Streetlegal

Durhamlad:

Interestingly, I used the official SS calculator you linked to the other day, and, although I will need to revisit it more carefully, the estimate was actually not that different than on My SS site based on continued employment.

The SS calculator, I think, defaulted at 62 years and did not give options to change it to 67 or 70, which is a shame. However, according to my initial trial, at 62, the difference would be about $140 per week if I stop working in two years rather than wait 6 years or so when I’m 62. Not a deal breaker for me.

--Say my SS amounts to less than the UK personal allowance, I won’t be taxed on it. However, if I were to add to the equation withdrawals from a Roth IRA or directly from a 403b which exceeded the personal allowance of 12,500 pounds, then I assume UK tax at 20% would kick in—correct?

--Is UK OAP generally taxed? I won’t get the full UK state pension, but I will get some.

--Would the UK OAP be added to my US SS and Roth to calculate overall tax?

(I do know that there is some kind of algorithm of SS vs UK pension that takes effect, but let’s not go there quite yet!!).

Thanks a lot.

Ed

durham_lad

If your SS plus periodic withdrawals from your 403b is greater than the U.K. personal allowance then yes you will be taxed on the excess at 20%. You will NOT be taxed on any Roth withdrawals as they are tax free in both the UK and USA.

Your OAP is 100% fully taxable, counted like regular income, simply added onto SS, and regular 403b withdrawals.

I have not heard of any algorithm of SS v OAP so please do share anything you find on this. Your SS will be reduced depending on your OAP due to WEP rules, if that is what you are thinking of.

Streetlegal

This forum has been invaluable in giving me the context I need over the next year or three to sort out my retirement. I am truly grateful. I’m heading for a point where I’ve got sufficient context to leave it for a while.

To confirm my understanding at this point, when retired:

• My total UK tax burden = SS + my 403b + UK OAP (but excluding state pension and Roth IRA)
• My total USA tax burden = my state pension + 403b (but federal tax only since I will be out of state) + UK OAP (excludes Roth IRA)
• To both UK and USA, I should add any potential earned or unearned income.
• When I draw UK OAP at 67, WEP rules come into effect.

Therefore:

• It makes sense to roll over 403b into a Roth IRA as this avoids any tax on withdrawals (or at least after 5 years or something--I need to research this
• Somehow tax credits come into play, but I’m not sure how this works—does one country’s tax burden take precedent over the other?

Thanks so much,

Ed

durham_lad

That all looks about right to me. With the tax treaty you can think that you will be paying the higher of the 2 countries taxes.

When you come to making Roth withdrawals you will be asked about the 5 year rule but basically, if you are over age 59.5 and you opened your very first Roth 5 years earlier then no problem, the withdrawal is all tax free.

Streetlegal

Thanks, durhamlad.

To make sure I understand this correctly, say that for a time my sole earnings will be US pension (15 K pounds) and SS (10 K pounds). Only the SS is subject to British tax. In such a scenario, would only the 10K be taxed? And how would the tax rate be calculated--some combination of the personal allowance and the basic rate?

Cheers
Ed

durham_lad

For the majority of us the tax calculation is very simple. You deduct the tax free allowance from the taxable income and the remainder is taxed at 20%. In your case because you have a US government pension your HMRC taxable income is only £10k and your personal allowance is £12.5k you will not be paying any U.K. tax. Note that the simple calculator below calculates NI because it assumes the income entered is earned income, not pension, unless you enter an age above 66.

https://www.moneysavingexpert.com/tax-calculator/

Streetlegal

That's super helpful, and good news, durhamlad.

So is it safe to conclude that any income deemed untaxable (eg my USA state pension in the UK, Roth withdrawals in UK) are not included in that country's overall tax calculation and have no impact on tax?

Cheers,
Ed

durham_lad

Yes.

Streetlegal

GOALFIRE

You seem as if you have a really good handle on the tax requirements, do you mind if I ask why you don't do the returns yourself? Is it something that one could (or should) do themselves, maybe have a pro do it once and then use that as a template? Or is it a case of money well spent on the time and effort required and probably some protection/peace of mind?

I've always done my own taxes here in the states, using Turbo Tax so was wondering if that would still be worth considering if we return?

durham_lad

I have a heart condition and there is no way that my wife can do the taxes when I’m gone, she has zero interest and just gets upset when I’ve tried to show her, so it is simply a bit of insurance for her peace of mind. She can’t even manage the online FBAR filings.

If your situation is stable from year to year I don’t see any reason why you can’t follow a template and do them them yourself. I still do them myself as well to check my understanding plus I help my son do his taxes. He is also a USC living in England, and I also help my wife’s sister, a widow of 3 years do her self assessment each year. (No foreign tax return just complicated enough to require a SA).

GOALFIRE

Yes, I'll be in a similar situation with my wife also as she has little to no interest in the mechanics of the money so to speak!

Would you mind giving a quick rundown of how the mechanics work with respect to the US and UK having different tax 'periods' (calendar year vs. April 6th - March 5th)? Do you have to amortize everything?

durham_lad

From the very first tax return you can use the US tax year for US income when filing the HMRC return. Just simply make a comment in the white space similar to below. That way the 1099’s and W2s are easy, as are the P60s

With the US return however I have to keep a spreadsheet tracking my U.K. pensions and interest on a month by month calendar year. P60s are no use when doing the US return.

GOALFIRE

Yet again, thank you very much!

mrken30

Would this trigger an exit tax? Hoping your net worth is less than $2mn.each. I am curious if that amount is pre or post tax? Does this give an added advantage of a ROTH IRA?

https://www.immi-usa.com/green-card-...d%20correctly.