Withholding Rate on 401(k) - to NRA

I understand there is a flat 30% withholding to NRA's on U.S. sourced income such as 401(k). Under the US/UK Treaty, is the withholding rate lower than 30% to U.K. residents'? Would the treaty rate (and refund) be applied once a 1040-NR has been filed, meaning a 30% withholding no matter what?

Thank you

Assuming you're a UK citizen and UK resident ...

Periodic withdrawals from your 401(k) are wholly taxable in the UK.  So you either need to convince them not to withhold 30% (which is possible but is a challenge - and it'll be 30% or nothing), or you need to file a US tax return to get it refunded.  Either way, you need to report it as income using self-assessment in the UK, where it will be taxed according to UK tax rules.

Assuming you're a UK citizen and UK resident ...

Periodic withdrawals from your 401(k) are wholly taxable in the UK.  So you either need to convince them not to withhold 30% (which is possible but is a challenge - and it'll be 30% or nothing), or you need to file a US tax return to get it refunded.  Either way, you need to report it as income using self-assessment in the UK, where it will be taxed according to UK tax rules.

+1

I think there is a form you can send them such as a W4 to have them stop on account of you being exempt due to the tax treaty. Maybe contact the 401k provider and explain the situation.

+1

I think there is a form you can send them such as a W4 to have them stop on account of you being exempt due to the tax treaty. Maybe contact the 401k provider and explain the situation.

There is, in theory.  The form is a W8-BEN where you can mention the US-UK tax treaty and try and get 0% withholding.  My experience (and the whole thing is documented over on the bogleheads forum) is that it's a nightmare and they don't have to respect it.  I won't bore you withe details here but feel free to pop over to bogleheads if you've got a couple of hours to spare.  I'm finally at the stage where I get my IRA withdrawals with 0% withholding (having previously had my 401(k) withdrawals with 0% withholding) but it's been a helluva fight.  And we still have to jump through hoops every time I make a withdrawal.  If I had any hair I'd have torn it out multiple times over.

There is, in theory.  The form is a W8-BEN where you can mention the US-UK tax treaty and try and get 0% withholding.  My experience (and the whole thing is documented over on the bogleheads forum) is that it's a nightmare and they don't have to respect it.  I won't bore you withe details here but feel free to pop over to bogleheads if you've got a couple of hours to spare.  I'm finally at the stage where I get my IRA withdrawals with 0% withholding (having previously had my 401(k) withdrawals with 0% withholding) but it's been a helluva fight.  And we still have to jump through hoops every time I make a withdrawal.  If I had any hair I'd have torn it out multiple times over.

So the treaty rate of withholding is 0%? Although an uphill struggle to achieve this, it would alleviate the need to file a 1040-NR to claim back the 30%tax  withholding

So the treaty rate of withholding is 0%? Although an uphill struggle to achieve this, it would alleviate the need to file a 1040-NR to claim back the 30%tax  withholding

On periodic withdrawals, yes.  And yes, if you manage to get 0% withholding there's no need to file to get it refunded.  If you take a lump sum (and you'll have to argue the definition of lump sum with your provider), then it's taxable in the US.  Obviously, you'll need to report this income to HMRC.

On periodic withdrawals, yes.  And yes, if you manage to get 0% withholding there's no need to file to get it refunded.  If you take a lump sum (and you'll have to argue the definition of lump sum with your provider), then it's taxable in the US.  Obviously, you'll need to report this income to HMRC.

I’d be taking mine as a single annual periodic payment over a set number of years. Do you have a link for the bogleheads post?

I’d be taking mine as a single annual periodic payment over a set number of years. Do you have a link for the bogleheads post?

In that case, you might have a fight convincing your 401(k) provider that your annual payment is going to be followed every year by another payment.  How would you convince them that you're going to make annual withdrawals?  I think i depends very much on who your provider is.  Anyway ...

