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Lump Sum Pension Questions

Lump Sum Pension Questions

Old Jun 15th 2023, 4:54 pm
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Default Lump Sum Pension Questions

I have an old SERPS pension which I'm planning on withdrawing in one lump sum early next year. I think I've found the necessary paperwork (forms 2002 & 8802) to get a NT code but is this something that can be completed ahead of time so that they never deduct the emergency tax, or do I have to wait for the payment and then file? My husband receives a pension and has a NT code but I don't remember having to pay a fee to get this - is it a new thing? Once you have the NT code, will it automatically apply to future pensions - eg UK state pension payments?
As this was part of the contracted out scheme, will this be subject to WEP? I know that they figure lump sums as if they were taken over time. Will they use the COPE estimate in my State Pension Forecast, or the actual amount I receive? If I receive this lump sum in 2024 but don't claim Social Security until 2029 do they WEP it at all, or just use a calculated amount going forward?
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Old Jun 15th 2023, 7:52 pm
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Default Re: Lump Sum Pension Questions

Can’t comment on the NT code, others will be able to help.

All pensions derived in some way from earned income will be WEP’d, and because SERPS falls into that category it is subject to WEP. WEP is calculated on what you actually receive not an estimate. But in any case any WEPable pension taken as a lump sum prior to applying for social security will escape WEP.

It is a good strategy to take such pensions in lump sums before applying for social security provided you also understand the impact to your taxes for the year(s) in which you take a lump sum. If your total income is high enough beware of having to pay higher capital gains taxes, and higher Medicare rates if it will exceed specific thresholds. Also, if your WEPable income exceeds the limit ($1,115 per month for 2023) then of course any additional WEPable income won’t be subject to WEP.
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Old Jun 15th 2023, 7:57 pm
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Default Re: Lump Sum Pension Questions

Originally Posted by USADragon
I have an old SERPS pension which I'm planning on withdrawing in one lump sum early next year. I think I've found the necessary paperwork (forms 2002 & 8802) to get a NT code but is this something that can be completed ahead of time so that they never deduct the emergency tax, or do I have to wait for the payment and then file? My husband receives a pension and has a NT code but I don't remember having to pay a fee to get this - is it a new thing? Once you have the NT code, will it automatically apply to future pensions - eg UK state pension payments?
As this was part of the contracted out scheme, will this be subject to WEP? I know that they figure lump sums as if they were taken over time. Will they use the COPE estimate in my State Pension Forecast, or the actual amount I receive? If I receive this lump sum in 2024 but don't claim Social Security until 2029 do they WEP it at all, or just use a calculated amount going forward?
Hope you have better luck than me. I've been in the US for 23 years, have sent every form to HMRC informing them I am non resident, non domicile in the UK for the past 2 years and asking them for a Non Tax ta code and they are still taxing me (heavily) on my pensions.
If you get an NT code please let me know how you did it.

I applied after my pension started (as I was advised to do) .....
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Old Jun 15th 2023, 8:31 pm
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Default Re: Lump Sum Pension Questions

Originally Posted by Glasgow Girl
Can’t comment on the NT code, others will be able to help.

All pensions derived in some way from earned income will be WEP’d, and because SERPS falls into that category it is subject to WEP. WEP is calculated on what you actually receive not an estimate. But in any case any WEPable pension taken as a lump sum prior to applying for social security will escape WEP.

It is a good strategy to take such pensions in lump sums before applying for social security provided you also understand the impact to your taxes for the year(s) in which you take a lump sum. If your total income is high enough beware of having to pay higher capital gains taxes, and higher Medicare rates if it will exceed specific thresholds. Also, if your WEPable income exceeds the limit ($1,115 per month for 2023) then of course any additional WEPable income won’t be subject to WEP.
Thanks! The plan is to take it out next year as we will have the lowest income of our retirement years (at least I hope so!) I'm not eligible for medicare, so I can get it out of the way now. This article seems to suggest that even if I take the lump sum prior to claiming social security, they will still WEP it if I didn't take it before I became eligible (55 I think). Looking at the chart, they will divide my lump sum by a factor of 216.8 and use that to determine WEP. I'm hoping that it will not be a "lifetime" amount bc at least I will avoid 6 years of it before I claim my SS. I also hope that I am misunderstanding the articles. I feel like they are chipping away at my SS until it gets to zero. https://www.socialsecurityintelligen...on%20Provision. https://secure.ssa.gov/poms.nsf/lnx/0300605364
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Old Jun 15th 2023, 8:33 pm
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Default Re: Lump Sum Pension Questions

Originally Posted by SanDiegogirl
Hope you have better luck than me. I've been in the US for 23 years, have sent every form to HMRC informing them I am non resident, non domicile in the UK for the past 2 years and asking them for a Non Tax ta code and they are still taxing me (heavily) on my pensions.
If you get an NT code please let me know how you did it.

