Moving back to UK from USA - Financial/401k/IRA questions
#16
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Joined: Aug 2011
Posts: 5
Re: Moving back to UK from USA - Financial/401k/IRA questions
In fact I have just been advised that the 'Exit' tax imposed by the IRS ion IRAs is enforced irrespective of electing for either option # 1 or # 2. i.e. That 'Exit tax' is applied in both cases - as soon as it becomes apparent that you've relinquished your US residency status.
#17
Re: Moving back to UK from USA - Financial/401k/IRA questions
In fact I have just been advised that the 'Exit' tax imposed by the IRS ion IRAs is enforced irrespective of electing for either option # 1 or # 2. i.e. That 'Exit tax' is applied in both cases - as soon as it becomes apparent that you've relinquished your US residency status.
If you do scenario #1, you will have a big tax bill as your income will be very high for a single year and you loose all the tax deferred growth.
If you do #2 and leave the IRA where it is the UK/US tax treaty allows it to grow tax free and as a UK citizen resident in the UK you will only be taxed on any income by the UK. You file a W8-BEN with the IRS to claim exemption form US withholding and tax on any income under Article 17(1)(a).
If we are taking about asset values over $2m or high average annual incomes it's probably best to seek professional advice, or become a US citizen
Last edited by nun; Mar 13th 2012 at 2:02 am.
#18
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Joined: Aug 2011
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Re: Moving back to UK from USA - Financial/401k/IRA questions
Thanks - I was just told that the IRS 'Exit' tax comes into play by an 'Independent Financial Adviser' at one of the banks I deal with. The IFA said that it didn't matter whether I went for option #1 or # 2 - but that the IRS would levy the 'Exit' tax (at my marginal rate of 32%) in both cases as soon as I effectively relinquished my US Permanent Residency status. Hence, I'm very keen to hear from other forum members who've been through this situation.
#19
Re: Moving back to UK from USA - Financial/401k/IRA questions
Do you meet the income and asset thresholds for the expatriation tax?
http://en.wikipedia.org/wiki/Expatriation_tax
http://en.wikipedia.org/wiki/Expatriation_tax
Last edited by nun; Mar 13th 2012 at 2:19 am.
#20
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Re: Moving back to UK from USA - Financial/401k/IRA questions
Possibly on the income side if you mean average joint income (self & spouse) over the last 5 years - but maybe not on the assets side unless you include proceeds from the eventual sale of the house. Either way the IFA said it made no difference - as I said he stated that it took effect as soon as I effectively relinquished my US Permanent Residency status - nothing to do with my income or assets. I think I need a good International Tax Adviser - familiar with USA/UK tax issues as they relate to IRAs - but have heard that these guys are really expensive. Would still be interested to hear from others on this forum who've been through this situation and their specific experiences.
#21
Re: Moving back to UK from USA - Financial/401k/IRA questions
Possibly on the income side if you mean average joint income (self & spouse) over the last 5 years - but maybe not on the assets side unless you include proceeds from the eventual sale of the house. Either way the IFA said it made no difference - as I said he stated that it took effect as soon as I effectively relinquished my US Permanent Residency status - nothing to do with my income or assets. I think I need a good International Tax Adviser - familiar with USA/UK tax issues as they relate to IRAs - but have heard that these guys are really expensive. Would still be interested to hear from others on this forum who've been through this situation and their specific experiences.
http://hodgen.com/question-about-exp...n-from-reader/
I'd double check on that though.
Anyway I'll assume that you don't have to pay the expatriation tax.
So if you cash in the IRA while in the US your IFA is correct and you will be taxed on the income just like any other income.
However, assuming you are a UK citizen and give up the Green Card to live in the UK the best thing to do (IMHO) is to leave the IRA where it is and take income as usual. Under US law the gains are tax deferred and under the US/UK tax treaty they are also tax deferred in the UK under Article 18(1). when you take income out the income is US tax free, but fully taxable in the UK under Article 17(1)(a). You file the W8-BEN to claim your US tax exemption under the treaty and file SA100 and SA109 self assessment form in the UK. If there were no tax treaty in place as a NRA a 30% withholding tax would be applied. that maybe what your IFA is thinking, but in this situation the US/UK tax treaty exempts you from US tax and withholding.
If the expatriation tax does apply you will need to get professional advice. However, if you become a US citizen there will be no exit tax whatever your income or assets and although you will have to file US and UK taxes the tax treaty prevents you paying more tax than the higher of either the US or UK bills.
Last edited by nun; Mar 13th 2012 at 4:12 am.
