Tax on 401k lump sum distribution for UK citizen/resident?

You're going to love the latest message I have received from TIAA-CREF in reply to a request for clear guidance on the process for making withdrawals from my two ORP accounts from age 59.5. Among the information I provided and asked for were the citizenship and resident status I fall under, information about the dual taxation treaty and my intention to claim exemption from withholding at source ... part of their response is:

"For your convenience, I have attached a PDF cash withdrawal form and tax form W-8BEN to this email. I have also attached a PDF of the global pay service we offer that allows your distributions to be sent to your foreign bank.

Mr. XXX, tax withholding will be based on the tax treaty between the United Kingdom and the United States. Based on this treaty, we will withhold 30% for taxes from your payment. Please speak with a local tax advisor on your tax liability for taking a withdrawal."

- I have replied, citing a lot of the information you provided in your post below (for which again, many thanks). Let's see what happens next.

I'm curious, if these numpties dig their heels in about how they are right (as with my previous experiences with them) and withhold 30% tax despite form W8-BEN, etc., what recourse would I have? Would I have to chase it up with the IRS?

I hate them.

You need to correct TIAA-CREF about this because they have it almost all wrong, I have no idea what they mean by "particularly England". Because you are not a US citizen under the DTA you can claim zero withholding and tax.  Your retirement money comes from working for the states of TN and NC and so it is from Government service and covered by Article 19 of the DTA.

So to answer you main question....no it doesn't matter if you take a lump sum or periodic distributions wrt US taxation because Article 17 is irrelevant in your situation. Your pension payments fall under Article 19.

As you are not a US citizen and are a UK citizen resident in the UK under Article 19.2(b) any withdrawals are only taxable in the UK....no US tax or withholding......you should make sure TIAA-CREF understands that you will be claiming zero withholding and US tax under the DTA. Here is the applicable paragraph of Article 19....the Notwithstanding is important as it means despite what Article 17.1 and Article 17.2 says this is how the money from Government service will be taxed. Because you are a national and resident of the UK section b) applies and the TN and NC pensions are only taxable in the UK. Because you are not a US citizen the saving clause does not apply and the IRS cannot swoop in and tax you regardless of what the DTA says. So bottom line no US withholding or tax on your TN and NC pensions.


 TIAA-CREF is correct that you will have to pay a 10% penalty on any early withdrawal and you will also have to comply with the particular income options of the 401a plans.

I just spoke to TIAA-CREF yesterday about taking income from my TIAA accumulations and there are no problems at all setting up a single life annuity, 10 year payout annuity (from TIAA-Traditional) or systematic distributions as a foreign resident.

Your take on TIAA annuities is correct, they are significantly better than those available in the UK. But be careful the "6.2% and 7%" rates you are quoting are the payout rates. That's just the annual annuity amount divided by the cost of the annuity. The implied investment return depends on how long you live and if we assume an average life span of 84 years that usually works out to be around 5.5%.....but that's a lot better than what you'll get in the UK and not a bad foundation for retirement if you are healthy and have some other assets to use for growth and liquidity.

I am an American citizen and had a similar issue with rolling a 401k into a managed IRA in the US. They said that because of the "know your client" regulations, they need to have a US address for all managed accounts in the US. I was able to open the account by providing a US address (of a family member and not my primary residence) and a letter stating I would travel to the U.S quarterly to review my accounts performance with them.


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I am an American citizen and had a similar issue with rolling a 401k into a managed IRA in the US. They said that because of the "know your client" regulations, they need to have a US address for all managed accounts in the US. I was able to open the account by providing a US address (of a family member and not my primary residence) and a letter stating I would travel to the U.S quarterly to review my accounts performance with them.


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Thank you - sorry, I don't know how I missed your reply as I had this thread set to alert me.

Anyway - yes, I think there must be people who are using this sort of backdoor method.

I have given up on the idea of rolling over to an IRA, though I am steaming about TIAA-CREF's ineptness in this and other areas. I have now managed to get a supervisor there to acknowledge that yes, I will be tax-exempt if I file the correct forms and am not US citizen or resident. I'll be filing the Form W-8BEN ASAP and will start withdrawing funds the minute I hit 59.5 years of age.

