dunroving

Well, I have a completely unexpected opportunity to finish my career back in the US. I am being very proactively recruited for an almost dream position that is mine to lose. Great job, great place, great lifestyle and great people (I already know most of them).

I have my head around most of the things I need to think through, but there's one aspect of the pros vs. cons I need a little help with. I have a feeling it will probably be the deal-breaker against moving back but would appreciate any helpful factual information.

Since I have been back in the UK, I have been aggressively investing for retirement (I don't mean aggressive/risky investments, I mean ploughing substantial earnings into investments, every year - including this year putting about 80% of my salary into pension/AVCs). These have included over the last 7 years cash and stocks and shares ISAs, and additional voluntary contributions to an employer-sponsored pension scheme (final salary, as well as defined-contribution).

If I move back to the US, my understanding is that while I am there, any growth in my ISAs will be subject to US tax, despite the tax-free status of these ISAs in the UK. So my first question is: Is there any equivalent in the US to an ISA (the idea being I'd take everything out of the UK ISAs and invest in a similar vehicle in the US)? I'm pretty sure the answer is No, but would appreciate any agreement/disagreement. I also realise I would be unable to add to ISAs if I leave the UK.

In the UK, 25% of the capital value of a pension fund can be withdrawn as a tax-free lump sum (hence me ploughing so much into AVCs - it is essentially tax-free savings that will pay off the mortgage at retirement). My understanding is that generally there is NO such allowance in US pensions. Is this correct?

I realise there are lots of issues associated with my situation, but these are the main ones I would appreciate advice on. I'd appreciate other advice too, but I am pretty sure I have my head around everything else. I think in the end I will likely turn down this opportunity but because it has such potential, I want to at least think through the pros and cons as thoroughly as possible.

Sally Redux

Wow that's because you stopped trying

I don't know the specifics I'm afraid but it feels like the US gets less attractive as you approach retirement.

Maybe you would feel happier here on the other levels though?

Jerseygirl

Can't help you with your enquiry...but I just wanted to wish you luck...I know how much you miss the US.

Good luck...I hope it all comes good for you.

sir_eccles

The simple answer to your question probably includes a reference to some sort of IRA.

The more complex answer would require one to know where you intend to retire.

Michael

From my understanding, you can't rollover an ISA to a tax free US retirement account. The best you can do would be withdraw it and use a company provided 401K plan (both pre-tax and after tax contributions), after tax Roth IRA contributions, or traditional IRA to quickly build up your retirement accounts. I suspect your job is with a university and they use 403b plans which are similar to 401K plans but seems to have higher limits.

The following are the basic IRS rules for 401K contributions.

http://www.irs.gov/Retirement-Plans/...tive-Deferrals

The following are the basic IRS rules for 403b contributions.

http://www.irs.gov/Retirement-Plans/...ibution-Limits

The following are the basic IRS rules for IRAs.

http://www.irs.gov/Retirement-Plans/...ibution-Limits

So if may be possible with a little trickery (if there is a tax treaty that only the US taxes your ISA withdrawals), to put that into a pre-tax 401K, 403b, and/or traditional IRA to avoid tax until retirement. However, don't ignore the tax benefits of a Roth IRA on withdrawal. With pre-tax contributions, you are not directly offsetting your taxes from ISA withdrawals but are offsetting taxes from your salary instead. So if you can withdraw 25% of your ISA tax free before you move and then withdraw the rest over the next couple of years and contribute at least as much as would be taxable, then it may possibly be a wash.

I'm not sure of the tax rules on withdrawals from 401K and 403b plans when both pre-tax and after tax contributions are made. I believe the pre-tax contributions are limited by the average percentage of contributions by all employees of the company (e.g. average may be 7% of salary so the limit may be 10% of salary). I suspect that after tax contributions may be treated similar to Roth IRA contributions on withdrawal but check with your HR department to determine the tax consequence on withdrawal. Pre-tax contributions and employer matching funds are 100% taxable on withdrawal including any gains made on those contributions where as a Roth IRA withdrawals including gians are not taxable if specific rules are followed. I believe that some people (usually older employees) in the last company I worked for only made after tax contributions to the 401K since they felt that was more advantageous as far as taxes since their incomes would be high at retirement due to maximum social security, investments, and other taxable pensions.

