AlbaRN

I used to work for British Leyland but have been in the US for 18 years.

The trust company that owns the Leyland pension wants to offer me a winding up Sum (lump Sum) to buy me out of the pension.

If I take the money here in the US, what are the tax implications? Is it considered income? Will I also be expected to pay tax in the UK on the lump sum? And tax in the US? Can I roll it over to an existing US retirement fund?

I am in my early forties so I wont be retiring for a while.

Thanks in advance for any advice.

ian-mstm

I believe it's income only if you cash out the funds. If you transfer it to a retirement fund it's not considered income.


That depends on the existing fund. Most have a cap on the amount that can be added in any given year. I suggest you open a Roth IRA fund for the pension.

Ian

im9907620

It sounds like you are being offered the cash sum under the new Triviality rules, i.e. your benefits are commuted to form a lump sum of less than £17,500 and this therefore can be paid as a lump sum. Schemes in wind-up also qualify for this but can offer it before retirement age.

If this is the case then its tax free in the UK.

In the US it will be classed as a lump sum distribution from a foreign pension and taxed at your marginal rate of tax. However, as you are under age 59.5 then you may also suffer a further 10% penalty on the tax amount.

There is no US plan which will accept a UK pension transfer consisting of UK tax relieved funds, otherwise rolling it over would make good sense.

If you go ahead and take the cash then you should consider a Roth IRA or traditional one subject to the prevailing limits in the US.

AlbaRN

Thanks. But is there a maximum you can contribute to a Roth IRA in a given year?