nun

Just compound 35 years of NI by say 5% return to get a lump sum and then see what sort of annuity or safe withdrawal rate it would produce.

I've been paying Class 2 for 32 years and have a few free years of contributions
lets assume it started at £150/year and has risen by 1.5% each year and is now around £240/year. If I had invested those payments at 5% and let the sum continue to compound until age 66 I'd have £23k and that would buy an annuity in the US worth £1.5k/year (I've left everything in £ to eliminate exchange rates and used today's rates...they might be higher 10 years time). So today 35 years of NI would get me a UK state pension of £8k/year, but if we inflate it by 2% for 10 years it will be £9.7k/year.

aceastwood

It does. The only issue is that TT would not allow me to leave the zip code field for my UK pension provider empty, so I entered 99999. The income ends up on line 16a.

reltub

Can I check if the UK lump sum ( assuming it is over the 25% tax free proportion) is taxed by the UK first and then you effectively deduct that from the tax due in the US, or if you file the Non Resident tax form with HM Inland Revenue is it paid entirely tax free in the UK and tax is only due in the US? Thanks

nun

Assuming you are a US resident, and the pension lump sum comes from a UK pension plan then you pay tax to the UK on anything above the 25% tax free amount. Then you will pay US federal and state tax on the entire amount, but can claim a credit for any UK tax paid.

If you take the 25% lump sum over your lifetime in annuity or as "substantially equal payments" so that it qualifies as income it will be both US and UK tax free.

reltub

Thanks for the quick reply and i understand the first part of the answer if I take it as lump sum all in one go.

I am surprised though by the ability to receive the 25% tax free in the US if I convert to an annuity or " substantially equal payments" as I had assumed that it would still be considered as taxable income.

nun

The US/UK tax treaty taxes "lump sums" and "income" differently. If the withdrawal is taken as lifetime income then any UK tax free amounts are also US tax free.

MMcD

Just to be clear...when you use Turbo Tax - form 1099-R is used by the software in order to generate form 4852.
However, when you e-file, your IRS submission through Turbo Tax will only include the latter. In fact - look at the top of the TT 1099-R - you'll see that it says: "Keep for your records" ....(it's really like a worksheet for the 4852 and your backup records.

As many (all?) States won't allow for e-filing if a return includes Form 4852 - you should be aware of the above. In other words, when using snail mail...don't include the 1099-R when you post the required copy of the 1040 with your State return.

And yes, it's line 16a for pension/annuity income