Hello - looking for long term in US advice
 

Hello

I am a US permanent resident married to a US Citizen with a little baby girl too. I've been in the US for a while now and think i'll be there long term, so I'm looking for advice on following topics:
- how to access a UK company pension when living in US or things to do now to ease the process later
- I've heard inheritance tax is 'better' as a US citizen - any views? Does it differ across 'receiving' from UK parents v 'giving' to US kids?
- has anyone moved a parent across? How can that be done? My biggest concern is healthcare.

it would be great if someone could point me to any existing links etc. if not then ill post as separate questions

Thanks
Martin

Re: Hello - looking for long term in US advice
 

Hi Martin and welcome to BE :welcome:

I've moved your questions over to the US section so you can get some answers.

Re: Hello - looking for long term in US advice
 

Once you are a US citizen you can apply to sponsor your parents. It's relatively straight forward and I don't think it takes that long to get them in (i.e. under a year or so). HOWEVER, as you rightly pointed out, the healthcare situation is a serious problem.

You will need to buy insurance on the exchanges or through some other private party as they will not be eligible for the government's Medicare program like the vast majority of people > 60 years old. With so many people in the Medicare system, it leaves a very small number of people > 60 on the exchange / private sector system, which *can* result in very high prices.

You might take a look at one of the ACA exchanges in your state and do a hypothetical of what it might cost to buy insurance for your parents given their age and health history. Probably a good ballpark to get started.

Five years after they get permanent residency they can 'buy in' to Medicare coverage.

Re: Hello - looking for long term in US advice
 

I just started taking a pension from my former UK employer - very easy direct deposit into my US bank account - current exchange rate and no wire charges to me.

Not yet old enough for UK SS but I believe that can also be direct deposit into your US bank account.

Re: Hello - looking for long term in US advice
 

I'm curious - what does the above mean? In reality, when US or UK government send your pension, does your comment above equate to the mid-rate? Sounds too good to be true.

Re: Hello - looking for long term in US advice
 

I'm not sure I fully understand your question but here is a summary of a typical direct deposit.

My former employer uses Citibank in the UK - my bank here is Wells Fargo.

My pension is fixed in pounds and converted to US dollars it is paid in US dollars and is in my account on the 25th of each month.

The last deposit on 3/25 was made at the exchange rate that gave me 1.679 dollars for each pound of my pension which on 3/25 was pretty fair. I don't know when the banks lock in the rate for the conversion

I just checked today's quoted commercial market rate on Bloomberg it was 1.6742 - obviously this will change according to the currency market.

Re: Hello - looking for long term in US advice
 

As a guide the mid rate at 16:00 UTC on March 25th was $1.6513, from XE historical data.

Re: Hello - looking for long term in US advice
 

Thanks both, that answers the question. BE teamwork! :thumbsup:

About 2-3 cents above the mid-rate seems fairly reasonable, I suppose - certainly in comparison to high street bank rates and tourist rates.

[Hang on, that can't be right - if the exchange was from GBP to USD, that means the OP was getting BETTER than mid-rate. :confused:]

Re: Hello - looking for long term in US advice
 

It seemed odd to me they got above the mid rate so I went back and checked the mid rate, it is correct. There were only about 4 days preceding the 25th when in March the mid rate was as high as the low $1.67s

Re: Hello - looking for long term in US advice
 

That was at 16.00 UTC, right? Which would be the London "closing" rate. There may have been (almost certainly was) intra-day volatility when the rate was higher (from a GBP perspective), and it may have taken several days for the wire to reach his US a/c, so the rates prevailing several days earlier would be the relevant ones. That said, it looks highly likely that the conversion was done at just a few 1/100ths of a cent below the mid rate.

Re: Hello - looking for long term in US advice
 

I did check back, out of personal interest, becasue the OPs comment made me wonder if I am receiving my pensions the correct way. That is paid into a UK bank and I convert when the rate is good. The $1.67 rates where at the beginning of the month. The rates in the 4 days preceding the 25th were in the $1.64/$1.65 range.