Strap yourself in - my experience is here
You might also want to read the sequel, when I rolled over my 401(k) to an IRA it's here

On the distribution paper work they ask for the frequency of withdraws per year and for how many years. (Instalment option). Thanks for the links, I’ll get the coffee pot on -).

On the distribution paper work they ask for the frequency of withdraws per year and for how many years. (Instalment option). Thanks for the links, I’ll get the coffee pot on -).

Ah OK, that's good.  It took me a while to get to that stage and I had to do it through my ex-company (the plan sponsor).

BTW, there was also this discussion which might interest you - it's mentioned in the bogleheads discussion, but it's worth noting.  YMMV.

Out of curiosity, do you mind giving us the name of your 401(k) provider?

BTW, there was also this discussion which might interest you - it's mentioned in the bogleheads discussion, but it's worth noting.  YMMV.

Out of curiosity, do you mind giving us the name of your 401(k) provider?

T.Rowe Price. Looking at starting distributions next year. It’s a long drawn out process however with a 6 month wait if you go for any distribution that isn’t an annuity. I think a lot of 401(k) plans have this restriction though

I have a traditional Rollover IRA and a Roth IRA with Vanguard both of these accounts have Form W8-BEN on file with Vanguard. Having these forms filed allows me to make as few, or as many, withdrawals in a year as I so choose at the click of a button with no withholding by Vanguard. Vanguard then seamlessly wire the funds to my US checking account of choice. Upon receipt I use TransferWise to exchange $ to £ and wire to my UK bank.

In February each year Vanguard issue me Form 1042-S which is also submitted to the IRS. Form 1042-S shows the withdrawals and amounts as well as indicating that the events were Exempt by Treaty with no withholding.

No need to file a 1040-NR as no US tax is due

I have a traditional Rollover IRA and a Roth IRA with Vanguard both of these accounts have Form W8-BEN on file with Vanguard. Having these forms filed allows me to make as few, or as many, withdrawals in a year as I so choose at the click of a button with no withholding by Vanguard. Vanguard then seamlessly wire the funds to my US checking account of choice. Upon receipt I use TransferWise to exchange $ to £ and wire to my UK bank.

In February each year Vanguard issue me Form 1042-S which is also submitted to the IRS. Form 1042-S shows the withdrawals and amounts as well as indicating that the events were Exempt by Treaty with no withholding.

No need to file a 1040-NR as no US tax is due

That's good to hear.  Clearly, Vanguard are one of the better ones.  My experience with Fidelity is somewhat different.  I can (finally) make as many, or as few withdrawals from my IRA as I wish, but I can't do this online - they insist that I call up to initiate a withdrawal, which is OK because it's an international toll-free number, but it's still time consuming.  Then they have to go through a song and dance, where they initially withhold 30% and give me 70%, then issue a tax withholding correction to refund me the 30%.  They transfer the monies by electronic funds transfer to my US bank account from where I use Transfer(Wise) to send to the UK.  I have a W8-BEN on file, obviously.  Because of the faff involved, I've now resorted to making quarterly withdrawals whereas previously (before I rolled over my 401(k) to an IRA) I was making monthly withdrawals.  When I had a 401(k) I eventually managed to set up a Systematic Withdrawal Plan, where they would automatically pay me a set amount each month with no tax withheld.  It was convenient but less flexible, and I could only increase the set amount or increase the frequency of payments.  I expected the same when I rolled over, but no such luck.

I have a traditional Rollover IRA and a Roth IRA with Vanguard both of these accounts have Form W8-BEN on file with Vanguard. Having these forms filed allows me to make as few, or as many, withdrawals in a year as I so choose at the click of a button with no withholding by Vanguard. Vanguard then seamlessly wire the funds to my US checking account of choice. Upon receipt I use TransferWise to exchange $ to £ and wire to my UK bank.

In February each year Vanguard issue me Form 1042-S which is also submitted to the IRS. Form 1042-S shows the withdrawals and amounts as well as indicating that the events were Exempt by Treaty with no withholding.

No need to file a 1040-NR as no US tax is due

Good info, thanks for this.