401k for returned Brit
 

I lived in the U.S. for 20 years and managed to save a decent amount into a 401k. I have moved to Ireland now and am considering my options. I've left the 401k alone even though there is no new money going into it now. It's a decent enough account and is doing pretty well.

My instinct is to leave it be until I can start withdrawing (once I'm 59 1/2 years old - about 8 years away!!). Is this the right call? I'm interested what others have done in similar situations.

I'm also wondering how to mange once I start to withdraw - where would I delcare the income? Here in Ireland or in the U.S. ? tbh I'd rather pay U.S. tax as the rates are a little friendlier.

Re: 401k for returned Brit
 

Transferring your 401k into an IRA is likely impossible now that you no longer live in the US. There might have been some merit to that, but the point is moot now.

I consistently recommend against trying to consolidate pension savings, or moving them internationally, and I don't think you can move a 401k out of the US without creating a taxable event anyway.

With few exceptions, mostly related to pensions for government jobs, you pay tax on income where you receive it, i.e. Ireland in your case, irrespective of where your bank account is that receives the pension payments. So you will need to tell your 401k plan administrator that you are no longer tax resident in the US when you start drawing income from your 401k.

Re: 401k for returned Brit
 

I agree with post #2.

I kept a US bank account open to deposit the distribution checks I received. A US bank account would also be needed to receive regular payments. The funds can be transferred from a US bank account using TransferWise, now just Wise.

It may be advantageous to keep a 401(k) after reaching retirement age.

First, funds within a 401(k) do not count towards the Life Time Allowance (LTA). The Irish Standard Fund Threshold (SFT) might be similar.

Second, I believe that a 401(k) is more tax efficient for US stocks because US dividends are received tax free within the 401(k).

Dividends from US stocks received outside the US are subject to 15% or 30% withholding tax depending on the applicable tax treaty.

For example, an S&P500 tracker ETF or index fund domiciled in Ireland will be subject to 15% withholding tax on dividends received and track the S&P500 with dividends net of tax, even if held in a SIPP. Synthetic ETFs theoretically avoid the withholding tax on dividends but still only track the S&P500 net of dividend withholding tax.
If UK resident at the time, you may have a choice. Article 17(2) of the UK/US tax treaty states:

‘2. Notwithstanding the provisions of paragraph 1 of this Article, a lump-sum payment derived from a pension scheme established in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in the first-mentioned State.’

I have not found an HMRC definition of ‘lump-sum’ but the IRS definition is here:

https://www.irs.gov/taxtopics/tc412

‘A lump-sum distribution is the distribution or payment within a single tax year of a plan participant's entire balance from all of the employer's qualified plans of one kind (for example, pension, profit-sharing, or stock bonus plans).’

As I understand it, if you check the ‘Lump Sum’ box on the 401(k) Retirement Plan Distribution Request form when resident in the UK you will be liable to pay US tax on the distribution. Depending on the balance in the 401(k) plan the US tax could be more or less than you would have paid if you had taken partial distributions or a regular income and paid UK tax.

Re: 401k for returned Brit
 

I also agree with post #2

Distributions from a retirement account such as a 401k would be covered by the tax treaty between the USA and Ireland, article 18.

To me it reads like distributions will be taxable in Ireland for residents of Ireland.

https://www.irs.gov/pub/irs-trty/ireland.pdf

Re: 401k for returned Brit
 

This perked my interest! I am curious as to why (there might be merit in 401k to IRA)?

Re: 401k for returned Brit
 

We rolled our 401ks into IRAs in a brokerage firm that supports overseas customers before moving to the UK. We also did similar with our US bank, opening one that supported overseas customers.

Re: 401k for returned Brit
 

I believe that the primary reason is that you can choose from a wider variety of funds - so pick the cream of what's available, not be stuck with whichever "growth", "international", "income", etc. fund (one of each category) that your employer has preselected for you. ..... I have some (small percentages) of my 401k in international and emerging markets funds, but the performance of the funds that my employer has chosen is "unremarkable" and that is being charitable! :rolleyes:

The downside to rolling your 401k into an IRA is that you _might_ have higher fees, depending on the terms of your 401k after you leave the company.