Also I believe "nun" believes that if you move back to the UK where Roth IRA and possibly other after tax contributions will not be taxed in the UK either upon withdrawal. Although he specifically didn't mention this situation where you would be making after tax contributions, the concept I believe he was using was to rollover taxable pensions to Roth IRAs prior to leaving the US and pay US tax to reduce the overall tax burden and not pay any US or UK tax on withdrawals. Therefore check US/UK tax treaties as to which types of US pensions are taxable in the UK if you move back.

theOAP

Wow.

I'm with sir_eccles, after thinking about it, the most important question really is where do you want to retire?

We can give you all the pros and cons, and there are numerous potential pitfalls which would need to be considered, but you can work with those as long as in the future as you don't do the "I wonder what if...."

I retired early. About 4 years before I retired, I was offered a fantastic job in Germany, a very high position in a very large company (you would recognise the name). I really liked the company as it was one of the two best companies I'd ever worked for (I was in the British arm which they were about to sell). I knew at the time the 'current job' was a dead end. There were other factors that were not favourable, but those were on the personal level. I turned the job down, and I have never regretted that decision. But, that's me and my life.

Give the decision some time if you have that luxury, and don't pressure yourself into that decision. Deep inside that skull of yours, you'll already know the answer.

dunroving

Thank you for all the helpful replies. I'm loath to read tax regulations, but I know I'll have to at some point so thanks for these links.

Sally - so true, I was just getting into the "acceptance" stage ... wouldn't you know it. Still, it is undoubtedly good to have options and ultimately, it's nice to realise you are appreciated and respected by your peers - even if they are thousands of miles away!

Sir_eccles, I should have said that the most likely scenario would be retiring to the UK. As much as I love the US, living there in retirement is not an attractive thought.

The other, related issue is that I am close to retirement age (10 years to state retirement age; possibly as few as 5 years to a planned early retirement - not well off, but at least relatively comfortable). At my advanced stage of decrepitude, any career-ending illness or chronic injury would be covered by my current final salary scheme (retire on full pension), whereas I think in most US systems, if you have to retire early, you're essentially screwed.

I had considered the idea of an IRA, particularly a Roth, but the one drawback I thought might exist with that is the lower level of flexibility, compared to an ISA (you can take out as much as you want whenever you want, with an ISA). I had thought about the idea of putting salary into a 401k or 403b (I think the university in question has a 403b plan), and living off my "savings" (drawing down the ISA). That still leaves me with the issue of money still being taxable in the ISA, but would enable me to put pre-tax money into some sort of IRA type scheme.

Although OAP didn't address the original question, it perhaps was the most helpful in terms of putting an overall perspective on it. That is exactly the "other" advice that I was hoping might make me really think. I am in exactly that situation - working in a financially secure, but ultimately uninspiring and sometimes excruciatingly frustrating job and looking at the "perfect" job, that financially is probably much worse off. I have planned an early retirement or semi-retirement here, that I am confident I can pull off in 5 years. In the US I am not nearly so sure I could retire in 5 years, and I could potentially be worse off retiring in 10 years there, compared to retiring in 5 years here. As you say, deep down the answer is there but I need to let the pros and cons sink in first. Moving country can be very expensive (and I don't just mean the actual costs of moving) so it's something I would have to think long and hard about. Currently the default position is "Stay put".

nun

Correct, gain in ISAs held by US residents are US taxable.

You are right in thinking that you cannot move ISAs to the US and invest them in a similar tax free account. The closes thing to the ISA in the US is the ROTH IRA, but they are specifically for retirement and have restricted access before you reach 59.5 years old.

