Fabulosity

Hello there
I recently moved back to the uk after living in the USA for a few years on a visa. I am a British resident. I want to bring over my 401k, I understand there are penalties for doing so but i want to invest this money in a deposit for a house.

It is so confusing and I would love some help about how to go about this. I was told by ADP that I would be taxed 30% plus a 10% early withdrawal fine which is fine by me, I understand the consequences. She said I would be mailed a check and I might then be taxed in the uk on the amount also which seems unreasonable. Someone else told me waiting until next year I would get taxed less from the us although I have also read that there is a uk / us treaty and so I would only get taxed in the U.K. On this money. It's all so confusing and I'm getting such varied info. Has anyone done this or does anyone know about it? Any advice would be much appreciated.

Thanks!

nun

I am assuming you are a UK tax resident and NOT a US citizen and that you take the entire balance of the 401k in a single payment....this makes it a lump sum distribution. As it is a 401k Article 17.2 of the tax treaty applies.

see here

http://www.tax-charts.com/charts/894...axation_uk.pdf

https://www.treasury.gov/resource-ce...s/uktreaty.pdf

If you are under 59.5 years old there will be a 10% US penalty for taking the money out early.

The 30% tax that ADP mentioned is actually not a tax....its an amount withheld in lieu of tax on a payment sent overseas and you'll work out the final US tax bill later.

So you'll get your 401k balance minus 10% and minus 30% withholding. You will have to file a self assessment with HMRC and claim zero UK tax on the US lump sum pension payment under Article 17.2. Once that is done you'll need to file a 1040NR with the IRS to work out the US tax due on the lump sum and you'll defray the bill with the 30% withheld and probably get a substantial refund.