If indeed it is possible to get as close to the mid rate as you suggest, then using a personal account at a currency dealer and getting about 1 to 1.5 cents below the mid rate, amounts to quite a sum over the course of time. The advantage of having the money paid into a UK account is that if the rate is unfavorable there is an option not to convert it to dollars. Swings and roundabouts I guess.

Re: Hello - looking for long term in US advice
 

I do the same - have mine paid into my UK account then move it over when the rates are good. At least I feel that I have some control over that. Now I'm beginning to wonder if it is worth the bother.

I did ask here some time back about the rates that are used for direct deposit to a US account but no one really answered. If others have direct deposit from the UK to the US I would be interested in their experience of the rates used.

Re: Hello - looking for long term in US advice
 

I didn't intend to make this so complicated.

I just intended to show that getting your UK pension paid in the US need not be a difficult process.

I have no control over the financials - my UK pension in pounds is fixed.

I don't have a UK bank account.

My former employer is willing to exchange it into dollars and direct deposit it to my US bank account - obviously there are exchange rate risks but I am happy with the arrangement.

Re: Hello - looking for long term in US advice
 

It isn't complicated or difficult however it is done. But there is more than one way of getting a UK pension in the US.

One of those ways gives the recipient control over the exchange rate and the possibility of maximizing the amount of dollars received. Your post highlighted a possibility that in fact it might not be as big an advantage as it was thought to be. However the figures you quoted being a one month snapshot, and not knowing on what day the exchange rate was locked in, makes Mid Atlantic's request for rates from others worthwhile.

Re: Hello - looking for long term in US advice
 

Between the wire and/or FX fees, FX spreads, and the exchange rate risk (you pick less than the optimum time to move funds), I suspect that your approach is as good as any.

IMO The chances of you correctly guessing when to move money such that you make a material (worth your time, effort, and stress) gain, over just receiving it "directly", is slim to none. :nod:

Re: Hello - looking for long term in US advice
 

For much of last year the mid rate was between $1.50 and $1.55. I waited until I got an exchange rate of $1.62. Was it the best I could have got, no. But it meant I got quite a few thousand extra dollars for my pension. Worth my time, and effort hell yes. But others mileage my vary,

Re: Hello - looking for long term in US advice
 

But statistically you were somewhat lucky, because the USD-GBP rate has a history of occasional "hiccoughs", and a minor sterling crisis could easily have pushed the rate back down to 1.40ish.

When the USD-GBP rate is between 1.50 and 1.70 you are taking a roughly 50:50 bet that the rates will move in your favour, below that range and the odds are on your side, but above 1.70 and the risks of the USD-GBP rate moving adversely against your GBP balance, are much greater.

Re: Hello - looking for long term in US advice
 

So I play the percentages. Above $1.70 I bring our pensions over every month. Below $1.57 I wait. Above $1.62 I book forward contracts at regular intervals, I lose if the rate goes up and gain it back when it comes down. The aim is to get an average minimum exchange rate for my pensions of $1.60. The worst exchange rate I have got since we moved here in 2006 is $1.585. The advantage of controlling it myself, is my income is not so much subjected to swings as the rate moves, and I know, with forward contracts, what it will be for several months out. But what works for me may not for others.

Re: Hello - looking for long term in US advice
 

You describe the conversion rate for the deposit you received on 25 March as "pretty fair".
That's an understatement. I'd say it was phenomenal :blink: - if not downright impossible.

Because I was so intrigued - I looked up the pound -> dollar conversion rates for the entire month on XE (and mind you - their charts show the mid-market interbank rate....not one your ex-employer would be likely to secure, I don't believe :confused:):

http://www.xe.com/currencycharts/?fr...to=USD&view=1M

If you slide the pointer bar back and forth horizontally - you'll see the rate fluctuation over the course of the month, including the week preceding the 25th March - at which time the rate was presumably locked in. How can he have gotten a rate which is higher than the mid-market rate ever was during the relevant period of time?

You probably don't know how he's managing to do that - but if it's indicative of what he's doing for you each month - you've got yourself one hell of a deal....and one heck of an ex-boss.