You are correct, and any lump sum you tax from a UK pension as a US resident will be US taxable.

The issues you have with the ISA as a US resident are two fold; US tax and PFIC rules. You cannot avoid paying US tax, but you can avoid PFIC issues if you only own a cash ISA, or your stocks and shares ISA is only invested in individual shares or finally if it only contains US domiciled investments like the US Vanguard ETFs you can buy through UK brokers. You might also find that your UK ISA administrator will ask you to close the account if you leave the UK. I know the Hargreaves and Lansdown is a UK broker that will deal with you as a US resident. Many won't.

Your final salary pension should be no issue for US tax, but opinions differ regarding the treatment of UK defined contribution plans by the US. I think you should double check about that plan and do some research so that you can make a good argument that gains within the plan are not US taxable until you start to take income.

JAJ

If you are fairly close to retirement, and want to retire in the U.K., then you really should do the math to understand whether a number of years working in the U.S. will make sense financially (and otherwise) for you.

On the other hand, if you like the U.S. enough to want to spend the rest of your life in that country (assuming you can get green card, citizenship etc) then it's a different issue. Out of interest, is a U.S. retirement option so much worse than a U.K. one? Assuming you have enough credits to be Medicare eligible, (probably once you have a green card), etc.

Hope it works out for you, either way!

dunroving

Thanks Nun/JAJ. Yes, I can't see me spending retirement in the US, TBH. A move back would be purely for job satisfaction/quality of life reasons.

Another factor is that this university does not bring people in with tenure (not even for a new President). This is increasingly common these days. So with credit for current experience, there'd be a 3-year tenure-track period. Getting tenure doesn't worry me, but being untenured for 3 years does. News of the US economic situation doesn't inspire confidence - I can't imagine politicians in the UK holding the government to ransom and bringing parts of the public sector to a screeching halt.

Regardless of whether any untenured faculty have lost their jobs recently (not that I'm aware of), the lack of job security is a bit worrying. No-one saw 2007/2008 coming, so who's to say in a year or two, the State government wouldn't be laying people off? Just another thing to think of. Earlier in my career, being on tenure track wasn't an issue, but at this stage I think I need a bit more certainty.

Am I being too paranoid about this, or is anyone in the US seeing signs of this sort of trouble down the road?

(The state in question is Tennessee BTW).

Sally Redux

My husband certainly isn't happy with the lack of security where he is. They would love to see everyone get all their salary off grants.

dunroving

It seems that more and more academics are expected to win more and more research grant money (even at non-research intensive universities) - but the amount of research grant money available is on the decrease, here in the UK, anyway.

Even a basic understanding of maths would lead you to conclude that it's an impossible goal to meet. Doesn't stop them expecting though.

One reason why for me, the idea of planning a 2018 retirement seems a preferable option. I won't be around for the next REF and can start coasting in about 3 years - research-wise, anyway. I'd never go into cruise mode for teaching.

Sally Redux

Research grant money is far more difficult to get now than when he first came over. What little there is tends to go to 'big names' from the past, even if they really haven't done anything new for years.

The governmental shenanigans show that research is unlikely to get a look-in in the near future.

If you can retire in 2018, then this move seems quite a big gamble.

Bluegrass Lass

I would think, based on just the costs of relocation alone, it wouldn't be the most feasible thing to do, especially if you think you'd only be over here for 5yrs~ish before you want to retire back to the UK.

dunroving

Yes, I must admit there is a certain element of ego involved. It's very tempting to pursue at least the possibility of an opportunity that implicitly bolsters your ego. I don't get much of that in my current job.

Logically, the pros and cons point overall towards not taking this opportunity but I didn't want to reject it out of hand. I also don't want to burn any bridges so a "Thanks, but no thanks" needs something of a practical - most likely financial - rationale, because they know I would love to work there.

As I said before, it's nice to be wanted. But if Norah Batty lusted after me, doesn't mean I should take the offer.