Lump Sum 401-k withdrawal
 

I am now UK resident and considering taking my entire 401-k (about $140k) as a lump sum. It's my understanding that if I withdraw the entire amount at once it will be taxable in the US rather than the UK under the DTA, whereas if I withdraw any amount less than 100% the withdrawn amount (90% of the withdrawn amount) will be taxable by the UK and not the US. Can anyone just confirm my understanding? Also, if I do withdraw 100% as a lump sum, should I notify HMRC of the withdrawal, or should I just keep a record in case a flag is raised when I transfer the funds to my UK account? Thanks very much for any help anyone can give with this.

Re: Lump Sum 401-k withdrawal
 

Are you at least 59½ or are you withdrawing it prematurely?

Re: Lump Sum 401-k withdrawal
 

No, I'm 64. I have a couple of good reasons to consider taking the lump sum, but I haven't decided yet.

Re: Lump Sum 401-k withdrawal
 

I believe the assumption is correct that lump sums from an IRA or 401k are only taxable in the US. I had a dual qualified tax accountant do my US and UK taxes this year for 2016/17 and for the lump sum conversion from my IRA it was taxed only by the US, but the amount was stated in the notes on my UK return, and that it was not taxable by HMRC due to the DTA.

Re: Lump Sum 401-k withdrawal
 

Thanks, that's reassuring. The tax on a larger lump sum 401k withdrawal will be high in any event but the US tax would be considerably lower, and can be mitigated somewhat by a decent exchange rate at the time of transfer. My biggest concern has been that HMRC would challenge this after the fact, given the larger amount, but the DTA seems quite clear that it is US taxable only. I appreciate your help.

Re: Lump Sum 401-k withdrawal
 

You are very welcome.

Good luck.

Re: Lump Sum 401-k withdrawal
 

Someone correct me if I am wrong, but didn't the rules change in the UK beginning this year (the 2017-2018 tax year)?

As I recall, the 10% break (90% taxable) was removed, and so was the UK tax break on lump sum withdrawals.

Re: Lump Sum 401-k withdrawal
 

I had also heard that about foreign pensions losing their 10% tax free component starting this current tax year.

https://www.gov.uk/government/public...al-information

Not clear to me if they still plan on taxing lump sums by changing the US/UK DTA (making foreign pensions 100% taxable is outside of any DTA)

https://www.gov.uk/hmrc-internal-man...nual/ptm114000

Re: Lump Sum 401-k withdrawal
 

Thanks for this, I wasn't aware that we are losing the 90% rule. That's significant for me since all of my pensions are US pensions. As you say that's not part of the DTA, but the rule that lump sum pension withdrawals are taxed by the originating country is part of the DTA. I'm trying to decipher the new wording regarding lump sum withdrawals and whether that effects pensions accumulated before 2017, I guess I'll hold off on doing anything until I'm very sure that I won't have a problem.

Actually this raises another question, whether US Social Security pensions are taxed at 90%/now 100%, or whether they are taxed at the same level that they would be taxed in the US. This is a different topic, and may be discussed in another thread, I'll look around.

Re: Lump Sum 401-k withdrawal
 

As far as I know, SS pensions are now 100% taxable. What would have been taxed in the US is not applicable, as the Treaty is specific that US SS is taxable only in the UK, so rules here apply.

I have assumed that lump sums from foreign pensions are now fully taxable in the UK. I took a lump sum from a small US pot before the end of the 2016/2017 tax year, as it was clear that the US would tax but the UK would not. Didn't want to risk the 20% UK hit. For the rest, I will take distributions as required by US rules on the IRAs, but no more lump sums. Would love to be able to take one more lump sum, and if I was absolutely sure that only the the US would have taxing rights, I would do it. The pot isn't large and the US tax would be (relatively) small.

Re: Lump Sum 401-k withdrawal
 

I will be very surprised if SS pensions are not taxed in the UK the same as the UK OAP, ie 100% of it will be taxed.

Re: Lump Sum 401-k withdrawal
 

Apologies in advance if this is a silly question. I have spent the afternoon reading the DTA (got something more exciting planned for the evening!!) In article 17 bullet 2 it says “...a lump-sum payment derived from a pension scheme...”. Does lump-sum mean the whole amount in the 401K or IRA? E.G. If I were to take $100,000 from an IRA and still have money remaining in the IRA would the $100,000 be considered a lump sum?

Re: Lump Sum 401-k withdrawal
 

The lump sum does not have to be the whole amount, which is why vadio and myself have been making lump sum withdrawals. The question that vadio has raised is whether this will be allowed going forward. The links and quotes I posted above are from the uk.gov site and confirm that the 90% of foreign pension rule has changed but I don’t see any change yet to the DTA.

I may be wrong but would like to see evidence that this lump sum rule has changed with respect to the US/UK DTA.

Re: Lump Sum 401-k withdrawal
 

Thank you durham_lad

Re: Lump Sum 401-k withdrawal
 

I asked HMRC a similar question last year (specifically for the case of no distribution in the previous or following tax years). HMRC's reply was:

"A partial distribution is not considered to be a lump sum payment it would be treated as a pension payment for UK tax purposes. As such any partial distributions need to be reported on your Self Assessment Tax return for the relevant year as per Paragraph 1, Article 17 of the UK/US Double Taxation Convention."