Re: Hello - looking for long term in US advice
 

I'm wondering how this scenario impacts reporting of this income to the IRS......
Would one then report it based on.....
1) Each pound sterling amount actually received and its (potential) dollar conversion rate at the time received (even though it's most likely not going to be converted that day and the posted Forex rate is not what you'll get even if it were) - or.....

2) The dollar amount received when each individual payment is ultimately converted to dollars, or...

3) An IRS average rate during the year in question, applied uniformly to all payments received over the course of the year (a total figure which may diverge wildly from what's been received after the individual conversions).

And is there any "investment expense" kind of deduction allowed by the IRS for any fees related to these exchanges?

Won't even inquire about "forward contracts"....sounds arcane and complicated - but I am curious as to the tax reporting implications.

PS: How did you manage to do exchanges above $1.70, which you say you sometimes do? Here's the XE chart going back 2 years from today:
http://www.xe.com/currencycharts/?fr...to=USD&view=2Y
The conversion rate was never that high during that time

Re: Hello - looking for long term in US advice
 

Pulaski mentioned the $1.70 rate, which hasn't been around for a few years. I was outlining how I handle the exchange for myself, if it goes over that. Mind you it is creeping up there at the moment.

For tax purposes I use 3 above. The average rate for the year taken from the IRS web site. For tax purposes the money is worth what it is on the date it is paid to me, and the IRS allows me to use the average rate for regular payments.

A forward contract is as straight forward as doing an immediate exchange. The exchange rate is locked at what it is on the day I take out the contract. I pay a deposit of 10% and have the contract executed at a future date paying the balance the day before the dollars are sent to my US account. It is useful because I know what I will be getting a few months in advance, so know what my income will be.

Re: Hello - looking for long term in US advice
 

It is Citibank making the conversion not the former employer. My guess is that Citibank lump it in with all their GBP/USD business that day and therefore it is the multi-million rate. It could be a case where we can actually benefit from the big banks versus the money transfer specialists.

Re: Hello - looking for long term in US advice
 

As I said above (#10), if you're looking at a single line chart, you are missing out on the intraday volatility. During anyone day the price of any traded currency, security or commodity goes up and down, and it is relatively rare that the daily closing price is the highest or lowest price for the day, so it is perfectly possible to trade during the day at a rate better than the closing rate. I do not know if that was possible in this case, but if you could find a candle chart of the GBP/USD rate that would tell you because as well as the daily close, it also shows the intraday low and high.

Re: Hello - looking for long term in US advice
 

It is! A clear example of *good* "mission creep" (the "mission" being our attempts to maximise the $ conversions ;) )

I can't help but wonder whether this is a bit of a tax loophole (perfectly legal at the moment) which will soon draw attention from the IRS, now that they've begun focusing on overseas accounts and corroborative reporting by the institutions which hold them.

Oh, that doesn't sound as complicated as I'd imagined. But does this involve taking a contract on each payment individually or can they somehow be lumped together into one?
BTW: this isn't something my individual circumstances would ever allow for - but think it might be useful/helpful info to add to this thread...

Thanks for that clarification, MidAtlantic. However, I'd point out that I don't believe(:confused: ) this would be an example of "the ordinary course of business for the ordinary (you and I, for example) account holder. I believe "we" are usually charged by our banks for these conversions - and at quite a high rate. However, if audi4t's pension payments are in his ex-employer's UK bank account (rather than his own) - and that ex-employer is, say, the equivalent of a Fortune 500 Co. with massive pension fund holdings at Citibank, worth multi-millions - then the conversion rate they receive might very well be higher than those shown on XE's charts.
But again - I may be wrong....????

Re: Hello - looking for long term in US advice
 

Not sure it really is a loophole. I get a UK pension on the 6th of each month. That pension is worth in dollars the exchange rate on that day. The IRS don't know if I leave that money in the UK, and spend it there, or bring it across to my US bank. Or when I do either. If I was paid in the US tax would be deducted before payment on that day. Certainly hope that the IRS don't see it as a loophole to be closed, I have always been able to bring money over at a rate higher than the IRS average rate.



Yes one contract for each payment, is how I do it. When Wold First were allowing transfers to Oregon I arranged the contracts for amounts that I could transfer from Natwest online in one go. But I have done larger amounts and set up the payment to World First over two days. World First charged a 5% deposit, most other brokers charge 10%.

