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    • spodrod1
    • By spodrod1 12th Jun 17, 6:58 PM
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    spodrod1
    EXPAT - Pension help needed!
    • #1
    • 12th Jun 17, 6:58 PM
    EXPAT - Pension help needed! 12th Jun 17 at 6:58 PM
    Morning all,

    First post and its a question... sorry in advance.

    In 2015 I took the opportunity of a transfer to the US location of my company on a transfer visa. Im a US employee, being paid in dollars to a US bank. The last year I paid tax in the UK was 2014-2015.

    I didnt really give my pension much consideration during the move (which was, in hindsight, foolish). The US company set me up with a 401k plan, which Im paying a fairly small amount into, as Im unlikely to retire in the US and will at some point face the hassle of moving the money back to the UK. Im contributing just enough to get my full employer match.

    However, my concerns relate to my UK pension. Basically, Ive been putting in money as and when I have some free to keep it topped up.

    Ive paid in too much in 15-16 and 16-17. Unaware of the rules, Ive been claiming tax relief over and above the limit (circa 2800 pa). Whats the best course of action on this one? Im really not sure how it works.

    Secondly, Ive found out that a number of pension providers only let you contribute if youre claiming tax relief. Again, I was unaware of this; my plan was just to keep paying in and not claiming tax relief. Assuming my pension provider have this rule, what are my options? I want to keep things simple, as Im unlikely to be in the US forever, but I do want to keep saving for retirement.

    Thanks in advance for your help!
Page 2
    • spodrod1
    • By spodrod1 13th Jun 17, 8:41 PM
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    spodrod1
    I would stop paying into the UK pension immediately. If you are doing your own taxes make sure you understand the arguments about whether a stake holder pension is Treaty exempt from current US taxation. Some professionals will say it is, others will recommend treating it as a foreign trust and doing PFIC filings. The first approach is the easiest.

    Now I'll ask if you have any S&S ISAs or other UK investment accounts?
    Originally posted by bostonerimus
    Sometimes it feels like the system is set up to catch you out - if professionals disagree it doesnt give me much hope that Ill ever get on top of this stuff... what would be the best next step to cover myself on this one?

    Just a couple of fairly small savings accounts and a cash ISA; all declared on the FBAR and 8938
    • spodrod1
    • By spodrod1 13th Jun 17, 8:43 PM
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    spodrod1
    If you have to file an 8938 then FBAR would be necessary too as it has a lower threshold. Anything that you have signature authority over goes in the FBAR...so bank accounts and probably a DC pension...but not a DB pension. The threshold for FBAR is $10k in total.
    Originally posted by bostonerimus
    That makes sense - I guess the only way round this is to file amended FBARs for the past three years. I nknow thats a fairly straightforward process (Ive already amended one of them)
    • bostonerimus
    • By bostonerimus 13th Jun 17, 8:58 PM
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    bostonerimus
    Sometimes it feels like the system is set up to catch you out - if professionals disagree it doesnt give me much hope that Ill ever get on top of this stuff... what would be the best next step to cover myself on this one?

    Just a couple of fairly small savings accounts and a cash ISA; all declared on the FBAR and 8938
    Originally posted by spodrod1
    Are you paying US tax on the interest?

    Personally i would argue that the stakeholder pension is covered by the treaty so that gains are tax deferred.....be prepared to argue that if the IRS ever asks. I would stop making contributions immediately
    Misanthrope in search of similar for mutual loathing
    • spodrod1
    • By spodrod1 13th Jun 17, 9:16 PM
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    spodrod1
    Are you paying US tax on the interest?

    Personally i would argue that the stakeholder pension is covered by the treaty so that gains are tax deferred.....be prepared to argue that if the IRS ever asks. I would stop making contributions immediately
    Originally posted by bostonerimus
    Yes; all interest is being declared on my US tax return.
    • EdSwippet
    • By EdSwippet 13th Jun 17, 9:21 PM
    • 595 Posts
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    EdSwippet
    If you have over $2M and are a long term permanent resident and decide to expatriate, then you will have to mark to market and pay the tax. I get the feeling that the OP is a long way from that.
    Originally posted by bostonerimus
    So was I when I began funding my 401k to the hilt. Circumstances can change quickly. An inheritance, an ultra-short notice tax law change, and tada!, a potentially huge and possibly retirement-destroying tax bill.

    All I'm saying is to take care. Do not follow the 'conventional wisdom' and rules of thumb around this. They often work for normal US resident citizens, but may well not for folk who don't fit that template. Watch out for future unfavourable law changes.
    • spodrod1
    • By spodrod1 13th Jun 17, 9:29 PM
    • 15 Posts
    • 1 Thanks
    spodrod1
    So was I when I began funding my 401k to the hilt. Circumstances can change quickly. An inheritance, an ultra-short notice tax law change, and tada!, a potentially huge and possibly retirement-destroying tax bill.

    All I'm saying is to take care. Do not follow the 'conventional wisdom' and rules of thumb around this. They often work for normal US resident citizens, but may well not for folk who don't fit that template. Watch out for future unfavourable law changes.
    Originally posted by EdSwippet
    This is where it gets tricky....
    I shouldnt pay into my UK pension for a number of reasons and even if I did, once I get the over contribution situation sorted, Id essentially be paying double tax on this.
    I shouldnt pay into my 401k over and above that required to achieve full employer match.

    So the question is.... where should I be putting money?
    • EdSwippet
    • By EdSwippet 13th Jun 17, 9:42 PM
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    EdSwippet
    So the question is.... where should I be putting money?
    Originally posted by spodrod1
    Have you considered Roths? Protected and fully tax-free under the US/UK tax treaty, and also immune from US exit tax issues because they are not 'pre-tax' retirement savings accounts.

