Neillc37

When I do my retirement taxes (2016 is my first year without earned income) I find that I don't pay any US taxes. Mostly qualified dividends. Non-qualified dividends and taxable interest (minuscule as I use munies) get eaten by deductions and child tax credit. I do have to pay though $5k in foreign taxes on my foreign ETF's. 2016 will be easy as I can carry it back to 2015. After that it looks like it will grow. Filling up the 10% and 15% tax bracket with Roth conversions won't help with the FTC beyond some minimal amount. This is because my foreign income isn't all my taxable income and it's done proportionally. I could take the annuity option and that would be in the passive bucket just like the ETFs. That might help eat up more of the FTC. I really want to get rid of everything foreign though as the risk is too high. The US really wants to steal the money via fines based on their history.

kodokan

I shall be doing exactly the same - dividend income, Roth filling, etc - but without the foreign tax credits to complicate it, fortunately. Other than the pensions, I keep the bank account money in non-interest paying checking accounts as I can't be bothered to track and report it here.

It'll be a great relief to get out from under the reporting requirements, as I'm annually reminded that I might make an honest but catastrophic mistake.

nun

What do you mean by "foreign ETFs"...US based international funds or foreign domiciled fund?

Neillc37

The first. VEU, VSS, SCHF, SCHC etc. I would consider investing in a foreign mutual fund in say the UK if I was plagued by the AMT. This is because if you work through for 8621 you see that sec 1291 tax offsets AMT dollar for dollar and hence becomes tax free. You would still have to pay sec 1291 interest but that could be minor.

nun

So I assume you are US resident.

Neillc37

Yes. That's why I have been talking about being a US resident and taking a distribution from a UK pension that's 25% tax free.
I can't live in the UK. I couldn't afford to realize all my capital gains in one go to reorganize my portfolio to be UK tax friendly. I also can't escape since I would be subject to the exit tax with a big bill.
So my only option really is to stay. That combined with the unlimited marritable deduction for citizens forced me to become a citizen.
I always wanted to stay but it is a little sour when you realize you actually don't have a choice.

RGSF2001

Hi All.
I'm new to the site and have taken a look through the pages on the topic of IRS & Tax Free UK pension lump sums. I wonder if someone can condense the plethora of info as its way beyond my ability...

I am now a US citizen, resident in California and just turned 50. I have two policies from employee Pension Plans while working in UK prior to 2000.

My questions are.....

1/ Can i get access to these funds in lump-sum and//or yearly pay-outs?
2/ Can i move these funds from UK to USA and put into a US plan?
3/ What are tax implications of both the above if they can be done? Both US and UK tax implications.

I really appreciate any guidance as this is clearly a minefield....

Cheers!
Richard

Disenchanted

Hi Richard, and welcome to the board.

Why would you think you can not access your UK pensions? They are yours and just because you are now a citizen of the USA does not mean they are now inaccessible. Depending on age restriction rules of your UK pensions and any reduction/penalties for early withdrawal you should be able to draw from them, however it does come with a HUGE caveat.

You may want to be more specific as to what type of pensions they are as there are others on this board far more knowledgeable than I that can offer more of a targeted response than I can. The caveat is that you are a US citizen living in the USA and as such the Department of the Treasury and the IRS will be wanting tax on ANY and ALL of your worldwide income.

You should be sure to file with the DWP in the UK your residency status so they do not take taxes from your pensions as they are disbursed to you. If you do not you will need to invoke "tax treaty status" so that you can claim tax credits on your US tax return for those taxes you pay to the UK DWP.

As far as taking lump sum disbursement and dropping/transferring it in to a USA pension that won't fly, as as far as the IRS/DoT is concerned it's a non-qualifying pension (ie like a 401K transfer) and so can't be transferred from UK pension to USA qualifying pension without it being considered a taxable event, at which time you will be taxed.

Unfortunately the USA is one of only 2 countries in the world that taxes it's citizens and LPR (resident aliens) on their worldwide income irrespective of where it was from and what tax was already paid on it no matter where that citzen/LPR lives. Welcome to the "Greatest Country in the World" as they love to call it.

Others will be along soon to provide you with more detailed information so hold on to your hollyhocks as it's hardly a rosy picture that they'll be painting.

Do you have sufficient contributions for a UK state pension? If not you may want to consider paying class II payments to DWP before they are phased out. Go to the UK gov site and search for class II NIC's.

Greg.
A fellow Ex-Pat Brit living in California

RGSF2001

Thanks so much Greg.
Great info.

My pensions are "Group Personal Pension Plans" from UK Employers i had before 2000 (two in total but 3 policies), that i have been allocating to various different funds accessed by Aegon and Aviva since inception.

My preference is to take as much as i can out of them (and UK) as I no longer even have an address or bank account in UK. Plus i'd like to use the funds etc.

I've just become a US citizen but retain British citizenship of course and turned 50. I'm pretty sure i have Non-Dom status done years ago, but will certainly check.

I have just started to approach Aegon and Aviva in UK re this thus my desire to get up to speed as to what to expect, and how to best handle.

Thanks again-i guess I'm ready for the deep dive?!
Richard

nun

1) Your ability to access your UK pensions only depends on the UK rules for withdrawals. You should ask your UK pension provider about drawdown etc.

2) No, you cannot move the funds to the US and maintain tax deferral. US retirement plans only accept rollovers from other qualified US plans.

3) As a US tax resident (and presumably a UK tax non-resident) you are not liable to UK tax on any withdrawals from UK pension plans, but you are fully liable to US income tax on them. You will file a "US-Individual 2002" to claim tax treaty exemption from UK tax.

RGSF2001

Thank you Nun

What tax can i expect to pay as a CA resident? Just a rough range would be v helpful....

Also----i assume i will always have to pay US Income Tax on any disbursements..so i might as well do it now as i'll save nothing in tax by holding back?

Thanks!
Richard

RGSF2001

Additional Info-

I have approx 65% in "Non-Protected rights" and 35% in "Former Protected Rights"...

Thanks again
Richard

nun

Use Google and your expected income to work out the CA tax you might pay.
You will be liable to both US and CA tax on any UK pension income you take, but you should be careful to withdraw the money sensibly to minimize the tax rate you pay. I believe you will have to wait until you are 55 to access your UK Group Personal Pension money.

Owen778

Well, just like most other countries, the tax rate goes up, as your income goes up, so you do save money by spreading out the payouts from the pension.

MMcD

These links should help you to figure it out.....

https://smartasset.com/taxes/califor...tor#U1GHb77eNO
be sure to scroll down for all the nitty gritty

https://www.ftb.ca.gov/forms/2015_Ca...emptions.shtml -
This is the official State of CA. web site - equivalent to IRS site(s) for Federal taxes

to the wild west .......