Don't be too hard on TIAA-CREF as 30% withholding is the NRA default. Once they get the W-8BEN and see your claim for 0% withholding and tax exemption under the DTA thins should be ok. But get in contact with that supervisor once you have filed the
W-8BEN and before you start taking distributions to make sure they get the message.

Don't be too hard on TIAA-CREF as 30% withholding is the NRA default. Once they get the W-8BEN and see your claim for 0% withholding and tax exemption under the DTA thins should be ok. But get in contact with that supervisor once you have filed the
W-8BEN and before you start taking distributions to make sure they get the message.

Considering the tone of some of the messages I get from them, and particularly their tone during the one phone call (almost 90 minutes, on my dime, to solve a problem of their making), I find it hard not to be hard on them. I understand it is the default but they have had me going round in circles on this one. There is a long string of messages that are reminiscent of the movie Groundhog Day.

But you are correct, I think when I file the form and give them a last-minute call/message to get the heads up they actually received it and recognise I am exempt, things may go more smoothly.

Daft question, but do you just have to file the W-8BEN once with an institution, or every year? Or every withdrawal?

While you and I may think it is daft; the IRS Chief Counsel's Advice (CCA) is that US withholding is required and that a US tax return would need to be filed to claim a refund. I do not claim to understand the CCA - nor do I necessarily agree with it, but TIAA-CREF might want to withhold to protect themselves from penalties. The CCA on this subject is brief and mysterious, but can be found here: http://www.irs.gov/pub/irs-wd/1412016.pdf

While you and I may think it is daft; the IRS Chief Counsel's Advice (CCA) is that US withholding is required and that a US tax return would need to be filed to claim a refund. I do not claim to understand the CCA - nor do I necessarily agree with it, but TIAA-CREF might want to withhold to protect themselves from penalties. The CCA on this subject is brief and mysterious, but can be found here: http://www.irs.gov/pub/irs-wd/1412016.pdf

It's difficult to interpret this brief email (your attachment) without some context - what was the preceding email they are responding to, what is the detail of the case they are discussing?

If it is someone who may be eligible for zero tax under the DTA, but who hasn't submitted the W-8BEN, then yes, I could see that the default position would be to withhold tax and let the person claim it back.

You and I would agree that it is brief; but it is IRS Chief Counsel's Advice - and the IRS will use it their interpretation of a legal basis - because that is why they employ Counsel. I guess you could ask for more detail under a FOI request.

I am UK citizen and resident. Fidelity told me that my W8BEN meant no taxes would be witheld on my 401a distribution but then they took 30% anyway. All attempts to get an explanation have met with stonewall.  Suggestions welcome.

You would need to file a US tax return for 2016. 

You would need to file a US tax return for 2016.

What Guya said......you can claim the 30% withholding back. You will have to pay tax on 90% of the withdrawal to HMRC.

guya and nun thanks, I appreciate that I will have to file 1040NR

But what is the point of going to the trouble of W8BEN if fund managers can simply ignore it without warning? Should they not at least be obliged to provide an explanation for doing the opposite of what their webpages promise? Moreover, if customer's objections can be ignored, they will keep on doing it.

Wondering if anyone can help me to understand what taxes, if any, I owe on my deceased dad's 401k that I am beneficiary of. I am an NRA and my dad was withdrawing annually from 70 years of age. I've been asked to fill our a W-8BEN by Schwab (I am taking a lump sum as I don't want further dealings with the US tax authority) and simply do not understand how much I should have Schwab pass on the the IRS. Everything I've read seems to indicate 30% but is that the case with the US/UK tax treaty in place? I've been reading so much online that I now feel completely confused. Any help would be greatly appreciated.

The good news is there's no 10% early withdrawal penalty, but you will have to pay income tax. Generally a lump sum distribution from a 401k by a UK resident NRA would only be taxable in the US and you will have to file a 1040NR to make sure the correct amount of tax is paid. No UK tax is payable on lump sum distributions from qualified US retirement accounts.

If Schwab want to take 30% then let them.  You'll want/need to file a Form 1040NR to reclaim tax over-withheld.  Schwab will need you to have an ITIN first; so you should go ahead and apply for that.