than others when it comes to letting you out of state taxes.

Those last little bits brought up one of my worries.....which is cutting ties with any physical presence in the US. Too many times in the past while living out of the country (UK/Germany/Okinawa) I have run into problems because I DIDN'T have a US address. I currently have a WA home....so no state taxes anyway.

It may sound like it would be better to go back to reporting taxes separately if we go back. My wife of course is used to doing her UK taxes....although has stopped when she left the UK.

My concerns now are what are the best ways to get the most umph from the money we have in Vanguard funds and my TSP. Are there things I should be doing with that money in the next year or two to get ready to move? Although we can't really do much for another year until the final decision on whether to move or not is made. 

My concerns now are what are the best ways to get the most umph from the money we have in Vanguard funds and my TSP. Are there things I should be doing with that money in the next year or two to get ready to move? Although we can't really do much for another year until the final decision on whether to move or not is made. 

Many brokerages will insist that you close your account if you don't keep a US address, but if you have accounts with Vanguard already you can keep investing with them even without a US address. You can't open an account with them without a US address though. I'd check with TSP about your move, but I bet it will be ok.

I'd rationalize you investments and get as much as possible with Vanguard, so rollover IRAs, 401ks, 457bs (bearing in mind you'll loose the penalty free before 59.5 withdrawal aspect of the 457b if you roll it into an IRA) etc. If you have after tax investments move them into Vanguard ETFs that are on HMRC's distributing funds list. This will protect you from HMRCs distributing funds rules and also keep things ok wrt US tax as you are in US based funds and avoiding any PFIC issues.

Look into ROTH rollovers, particularly if you are an NRA as they are UK tax free and if your US source income is low your tax bill will be low. If you are a US citizen they are still good to look into, as they are still UK tax free, but you'll be taxed on your world wide income, FYI you can't use FEIE to limit your income for calculation of tax on the rollover. ROTH distributions are tax free in the UK and the US.

I have purposely tried to keep my finances as simple as possible....I just have trouble juggling things like you (nun) do. My money is all in Vanguard (about $350k with about $40k of that in cash and $55k ROTH) and TSP (about $440k) and at this time about $40k cash at my credit union. So if I understood you right.....at some point I might want to switch the Vanguard funds I have into those that the UK deems ok. The TSP.....no idea what to do with. It will be just over 3 years until I hit 59.5 so can't really touch any of that unless I did a 72T....  Does Vanguard let you roll things like the TSP into their funds? TSP is nice....low low expenses, but if switching to Vanguard (still low expenses, but not quite as low) with everything would keep things even simpler....

As I've said to nun and others many times, I know nothing about 40whatevers and all the rest of the US IRAwhatevers. Never had any as all my pension income (bar US SS) comes from this side of the Atlantic.

That said, there is one thing I suggest you be aware of when talking about worldwide taxable income in the UK (although it may not affect you). Everyone is very pleased about the increases in the Personal Allowance. It's gone up maybe £2,500+ in the last few years. The downside is the 40% tax threshold. That has come down £4,000+ in the same period. If your total taxable income (prior to the PA) is North of £40,000/year, you'll now be very close to the 40% tax band.

Also, once you're over roughly £28,000/year (it's too late to be checking exact figures), there is no higher pensioners PA (which will also disappear completely in the next few years). You get the same allowance as someone working and earning over £10,000/year. 

If you file on the remittance basis and leave £2,000+ abroad, you lose the PA completely plus the CG allowance (as I understand it, and I could well be wrong!).

Just something to keep in the back of your mind.

 

As the ol' saying goes......"The more you learn, the less you know". As I am picking up more and more of this.......I'm starting to twitch more and more. Sooner or later I guess I am going to have to get hold of one of the recommended tax experts. I "think" our finances are pretty simple. Bumping up against the 40k Pounds limits on income isn't going to happen for us. We could stay under even throwing in my US Govt pension/SSecurity etc.  Guess in a perfect world for us I could leave my US accounts where they are and pay US taxes (15% or less) and then pay UK taxes on my wife's eventual small pensions......and likely they will stay under the 10K Pounds limits as well.