I applied after my pension started (as I was advised to do) .....
I think my husband got his NT code while we lived in Canada (pretty sure we didn't pay a fee), and then it just continued with a change of address in the US.
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Old Jun 15th 2023, 8:51 pm
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Default Re: Lump Sum Pension Questions

Originally Posted by USADragon
Thanks! The plan is to take it out next year as we will have the lowest income of our retirement years (at least I hope so!) I'm not eligible for medicare, so I can get it out of the way now. This article seems to suggest that even if I take the lump sum prior to claiming social security, they will still WEP it if I didn't take it before I became eligible (55 I think). Looking at the chart, they will divide my lump sum by a factor of 216.8 and use that to determine WEP. I'm hoping that it will not be a "lifetime" amount bc at least I will avoid 6 years of it before I claim my SS. I also hope that I am misunderstanding the articles. I feel like they are chipping away at my SS until it gets to zero. https://www.socialsecurityintelligen...on%20Provision. https://secure.ssa.gov/poms.nsf/lnx/0300605364
Just realized that Medicare IRMAA is based on joint income. But we will be below the threshold for that, thankfully.
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Old Jun 16th 2023, 2:33 am
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Default Re: Lump Sum Pension Questions

That’s an interesting article and an interesting link to ssa.gov. It clearly states that to avoid WEP you have to withdraw 100% of the pension as a lump sum, forfeit all rights to taking any alternative pension and do so before becoming eligible for that pension, so you are not misinterpreting it.

The complicating factor is that a contracted out SERPs pension does not actually entitle you to a pension. It is simply a fund that you can cash out and use how you wish, but it is not a pension per se. Even if subsequently purchasing an annuity with those funds, it is not a pension. So although you are eligible to cash it in at age 55, you are are not eligible for a pension at that age and in fact can never become eligible for a pension. Therefore the rule that an individual becomes eligible for a monthly pension or a lump sum in lieu of a monthly pension the first month he or she meets all requirements for payment except stopping work and applying for that payment does not apply.

There are other mitigating factors as well because while most UK pension plans can easily be categorized by a US equivalent, some do not translate very well at all. SERPs is such an example.

If trying to avoid WEP on any plan that does promise a specific pension at a particular age, then it would be wise to get rid of it before that age arises (if you can). In most cases that should be the selected retirement age in the case of defined benefit plans, and voluntary contributions made with AVC and FSAVC pension plans. The fact that you could cash those in at age 55 should be irrelevant so long as you did not sign up for a selected retirement age of 55, which most people don’t.

It is very complex, and you can nit pick over wording etc, but the above is how I understand it to be applied in practice.

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Old Jun 20th 2023, 2:03 pm
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Default Re: Lump Sum Pension Questions

Originally Posted by Glasgow Girl
That’s an interesting article and an interesting link to ssa.gov. It clearly states that to avoid WEP you have to withdraw 100% of the pension as a lump sum, forfeit all rights to taking any alternative pension and do so before becoming eligible for that pension, so you are not misinterpreting it.

The complicating factor is that a contracted out SERPs pension does not actually entitle you to a pension. It is simply a fund that you can cash out and use how you wish, but it is not a pension per se. Even if subsequently purchasing an annuity with those funds, it is not a pension. So although you are eligible to cash it in at age 55, you are are not eligible for a pension at that age and in fact can never become eligible for a pension. Therefore the rule that an individual becomes eligible for a monthly pension or a lump sum in lieu of a monthly pension the first month he or she meets all requirements for payment except stopping work and applying for that payment does not apply.

There are other mitigating factors as well because while most UK pension plans can easily be categorized by a US equivalent, some do not translate very well at all. SERPs is such an example.

If trying to avoid WEP on any plan that does promise a specific pension at a particular age, then it would be wise to get rid of it before that age arises (if you can). In most cases that should be the selected retirement age in the case of defined benefit plans, and voluntary contributions made with AVC and FSAVC pension plans. The fact that you could cash those in at age 55 should be irrelevant so long as you did not sign up for a selected retirement age of 55, which most people don’t.

It is very complex, and you can nit pick over wording etc, but the above is how I understand it to be applied in practice.
Thanks for the comprehensive reply! I'm going to go over the paperwork again bc I think I've seen age 67 in there somewhere. I'm going to pull it out of there before then for sure.
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Old Jun 20th 2023, 2:57 pm
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Default Re: Lump Sum Pension Questions

Originally Posted by Glasgow Girl
That’s an interesting article and an interesting link to ssa.gov. It clearly states that to avoid WEP you have to .....
My primary WEP avoidance strategy is to have 30 years of work in the US (with substantial earnings, subject to SSI contributions), which I will achieve a couple of years before I reach retirement age. This was not a plan, just random luck based on the time I arrived in the US.

Last edited by Pulaski; Jun 20th 2023 at 4:32 pm.
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Old Jun 20th 2023, 3:22 pm
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Default Re: Lump Sum Pension Questions

Originally Posted by Pulaski
My primary WEP avoidance strategy is to have 30 years of work in the US (with substantial earnings), which I will achieve a couple of years before I reach retirement age. This was not a plan, just random luck based on the time I arrived in the US.
and for OP’s benefit… substantial earnings is not really a big number… about $30k this year, you could achieve that with a lot less than a 12 month full time job…

https://www.ssa.gov/pubs/EN-05-10045.pdf
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Old Jun 20th 2023, 6:55 pm
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Default Re: Lump Sum Pension Questions

So do you avoid WEP if you withdraw everything from any SERPs/SIPPs/Employer DC pensions before you claim SS? Or before you become eligible for SS?
If you have withdrawn some but not all, does WEP apply to the remainder (forever?).
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Old Jun 21st 2023, 12:22 am
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Default Re: Lump Sum Pension Questions

Originally Posted by tht
… about $30k this year, you could achieve that with a lot less than a 12 month full time job…

https://www.ssa.gov/pubs/EN-05-10045.pdf
Not everyone can- some people can't achieve that with a 12 month full time job.
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