helendha

Finally, after two long years of planning, we’re entering the ‘home stretch’ and will be returning to the UK this summer.

We have already cashed out both our Roth IRA accounts in order to meet the ‘savings’ requirement for my hubby’s visa (*sigh*). We’ll end up using that money to live on and get settled on arrival in the UK, until we can get jobs.

Last remaining (financial) question that I have is regarding my work 401K. I obviously can’t access it until I leave my job, which will be right before we leave the country. Options (disregarding the annuity option, which I’m not remotely interested in) will be to roll it into a traditional IRA (no taxes or penalties), roll/convert into a Roth IRA (taxes apply), or cash it out and run with the money (pay taxes and 10% early distribution penalty). The balance when I leave will be somewhere around $70k. I’m a dual UK/US citizen.

I should mention that this account was fully funded by my employer, I haven’t contributed a dime (so it’s a little like ‘free’ money lol) and I am fully vested.

I’m researching online and seeing different recommendations; many people recommend leaving any retirement funds in the US in a Roth IRA. I’m fine with paying the taxes on a conversion (in fact this would be a good year to do so as I’ll have only a part year of income, and I’m told as long as I do this before I become resident in the UK then I wouldn’t have to pay any UK taxes on it). However I honestly don’t know that I want a US retirement account when I know I will never return to live here and have no way of knowing how redemptions from a Roth will be taxed in each/both countries when I retire 25 years from now.

So a large part of me is wanting to cash it out, pay the taxes and penalties (again, a good year for me to do so in terms of tax reporting), park some of it in cash ISAs for me and hubby on arrival in the UK and use the rest to make a large downpayment on a house in a couple of years. Benefits of this approach would be: no account overseas to manage/report/pay taxes on/administer in the event of my death. Plus, at least as far as the US overseas assets rules go right now, tangible investments such as houses are not reportable to Uncle Sam! (-and yes, I know this could change).

I have an appointment with a tax adviser who specializes in expat taxes next week, however she really is looking at it from a US point of view and can’t give a UK perspective. I can’t get a UK perspective until I get there, and if I’m going to cash out this account, I need to do it before I become a UK resident. So, I’m curious about other opinions and experiences.

Thanks in advance for any ideas!

Powka

Hi,

Sorry for this being off-topic, but I was just curious if there's any special reason you're leaving you USA? Did you not enjoy your stay here, or is it something else?

Thanks.

lansbury

Why don't you contact Peter Newton http://www.britishexpatstax.com/ he is in the US and give tax advice on both the US and UK.

Hotscot

I'm curious about your employer fully funding your 401k and what you mean?

Regardless of what they contributed did you not put in any tax deductible dollars and reduce your taxable income?

helendha

My employer put a percentage of my total annual earnings into the account every year. It's part of my package.

(If it's confusing you, then to call it a 401K might be little misleading - but it's the nearest account type that anyone is going to recognise and it does behave the same as a 401k).

I did make contributions of my own, but they were Roth contributions which are in a separate account. I knew I wouldn't be staying in the US forever and so I decided I'd rather pay the taxes now, than deal with it later.

Uncle_Bob

Another option would to be just cashing out as much as you need instead of the whole $70k and not throwing away the full 10% penalty.

Then make a decision further down the line. I know people that have gone back and regretted it then decided to move back here.

helendha

Thanks for the recommendation!

helendha

Yep - definitely another option. I really don't *need* this money right now, I'm just trying to make smart-ish decisions while I have the chance.... I don't want to decide a year from now that I want to cash it out and then siddenly both the US and the UK tax man are all over me for it.

We definitely won't be returning to the US. A big part of the move is for family reasons, which won't be going away any time soon

Hotscot

If it wasn't a 401k what was it? Curious only.
Quite knowledgable about retirement plans

helendha

It's just called the (insert company name) retirement plan.

Wouldn't have a clue what the IRS code is - sorry..... but it's run entirely in-house (I work for a mutual fund company). May be close to a PSP?

Hotscot

Thanks!

Speedwell

You don't need to cash out an IRA to satisfy the UK spouse visa requirements. You can use its full value to satisfy the requirements regardless of any penalty for withdrawing. It only needs to be in your own name. If it's still held in the company's name then you can't use it without transferring it into your own name. I am shocked more people don't know this.

I just got laid off today and am going to choose the rollover option to transfer my 401K into an IRA in my own name. At that point I will need to hold it for 6 months before I become eligible to use it for the financial requirement for the visa, but I do not need to actually cash it out.

BunnyGirl

Sorry to hijack but oh no Speedwell, are you ok?

Speedwell

Oh, thanks BunnyGirl, you're so sweet. It wasn't entirely unexpected, since the company I work for has announced a 15 percent layoff companywide. I have some savings and a good chunk in the 401K, and my Northern Irish husband has dual citizenship in the UK and Ireland, so we are going to move to Ireland a bit ahead of schedule (he's from the Strabane area so we are thinking of Letterkenny so we are close-ish to family) and wait until the law or our circumstances allow us to move to the UK. To be honest I like to think it happened to me instead of to some overextended single mother on the Help Desk with two small children and a mortgage. <3

helendha

Our immigration attorney would beg to differ :-)

You cannot use retirement assets unless you are over a certain age - which we are not.

I believe the rules have changed (within the last 6 months, ie since we started this process - we've been holding the cash about 6 months now) and now investments can be considered instead of cash only - but not retirement assets. At the time we were pulling the cash together, it had to be just that - cash. Even CDs were not allowed.

Again - as far as our immigration attorney tells us :-)