#22
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Joined: Feb 2013
Posts: 6
Re: Moving back to UK from USA - Financial/401k/IRA questions
With regard to # 3 above - does anyone know whether it makes any difference whether you are a U.S Citizen or not? Like dunroving I'm moving back to the UK (next year) after 13 years in the USA during which I've paid into the USA Social Security system. They send me statements each year telling me I have enough credits and am eligible to receive benefits. But I'm a UK Citizen not a US Citizen - I'm only a 'Resident Alien' (Green Card holder) in the USA. Does anyone know if it makes any difference i.e. whether I'll be able to receive US Social Security retirement benefits after I return to the UK?
We are in the same boat. We are also trying to figure out what to do with our 401K. Our tax manager said to roll it over to a Roth or something similar and keep it there till we need it. The only problem we have encounter is that the bank we us in the US will not open up any such account unless we have a US address. We are still researching this and the first thought is to open up a mailbox at The UPS Store which will take in all mail we get and then ship it to us in the UK. This way the bank thinks we have a US address and we continue to get our statements and keep track of the money. Not all the research has been done yet so I am assuming somewhere along the line there will be an issue that needs addressing. Just my two cents for now.
#23
Re: Moving back to UK from USA - Financial/401k/IRA questions
You will be able to receive your benefits. http://www.ssa.gov/pubs/10137.html
We are in the same boat. We are also trying to figure out what to do with our 401K. Our tax manager said to roll it over to a Roth or something similar and keep it there till we need it. The only problem we have encounter is that the bank we us in the US will not open up any such account unless we have a US address. We are still researching this and the first thought is to open up a mailbox at The UPS Store which will take in all mail we get and then ship it to us in the UK. This way the bank thinks we have a US address and we continue to get our statements and keep track of the money. Not all the research has been done yet so I am assuming somewhere along the line there will be an issue that needs addressing. Just my two cents for now.
We are in the same boat. We are also trying to figure out what to do with our 401K. Our tax manager said to roll it over to a Roth or something similar and keep it there till we need it. The only problem we have encounter is that the bank we us in the US will not open up any such account unless we have a US address. We are still researching this and the first thought is to open up a mailbox at The UPS Store which will take in all mail we get and then ship it to us in the UK. This way the bank thinks we have a US address and we continue to get our statements and keep track of the money. Not all the research has been done yet so I am assuming somewhere along the line there will be an issue that needs addressing. Just my two cents for now.
If you set up an account with someone like Vanguard or Fidelity while you have a US address there will be no issues with you doing transactions when you move abroad.
#24
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Joined: Feb 2013
Posts: 6
Re: Moving back to UK from USA - Financial/401k/IRA questions
Rolling a 401k over to and IRA or ROTH IRA is usually a good idea because you can choose your provider and probably get charged lower fees. But if you have a reasonable 401k that you are happy with there's no desperate need to move the money. The ROTH might have additional tax advantages, but that's going to depend on your income tax rate.
If you set up an account with someone like Vanguard or Fidelity while you have a US address there will be no issues with you doing transactions when you move abroad.
If you set up an account with someone like Vanguard or Fidelity while you have a US address there will be no issues with you doing transactions when you move abroad.
That is the part that is stumping us. Does citizenship come into play at some point in the future? After awhile my husband loses his green card and will revert back to his German citizenship if he doesn't spend a month in the US from time to time. Can that affect the Roth in anyway? And must we keep filing US income tax for the rest of our lives? I do hope there is a good tax accountant in the UK that knows US tax issues and we can find one.
#25
Re: Moving back to UK from USA - Financial/401k/IRA questions
And if you keep contributing to it from the UK, do you send them a check/money transfer or something else?
If you set it up with a US address and then move, what happens if they send something to that address and you are no longer there? I have a stock portfolio with Vanguard already so they know our address and we get things from them from time to time.
That is the part that is stumping us. Does citizenship come into play at some point in the future?
After awhile my husband loses his green card and will revert back to his German citizenship if he doesn't spend a month in the US from time to time. Can that affect the Roth in anyway?
The gains and income from the ROTH is always US tax free, but you will have to investigate whether they are also tax free where you reside. They are tax free for UK residents.
And must we keep filing US income tax for the rest of our lives? I do hope there is a good tax accountant in the UK that knows US tax issues and we can find one.
If you are NRAs it's a lot simpler as you only have to file US taxes on US source income, and that does not usually include IRA, 401k distributions. You file a W-8BEN with your administrator to certify that you are a NRA and claim the relevant tax treaty exemption from US taxation. Then you just have to pay tax where you live.
Last edited by nun; Feb 11th 2013 at 3:53 pm.