When we first moved over Moneycorp allowed you to have a contract for regular payments and lock the rate in for up to 2 years. They still do this. So when we first got here I had a 2 year contract at $1.95. The downside, at least then, was however Moneycorp did it, there were intermediary fees and wire transfer fees, which with monthly payments mounts up.

So the answer to you question is they can be individual contracts, or one contract for regular payments.

Re: Hello - looking for long term in US advice
 

The reason I see it as a "loophole" is that it allows one to report *less* income than has actually been received.
Why would the IRS open a door to that when they're hell-bent on grabbing any possible $ owed from any nook and cranny they can uncover?
I would guess that in providing this "average" yearly conversion rate - they do so in order to corral those taxpayers who are choosing to have their foreign income remain unconverted, in overseas accounts.
It's a means to obtain compliance from them.
I can't see any other reason for this provision.
Can you?

In effect however, by availing oneself of this rule - those who do convert to dollars and transfer their foreign income to the States - can easily benefit from (several 100 ?? dollars worth of) undeclared/untaxed income, when reporting.
And this leads to the next thing on my mind...
If this is perfectly legal ( and it certainly looks like it is, at least for now ;) )......

(Why) Can one (not) do the following:
1) You are awarded your UK State Pension (I'm referring to the UK equivalent of US Social Security) in pounds (of course)
2) You no longer maintain a bank account in the UK and so....
3) You request the periodic payment be transferred by The Pension Service, in dollars, directly to your US bank account.
3) Following the above scenario - it seems that, when reporting to the IRS, you should be able to calculate the dollar value of the pound sterling pension income received by availing oneself of that same yearly average rate.

And yet - logic tells me - well, that's crazy...you can't do that.
But OTOH: Why not?
To which I reply (to myself) well.....because The Pension Service made the transfer for you, they did it straight away and that's that.
But, referring back to your quote (copied above).... isn't there some implicit unfairness here?
Should one, in effect, be "penalized" for having the funds converted/transfered to the States by them?
Why shouldn't you be allowed to use that same IRS yearly rate when calculating the yearly income total of the periodic payments?
Or maybe you are :unsure: :confused:
What do you think?

PS...re: Red highlight in quote, above: That's not the case for me. No tax is deducted by The Pension Service when they send monthly payment to US bank accn't.

Re: Hello - looking for long term in US advice
 

I pay US tax on my UK income by quarterly estimated payments. This often means I am paying tax on money which is still in the UK waiting to be converted to dollars. How would I calculate the US value of that money if it hasn't yet been converted. Also I have a small annuity paid monthly, which I leave in my UK back and which gets used to buy birthday presents for UK family, or for spending money on trips back to the UK.

The difference between being paid my pensions in the UK, and being paid in the US as others do is the money received. If I received the money in my US bank in dollars that is the value of the money I received. The IRS wants the value of my pensions expressed in dollars so I have to convert from sterling, and give me a rate and instructions on how it should be done.

Interestingly I think the IRS uses a rate nearer to what you would get at a high street bank, rather than a currency broker, as their average seems to be about 4 - 5 below the averages show elsewhere. The IRS instructions say I must use a rate consistently, and I can average out regular payments. It allows me to pick any published rate I want to use, I choose to use theirs. Those people who have their pension paid directly into their US bank are choosing to use a different publish rate, that which prevails on the day of exchange. The only other way for me to do it would be to calculate the value of my UK pensions using the exchange rate on the day I received them. But as the rate fluctuates over the day I can still pick the lowest rate on that day.

As said before having the money paid in the UK gives more control over the exchange rate you get, but add to that the exchange rate for tax purposes.

Re: Hello - looking for long term in US advice
 

Could be wrong - but aren't "estimated taxes" beside the point?
With the exception of any payments received between 1 Jan. and whenever the current year's return is filed (15 April at the latest) - estimated payments don't represent tax on money "still in UK waiting to be converted to dollars" but rather, a guesstimate as to a future conversion value of income not yet received; the IRS conversion rate will remain unknown (unpublished) until sometime after the 4 estimated payments have already been made (15 Jan of the year following 1st 3 payments).
But the fact that many choose to leave taxable income in the UK, in pounds, is key to why I believe the IRS provide the option of using the IRS conversion rate (which is one of the points I was trying to express in my prior post).
Seems a way to force compliance.

