QROPS question

Does a US citizen on US payroll, retiring in the UK, have to file a QROPS form when transferring his/her  US pension (401k) to an IRA?

No!

QROPs are in no way applicable to your situation.

Thank you

Make sure you follow the IRS rules for the rollover so you avoid US tax issues.

To give some specific background, the US-UK tax treaty specifically protects rollovers between qualifying retirement plans in one country from taxation in the other one. This of course assumes it is treated as a rollover and not a withdrawal, so nun's advice about following the rollover rules correctly is very good.

Also consider the possibility of transferring your 401k into a Roth IRA rather than a traditional IRA in order to protect your retirement money from UK taxation. Withdrawals from a traditional IRA are subject to UK income tax if retiring in the UK, but withdrawals from Roth accounts are both US and UK tax free. The crucial point here is that HMRC does not tax Roth conversions (owing to the above mentioned treaty language) which means that you can escape UK tax completely. You'll pay the usual US tax on the Roth conversion, but then you'll be free and clear.

Depending on the size of your account, it might also work out to transfer the 401k to a traditional IRA now and then do a series of partial Roth conversions over multiple years. This may be better tax planning anyway so that the conversion amounts don't push you into a higher US tax bracket. Just be sure to convert before you take the money out.

Hope this helps.

You should also consult HMRC Helpsheets:

http://www.hmrc.gov.uk/helpsheets/hs346.pdf and
http://www.hmrc.gov.uk/helpsheets/hs262.pdf

Thanks for the advice. I am hearing that since I worked in the UK prior to retirement there have been som UK tax relieved contributions to my 401k plan in the US and a transfer of this pension at retirement into an IRA in the US could give rise to an unauthorized charge  by HMRC unless the IRA is registered in UK as a QROPS. Any comments?

Thanks for the advice. I am hearing that since I worked in the UK prior to retirement there have been som UK tax relieved contributions to my 401k plan in the US and a transfer of this pension at retirement into an IRA in the US could give rise to an unauthorized charge  by HMRC unless the IRA is registered in UK as a QROPS. Any comments?

I'm a bit confused by you post, but here is my best guess at a response.

Forget about QROPS.

The US/UK tax treaty is pretty comprehensive when it comes to retirement plans.
Your US 401k is covered by the treaty a rollover to an IRA is not a taxable event in the US or the UK. A rollover to a ROTH would be a taxable event in the US, but not the UK as it is exempted from UK tax in the treaty.

Nun has overlooked the Helpsheets I provided links to above. It is quite possible to get caught by the unauthorized UK tax charges if either the annual or lifetime allowances are exceeded or if unauthorized payments are made.

The treaty is silent on such charges as they did not exist until A Day in 2006, but the treaty was negotiated back in 2002 and became effective in 2004.

Ok. Let me clarify. Because I have UK tax relieved contributions to my US 401k while I have been on assignment in the UK with my US employer, I am being told that the transfer of my 401k to a US IRA would give rise to an unauthorized charge by HMRC unless the IRA is registered as a QROPS. FYI I plan to stay in UK after retirement.

Ok. Let me clarify. Because I have UK tax relieved contributions to my US 401k while I have been on assignment in the UK with my US employer, I am being told that the transfer of my 401k to a US IRA would give rise to an unauthorized charge by HMRC unless the IRA is registered as a QROPS. FYI I plan to stay in UK after retirement.

Who is telling you that?

Nun has overlooked the Helpsheets I provided links to above. It is quite possible to get caught by the unauthorized UK tax charges if either the annual or lifetime allowances are exceeded or if unauthorized payments are made.

The treaty is silent on such charges as they did not exist until A Day in 2006, but the treaty was negotiated back in 2002 and became effective in 2004.

I assumed that the OP was keeping below the IRS annual $17500 limit and was well within the UK annual and lifetime limits and that the contributions were made in accordance with the treaty.

It is indeed HMRCs view that this would be a BCE (benefit crystallisation event). Hopefully you were given advice on the possibility when you chose to elect to claim tax relief under the treaty.

The treaty is elective; if you chose to accept its benefits why would you think that HMRC would not charge tax on a transfer that was not to a scheme that itself reports to HMRC?

And yes...there may be IRAs in the US that would have filed the series of QROPS notification forms required by HMRC.

Not a BCE but an unauthorized charge arising due to IRA not being registered as a QROPS. Are you aware of any IRAs registered as QROPS?

This is all getting too complicated.

Article 18.1 exempts a rollover of a US 401k to an IRA from UK tax. Make sure you follow the IRS rules so it's transferred directly between the 401k and IRA administrators.

I have this in writing from HMRC (I have the name of the gentleman)

We would see rollovers between pension funds as exempted by the words in parentheses at the end of Article 18(1).  It is worth noting though that the IRS only accept a qualifying roll over between US schemes as being a roll over so they would treat a transfer of the funds between a US and UK scheme or vice versa as being a chargeable distribution.