durham_lad

I am afraid I don’t know the answer. I only know that as a UK resident I am subject to tax on my world wide income which includes withdrawals from my USA IRA which is why I converted it all to a Roth IRA over a period of 11 years paying US taxes at a rate of around 15-17% to avoid paying UK taxes at 40% which is the bracket I’ll be in when I am receiving OAP and SS. (Roth IRA withdrawals are tax free in the UK and US)

jjmb

Any recommendations?

Rete

The Institution which holds your IRA will send you a tax statement each fiscal year and you would file a IRS non-resident tax form.

Glasgow Girl

If you are resident in the UK for tax purposes and not a USC, or Green Card holder, then the UK will tax all payments made from US social security, pensions, 401Ks and IRAs. The IRS will not tax those funds. Only a ROTH IRA will escape UK tax because those funds have already been taxed at source. As others have said make sure you actively rescind your Green Card, just abandoning it by leaving the country is not enough to escape the clutches of the IRS. By default, withdrawals from pensions, 401Ks, and IRAs should not withhold any IRS taxes unless you request it but you should check with your financial institution at the time of withdrawal. When you apply for SS you can set it up so that there is no automatic withholding.

durham_lad

Unfortunately with an overseas address I am finding that withdrawals from IRAs including Roth IRAs have a mandatory minimum 10%. Maybe the rules are different if you are not a USC, but it really annoys me that I have to pay 10% withholding on my Roth withdrawals then claim it back as part of my IRS return.

Non USCs might be treated differently

https://personal.vanguard.com/pdf/s2...0distribution.

mikefrom

oh wow, thank you, that is good to think about, will look into paying the tax in advance for the roth IRA, get it over with.

durham_lad

Yes, but they are not taxable by the IRS.

When completing the IRS return you must report the SS received as usual on line 4a but line 4b can be zero as it is not taxable. It has to be reported to the IRS because you, and the IRS, will receive an SSA-1099 form but since you have an overseas address the IRS will not question the fact that none of it is taxable. I use TurboTax to e-file and line 4b is not zero because TT does not support tax treaties, so I enter an exact negative number in "Other income" with a comment that this is to zero out SS as per tax treaty. (I learned this from TurboTax support, and it works)

mikefrom

Dumb question, regarding "By default, withdrawals from pensions, 401Ks, and IRAs should not withhold any IRS taxes unless you request it but you should check with your financial institution at the time of withdrawal.", does that mean if I request that the taxes are withheld by the IRS at time of withdrawing thenI would not have to pay UK taxes at a higher rate?, or is that only for USC and GC's... sorry for the question but I am still figuring this out.

durham_lad

You have to pay UK taxes on the withdrawals regardless of any taxes withheld or paid to the IRS, you cannot choose to pay the lower of the 2 taxes. If withholdings are made then you can claim them back when filing your IRS return.

Cook_County

A lump sum distribution from a US qualified plan is solely taxed by the US, rather than the UK. You will therefore want to decide if you want to take periodic payments or - alternatively - a lump sum.

The crucial item that has been overlooked in this discussion is whether any UK inheritance tax would be payable by the estate on the value of any US qualified plans at death. Because of this possibility, many financial advisers recommend taking larger withdrawals during lifetime.

durham_lad

Excellent point about the lump sums. This what my wife and I did the last few years while converting our IRAs to Roths.

Good point also on inheritance tax. For several years now we have been drawing down more than we need and gifting it to our children to reduce the inheritance tax bite. Although retirement accounts like SIPPs are exempt from inheritance tax it is not clear if that extends to IRAs