And that's precisely what speaks to the perceived unfairness I question in my prior post:
The fact that those who no longer have UK bank accounts - necessitating (in the case of State Pension) the immediate conversion by the Pension Service of UK income to dollars so it can be directly deposited to a US bank account - puts such pension receivers at an unfair, monetary disadvantage when declaring that (same) income to the IRS:

Examples (using hypothetical Pension amount which is paid out at same times and dates to each Person):

Person A:
Paid £500 pounds every 4wks = £6,500 yr. = $9,774.05 declared total (IRS 2013 rate: £1.00=$1.5037)

Person B:
Paid £500 pounds every 4wks = £6,500 yr. = $10,131.78 declared total (Income if pension's converted by Pension Service/ transmitted to US bank account. Total is based on the 13 different, fluctuating exchange rates used by UK govt. for each of 13 payments made in 2013.

Conclusion...having just gone thru this excruciating exercise :eek:- I see the "perceived unfairness" - doesn't amount to all that much:
In this hypothetical case - if one were receiving £500 every 4 weeks - it amounts to having to add $358 more to ones AGI when reporting to the IRS.
OTOH - I guess that difference might (if you're unlucky) serve to actually push you into the next higher tax bracket - and it definitely results in a slight increase in tax owed. It might also impact those deductions which are dependent on exceeding certain AGI thresholds, before being allowable.
Hmmmmm.....now that I ponder the specific tax ramifications - yes - it matters, after all. :sneaky:

And finally - back to original point, using the above example:

Person A and Person B both received the same income payments on same dates
But Person A is given an unfair advantage because he's allowed to use the IRS rate - which, I don't think (?????) Person B is allowed to do.
However, pragmatically - Person A is going to receive the same higher income (as Person B) when he does choose to bring this income to the States - because he will (most likely) convert it himself at 1% less than the mid inter-bank rate (rather than the 4-5% which your quote below estimates the IRS rate to be) - and if he waits to convert may even improve his actual income.
Person B, receiving the same Pension, can't do that and must declare higher taxable income to IRS than Person A.

"Those people who have their pension paid directly into their US bank are choosing to use a different publish rate"

On the contrary - when they have no UK bank account, and are not allowed to have one, they are choosing nothing. They have no choice in the matter and the rate is determined by the Pension Service.
To be clear - the Pension Service (and everything else on the UK side is great, in my opinion). Complaint is with the IRS

Re: Hello - looking for long term in US advice
 

Estimated taxes are I believe valid because tax is owed on the money once received. If tax is under paid by $1000 or more a penalty is levied, as I know to my cost. Tax is due on the money regardless of where is was received, or kept, and must be included as worldwide income for the tax year on a return. Estimated tax must by paid, quarterly, and not left until money is transfer into dollars. If money is left in the UK and never converted to dollars US tax is still due on it.

It that case they are not receiving a pension paid in a foreign currency, but receiving a pension paid in dollars. The income is received in dollars and that I think is the difference to the IRS. I concede you have an argument it isn't fair.

If I pay US tax on my pension based on an average rate of $1.65, but leave my pension in the UK. Should I be able to claim a deduction if when I eventually move it to the US I only get $1.64?

To be fair there would be no yearly average rate. The rate would be that on the day the money is received. By what rate:-

1) The mid (spot) rate

2) The High Street bank publish over the counter rate

3) The rate from a currency broker. How is that determined without booking a transaction.

4) The IRS publishing a rate for every day of the year.

The IRS average yearly rate seems the easiest way.

