OK I'll have a go, but this is mostly putting things out there to be shot down as I don't know much about this. But a general comment is make sure you have all the beneficiaries designated on your retirement funds so that the funds can be distributed without going into probate. I assume that your estate is below the US and UK inheritance tax thresholds.....but for this stuff you really need to have wills for both the US and the UK and some estate plannig
Got to wondering about future taxes again....especially if I die before my wife (likely). We have our money in cash (no problem there), my TSP Govt account and Vanguard. The Vanguard money has just been moved into just the VTI Total Stock ETF, except for the ROTH Moderate growth which the US+UK don't seem to care about anyway. I will be trying to get my wife (UK) off of the US IRS books for this last year (2014) and getting rid of the Green Card etc in the next few months I hope.
Worse case scenario.... I get hit in the head with a golf ball after we move back and die......or choke while eating too much Vindaloo...either way, dead.
1. The money in Vanguard is in $$. The ROTH is no problem, but if I leave it like it is she will owe US taxes on any money the VTI non-ROTH makes. So she is back on the US IRS treadmill. Is it worth trying to change all that over to UK Vanguard/Pounds? (About $121K right now without the ROTH).
When you die and your spouse inherits the ROTH they can take a lump-sum or roll it into an inherited IRA and take RMDs based on their life expectancy....no US or UK tax. If your UK wife inherits the VTI it can pass to her with no tax. She will pay tax on future capital gains, dividends etc as an NRA and UK resident, so US tax filing will be required. She could simply sell the VTI, pay the tax (one US return) and move the money to the UK. It would be silly to move the money to the UK while you are alive because of all the issues we went over with US citizens investing outside the US.
2. My TSP money ($510K) is of course in $$. If I die and she needs to take it out (of course she will).....back to paying the IRS, and they will want the tax to be paid on that money. I really wanted to leave the money in the TSP because of the great G fund.
Make sure you have your spouse as the beneficiary on your TSP accounts. When you die TSP will put the money into an account under her name. Right now I believe income from the TSP will only be US taxable because its funds form US Government work and you are not a UK citizen. When you die ad she gets the money, I imagine she can file a W-8BEN like with other retirement accounts to receive the money free of US tax because she is both a resident and a citizen of the UK.
But.....is there a way to change this over to a regular IRA (yes) pay the taxes somehow and move that money as well (Vanguard funds??) over to Pounds? I can't use the money for another 2 years until I hit 59.5. I am assuming if I were to take it out over lots of years I would be paying 15% (they take out 20% but I should get the 5% back). If I take it all out I would get hit with a massive tax % wouldn't I? But at least it would be paid for and if it was in a Pound Vanguard account she would only have to worry about UK tax.
Forget about moving lump sums to the UK from US retirement accounts as it will be very tax inefficient. You can roll the TSP over to an IRA with someone like Vanguard, and pay no tax. You could then do an IRA to ROTH IRA conversion each year being careful to be as tax efficient as you can. This would build up a tax free ROTH for your wife to inherit.
Kind of another side thought.....moving that money if possible to Pounds while the Pound is low might be at a loss, but might not be as bad as I think if the Pound rises back to it's usual rates.
Don't worry about exchange rates too much. Trying to time transfers will just send you loopy and you should be enjoying your retirement money. With TSP and Vanguard you have great investments and a lot of them are growing tax deferred. You'd be foolish to give that up at the start of your retirement. I'd ask TSP about their NRA inheritance policy and taxes....mention the W-8BEN and exemption under the tax treaty Article 19.2(b)