Just sent off a request to TowerTax to see what they charge for help.

That said, there is one thing I suggest you be aware of when talking about worldwide taxable income in the UK (although it may not affect you). Everyone is very pleased about the increases in the Personal Allowance. It's gone up maybe £2,500+ in the last few years. The downside is the 40% tax threshold. That has come down £4,000+ in the same period. If your total taxable income (prior to the PA) is North of £40,000/year, you'll now be very close to the 40% tax band.

Also, once you're over roughly £28,000/year (it's too late to be checking exact figures), there is no higher pensioners PA (which will also disappear completely in the next few years). You get the same allowance as someone working and earning over £10,000/year. 

If you file on the remittance basis and leave £2,000+ abroad, you lose the PA completely plus the CG allowance (as I understand it, and I could well be wrong!).

Just something to keep in the back of your mind.

 

This is why IRA to ROTH rollovers are so good for UK residents. There's no UK tax on the rollover and no UK tax on income form the ROTH. So all US retirement income can be sheltered form UK tax. You only have to pay US tax on the rollover. My goal is to keep the tax I pay at around 10% or less for the rollover and after that my retirement money will grow tax deferred in the ROTH and withdrawals will be US and UK tax free.

I have purposely tried to keep my finances as simple as possible....I just have trouble juggling things like you (nun) do. My money is all in Vanguard (about $350k with about $40k of that in cash and $55k ROTH) and TSP (about $440k) and at this time about $40k cash at my credit union. So if I understood you right.....at some point I might want to switch the Vanguard funds I have into those that the UK deems ok.

I'd keep the TSP. It's a 401a, like my Massachusetts defined contribution plan, and you'll get all the usual treaty benefits like deferral of tax until you take income. You could roll it over to a vanguard IRA, but it's not vital to do that if you like TSP.

The money that's really important to deal with before you move to the UK is any after tax investments you have in US mutual funds that you want to keep invested in pooled investments. If you own individual stocks and bonds you don't have to do anything as there won't be any adverse tax problems in keeping them.

If you are a US citizen or US tax resident you should open a brokerage account and move any mutual funds to Vanguard ETFs that are on HMRC's distributing funds list or buy individual securities, CDs, or savings accounts.

http://www.hmrc.gov.uk/offshorefunds/dist_fundlist.htm

If you are going to become an NRA you could also invest in the Vanguard ETFs or individual stocks and you can also just move all the money to the UK as the US will only tax you on US source income.

When you move be sure to change your address with Vanguard, TSP, SSA etc

Luckily for me, I am not in a big hurry. Just in a little bit of a hurry if there is a good reason to make any Vanguard/TSP changes. Hopefully the TowerTax folks will get back to me tomorrow. Not interested in individual stocks.....too lazy to keep an eye on things. Actually one of the big items that I need to double check with the SS folks is......will my wife still get the 50% spousal SS coverage if we move back that way. She will if she stays here 5 years. Going to see if she can get her citizenship in a year one way or another.

Luckily for me, I am not in a big hurry. Just in a little bit of a hurry if there is a good reason to make any Vanguard/TSP changes. Hopefully the TowerTax folks will get back to me tomorrow. Not interested in individual stocks.....too lazy to keep an eye on things.

The difficulty I found in understanding the issues with cross-border taxes and investments was being able to integrate the two as tax advisors won't/can't give you investment advice. So it's best to go into the tax aspects with a good understanding of how you want to invest your money and the various options you have in the US and UK and then see how taxation fits in with it. As a US citizen I'll be avoiding UK mutual funds, but after researching the fees and services of UK brokers I don't think I'm missing much as Vanguard are way better. The UK annuity/pension sector is pretty awful too so I'm glad I have my TIAA-CREF Traditional annuity and company pension plan along with very low cost US defined contribution plans.