Re: Hello - looking for long term in US advice
 

Oh absolutely! To the contrary, unless withholding has been taken before one receives payments - it's essential that Estimated Taxes be paid (both Federal *and* State - unless you reside in one of a handful of State exceptions). If not, a penalty will result....as I guess you found out (how dismaying for you )
I certainly never said they weren't "valid".
What I did say was: "Could be wrong - but aren't "estimated taxes" beside the point?"
..... by which I meant discussion of them, in the specific context of my expressed concern, seemed to obscure or by-pass my point.
Particularly since the IRS rate table isn't even published until after the final estimated payment for the current tax year has already been made - ie: the 4th estimated payment for 2014 tax year is due 15 Jan. 2015.
However, the IRS rate table for conversion of foreign income won't even be available till Jan. or Feb. 2015.

And I guess I'm saying - if we are awarded in pounds, on the same date, at the same time of day - an equal UK pension amount ... I too, as a matter of fairness, should be able to convert it's value for tax purposes, using the same IRS rate as someone who has instructed the Pension Service to transmit their pension to a UK bank. After which they may very well convert it straight away, at a rate several points higher than the IRS rate which they're allowed to subsequently use when doing their taxes. But because I no longer have a UK bank account - I'm put at a disadvantage by the IRS.

Anyway - just having a bit of a gripe and a moan....but in truth (tho it may be hard to believe.......I'm not complaining:lol: really....I consider myself lucky:thumbsup:

Re: Hello - looking for long term in US advice
 

Theoretically - you are taxed on the pension based on the average rates, but then if you achieve a different exchange rate by either forward contracts you may be generating additional taxable income.

In reality, I doubt it's an enforcement priority for the IRS, at least not for everyday individual taxpayers.

Unclear how all this relates to the original question on the thread.

Re: Hello - looking for long term in US advice
 

I understand what you are saying but in the case of the person receiving their pension in the US, there is no conversion to make to obtain the dollar value. On the other hand you get the benefit of an exchange rate that, from what has been posted on BE, is much near the spot rate than an individual can obtain. So if I moved my pension to the US on the day it was received, my guess is someone having it paid directly into their US bank on that day would get more than me. Swings and roundabouts.

Re: Hello - looking for long term in US advice
 

Thanks Penguin - they are both pretty old with a couple of ongoing conditions so I hate to think why the premiums might be - but Obamacare will sort it all out right?;-)

Re: Hello - looking for long term in US advice
 

Thanks for the chit chat on FX rates - I was actually happy to hear the ease at which you could get your UK pension into the US. Do you have to do anything to get the UK pension paid gross? (before paying whatever US tax on it?) Is this treatment available for company based pensions (rather than a state pension?)

Re: Hello - looking for long term in US advice
 

My wife and I both have duel US/UK citizenship. She gets a university and UK State pension which do not exceed her tax allowance, so we didn't bother claiming exception from UK tax for her. My police and UK State pension well exceeded the tax allowance so I claimed exemption from UK tax. Couple of forms to fill out which are sent to the IRS with a fee and they send one of those forms to HMRC.

Your OP gives the impression it might be some while before you claim your pension so things might change.

Re: Hello - looking for long term in US advice
 

Yes Lansbury - that is the case - just trying to look ahead. I was thinking about switching from my UK work pension to my US equivalent. I think my UK matched contributions are much better so wanted to keep it - but didn't want that to come back and bite me later.

Your point about things change is perhaps extra relevant as I'm 'Scottish-British' so who knows where we will be in a few years;-)

Thanks

Re: Hello - looking for long term in US advice
 

My guess about taxing UK income is that there are two taxable events occurring. Firstly, when you receive the money, the IRS allows you to use any reasonable exchange rate to calculate the income in dollars. However, this number becomes the cost basis for the second potentially taxable event, when you actually convert the money into dollars. If the exchange rate is better, this is a gain, if worse, this is a loss. I don't know if foreign exchange gains are taxed at income or capital gain rates.

Then again, I doubt the IRS worry much about that second event, as least for individual taxes.

Re: Hello - looking for long term in US advice
 

The IRS clearly state that the value of the foreign transaction is the exchange rate on the day, or for regular payments the average yearly rate. If that is what the IRS state why try and make it more complicated?

Re: Hello - looking for long term in US advice
 

Sure. But how does that IRS statement contradict what I said? There are two transactions involved: first you receive the money, and later you transfer it into dollars.

Re: Hello - looking for long term in US advice
 

because the IRS instructions says nothing about when the money is actually changed into dollars.