Aoi

I am retired in England and plan to start taking distributions from my 401(k) over a number of years. I need to submit a Retirement Plan Distribution Request to the 401(k) provider together with a W-8BEN. There is also a form for Electronic Funds Transfer. This would transfer funds to my US bank account (which is still open) and I would then need to transfer funds to the UK.

Does anyone have experience of having 401(k) distributions sent direct to a UK bank account and what are the pros and cons?

nun

The usual cons are fees and exchange rates. If you still have US expenses it might be useful to have them sent to your US bank account and you could use one of the less expensive foreign exchange services to do transfers to the UK. It all comes down to cost vs convenience. Also when the payments start double check that no state or federal tax is being withheld by your administrator and remember you only need to declare 90% of the payments for tax to HMRC.

NiHao

We were told that the tax on 401k withdrawals is paid to the US because it is the US that gave the tax break on 401k contributions.

We haven't made our withdrawal yet and now I have read Nun's reply I will double check before then in case the advise we were given was wrong.

nun

Where you pay tax depends on your residency and citizenship.....and the type of pension.

For a 401k owned by a non-US resident alien, resident in the UK any withdrawals are free of US tax and 90% of them are taxable in the UK as a foreign pension. A W-8BEN should be filed with the 401k administrator to claim tax treaty exemption from US taxation.

If you are a US citizen and taxed on an arising basis in the UK then tax is due first to the UK and then to the US. You will claim a credit for any UK tax you pay and any withholding on your 1040.

NiHao

Thanks Nun!

I knew that was how it would work for salary income but I wasn't sure about a 401k withdrawal which is why we called the UK Tax advise line the guy said "Oh I know about this because I just had a call about it last week" and told us that 401k is different to salary income and that we pay the taxes to the US because the money in the account was earned when we were in the US and tax was deferred by the US not the UK.

At the time that seemed to have some logic and he seemed so sure that he knew what he was talking about. However now reading your post I'm thinking he was wrong and the 401k withdrawal would be taxed in the same way/order as other income (we would be dual US/UK citizens resident in the UK), ie UK tax first and then additional US tax IF the credit for paying UK tax is less then what we would owe in the US.

Thanks again for the info.

nun

Yes that sounds right. Did your UK advisor mention the tax treaty or ask about your UK tax residency status?

If you are a UK/US dual citizen and taxed on an arising basis in the UK or remitting the 401k income to the UK then you will have to pay UK tax on the 401k income "first". You will have a mandatory 10% US tax withheld by the 401k administrator and will use that and the UK tax paid to defer your US taxes on your 1040.

A non-US citizen would file a W-8BEN, claim tax treaty exemption from US taxation on the 401k income and only pay tax in the UK.