Tax free IRA, 401k etc withdrawals???????
Sep 2nd 2013, 4:30 am
#1
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Thread Starter
Joined: Aug 2004
Posts: 4,754
Tax free IRA, 401k etc withdrawals???????
I posted this over in "Moving back to the UK" forum, but it might be more appropriate here as maybe there are green card holders with IRAs, 401k etc and ROTHs who will be interested.
I think there might be a loop hole in the US/UK tax treaty that allows US and UK tax free withdrawals from US based retirement accounts. If you are not a US citizen or long term US resident you won't have to go through the expatriation part of the plan.
1) before you leave US make sure you have and IRA and a ROTH account set up.
2) when you get to the UK get your US tax status to be US non-resident alien (NRA), For a US citizen or long term green card holder you'll have to file form 8854 and have less than $2M net worth, less than average $151k tax liability for the past 5 years and be up to date with your US taxes for the least 5 years. If you are not a long term permanent resident you don't have to file the 8854
3) As soon as you are an NRA file W-8BEN with your IRA administrator and claim zero withholding tax on IRA distributions.
4) Make IRA to ROTH rollovers.
5) On your UK taxes claim zero tax because the rollover is between qualified pension plans under the tax treaty. HMRC and several professional tax companies have confirmed that IRA to ROTH rollovers have no UK tax consequences.
6) Make sure you satisfy the ROTH distribution rules and take money out tax free in the US and UK.
I have been back and forth to see the error in my logic, but it seems to work. Please show me where I am wrong.
I think there might be a loop hole in the US/UK tax treaty that allows US and UK tax free withdrawals from US based retirement accounts. If you are not a US citizen or long term US resident you won't have to go through the expatriation part of the plan.
1) before you leave US make sure you have and IRA and a ROTH account set up.
2) when you get to the UK get your US tax status to be US non-resident alien (NRA), For a US citizen or long term green card holder you'll have to file form 8854 and have less than $2M net worth, less than average $151k tax liability for the past 5 years and be up to date with your US taxes for the least 5 years. If you are not a long term permanent resident you don't have to file the 8854
3) As soon as you are an NRA file W-8BEN with your IRA administrator and claim zero withholding tax on IRA distributions.
4) Make IRA to ROTH rollovers.
5) On your UK taxes claim zero tax because the rollover is between qualified pension plans under the tax treaty. HMRC and several professional tax companies have confirmed that IRA to ROTH rollovers have no UK tax consequences.
6) Make sure you satisfy the ROTH distribution rules and take money out tax free in the US and UK.
I have been back and forth to see the error in my logic, but it seems to work. Please show me where I am wrong.
Nov 27th 2013, 11:08 pm
#2
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Joined: Feb 2008
Location: Naperville, IL
Posts: 333
Re: Tax free IRA, 401k etc withdrawals???????
I posted this over in "Moving back to the UK" forum, but it might be more appropriate here as maybe there are green card holders with IRAs, 401k etc and ROTHs who will be interested.
I think there might be a loop hole in the US/UK tax treaty that allows US and UK tax free withdrawals from US based retirement accounts. If you are not a US citizen or long term US resident you won't have to go through the expatriation part of the plan.
1) before you leave US make sure you have and IRA and a ROTH account set up.
2) when you get to the UK get your US tax status to be US non-resident alien (NRA), For a US citizen or long term green card holder you'll have to file form 8854 and have less than $2M net worth, less than average $151k tax liability for the past 5 years and be up to date with your US taxes for the least 5 years. If you are not a long term permanent resident you don't have to file the 8854
3) As soon as you are an NRA file W-8BEN with your IRA administrator and claim zero withholding tax on IRA distributions.
4) Make IRA to ROTH rollovers.
5) On your UK taxes claim zero tax because the rollover is between qualified pension plans under the tax treaty. HMRC and several professional tax companies have confirmed that IRA to ROTH rollovers have no UK tax consequences.
6) Make sure you satisfy the ROTH distribution rules and take money out tax free in the US and UK.
I have been back and forth to see the error in my logic, but it seems to work. Please show me where I am wrong.
I think there might be a loop hole in the US/UK tax treaty that allows US and UK tax free withdrawals from US based retirement accounts. If you are not a US citizen or long term US resident you won't have to go through the expatriation part of the plan.
1) before you leave US make sure you have and IRA and a ROTH account set up.
2) when you get to the UK get your US tax status to be US non-resident alien (NRA), For a US citizen or long term green card holder you'll have to file form 8854 and have less than $2M net worth, less than average $151k tax liability for the past 5 years and be up to date with your US taxes for the least 5 years. If you are not a long term permanent resident you don't have to file the 8854
3) As soon as you are an NRA file W-8BEN with your IRA administrator and claim zero withholding tax on IRA distributions.
4) Make IRA to ROTH rollovers.
5) On your UK taxes claim zero tax because the rollover is between qualified pension plans under the tax treaty. HMRC and several professional tax companies have confirmed that IRA to ROTH rollovers have no UK tax consequences.
6) Make sure you satisfy the ROTH distribution rules and take money out tax free in the US and UK.
I have been back and forth to see the error in my logic, but it seems to work. Please show me where I am wrong.
Nov 27th 2013, 11:44 pm
#3
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Thread Starter
Joined: Aug 2004
Posts: 4,754
Re: Tax free IRA, 401k etc withdrawals???????
This thread is best left un-bumped as my original musings contain errors.
It is true that an IRA to ROTH rollover will not be taxed by the UK as it is excluded by the treaty. However, as the US does not consider the IRA to ROTH rollover as distribution of income it is fully taxable to an NRA. There is, however, an opportunity as an NRA to use personal allowances in the US and the UK to reduce your tax bill on distributions from IRAs.
It is true that an IRA to ROTH rollover will not be taxed by the UK as it is excluded by the treaty. However, as the US does not consider the IRA to ROTH rollover as distribution of income it is fully taxable to an NRA. There is, however, an opportunity as an NRA to use personal allowances in the US and the UK to reduce your tax bill on distributions from IRAs.
Last edited by nun; Nov 27th 2013 at 11:49 pm.