    To be clear, I'm not saying don't max out the 401k, if that seems like the right thing. Just be fully aware of the risks, both known and unknown, before you do.
    Last edited by EdSwippet; 13-06-2017 at 9:54 PM.
    • spodrod1
    • By spodrod1 13th Jun 17, 9:58 PM
    • 15 Posts
    • 1 Thanks
    spodrod1
    Have you considered Roths? Protected and fully tax-free under the US/UK tax treaty, and also immune from US exit tax issues because they are not 'pre-tax' retirement savings accounts.

    To be clear, I'm not saying don't max out the 401k, if that seems like the right thing. Just be fully aware of the risks, both known and unknown, before you do.
    Originally posted by EdSwippet
    Ive read some stuff on Roths and that could be a way forward. Im thinking that I really need to set up a session with a decent cross border specialist; does anyone have any recommendations?
    • bostonerimus
    • By bostonerimus 13th Jun 17, 10:36 PM
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    bostonerimus
    Ive read some stuff on Roths and that could be a way forward. Im thinking that I really need to set up a session with a decent cross border specialist; does anyone have any recommendations?
    Originally posted by spodrod1
    ROTHs are good!......they are a bit like ISAs, but with withdrawal restrictions and a far lower contribution limit.

    I would not let fears about the future limit your 401k contributions or other investments in the US. Just be aware of the $2M net worth mark and the long term permanent resident threshold and take appropriate action....that might be moving or becoming a citizen. I became a US citizen 15 years ago so I just have to deal with theCitizen Based taxation consequences. Seriously if I was to return to the UK I would leave almost all my money in the US and just withdraw when necessary. the tax equalization issues aren't trivial, but forward planning makes them perfectly manageable......One reason I use Vanguard is that their ETFs are kosher for both UK and US tax.....they are not PFIC and are UK reporting too.
    Misanthrope in search of similar for mutual loathing
    • OldMusicGuy
    • By OldMusicGuy 13th Jun 17, 11:18 PM
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    OldMusicGuy
    Pretty much. There can however be circumstances where taking it as a lump sum could beat taking it over time, due to US tax rates being lower than UK ones. That would mostly apply where the 401k balance is small or modest.

    A couple of thoughts on this. Firstly, your currency risk (or reward!) comes from the assets you hold in the IRA, not from the fact that the IRA is itself a US pension plan. If you held a pure FTSE 100 fund in it, for example, you would have eliminated all currency issues relative to GBP.

    Secondly, have you considered converting this IRA over time to a Roth IRA? If done carefully and in stages you could capture a lower tax rate and also defuse possible future RMDs that hit at age 70.5. Under the treaty, Roth conversions are taxable to the US but not to the UK, so by converting gradually you could funnel the balance through US nil and low tax brackets. This assumes you aren't a US citizen or green card holder.
    Originally posted by EdSwippet
    Thanks for the comments, good to hear some confirmation of what I have found out in doing a lot of reading! The value of my IRA is around $40K, held in a near cash USD fund as I plan to repatriate it soon. So a weak pound is all good for me there.

    I could try to spread withdrawals over several years and have it taxed in the UK but it is likely I will have other taxable income that will mean I will be paying basic rate tax on it and in that case it seems better to just take a hit at up to 15% tax rate in the US if I withdraw it as a lump sum.
    • EdSwippet
    • By EdSwippet 13th Jun 17, 11:28 PM
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    • 565 Thanks
    EdSwippet
    Seriously if I was to return to the UK I would leave almost all my money in the US and just withdraw when necessary. the tax equalization issues aren't trivial, but forward planning makes them perfectly manageable...
    Originally posted by bostonerimus
    It does? You have direct experience of this?

    A US citizen living in the UK cannot make use of an ISA; what the UK relieves in tax the US will take instead. They cannot easily save in pensions. They cannot use the UK's £11k/year annual capital gains tax allowance. They cannot sell their primary home inside of two years of residency or with a gain above $250k without paying US tax on the gains. They face annual US tax reporting requirements with the potential for huge and life-changing penalties for foot-faults. Thanks to FATCA they will now have problems even opening new accounts at several banks, building societies, and investment platforms. And potentially problems holding on to any they already have open.

    Meanwhile the cost of US citizenship renunciation has risen from $0 to $450 in 2010, to now $2,350, around 20x the norm for a developed country, and pretty much the highest in the world. And yet record numbers of US citizens are currently renouncing US citizenship, with many of them citing the above tax problems as their main motivator.

    If you plan to stay in the US for the remainder of your life, taking out US citizenship is probably a decent move. Certainly not really a damaging one. If you plan to leave the US at some point, though, holding US citizenship will be far more of a ball-and-chain than an asset. Many tax professionals now advise international employees against both green cards and taking out US citizenship.
    • EdSwippet
    • By EdSwippet 13th Jun 17, 11:35 PM
    • 595 Posts
    • 565 Thanks
    EdSwippet
    I could try to spread withdrawals over several years and have it taxed in the UK but it is likely I will have other taxable income that will mean I will be paying basic rate tax on it and in that case it seems better to just take a hit at up to 15% tax rate in the US if I withdraw it as a lump sum.
    Originally posted by OldMusicGuy
    $40k as a lump sum should get you about a 12% US tax rate, from memory. Not bad, then, in comparison with UK rates.

    With patience though, I think that over a decade you might be able to get the entire lot tax-free. Converting $4k/year to a Roth IRA would keep you within the US 0% tax band. And once over age 59.5 any Roth withdrawals should -- I think, but do check -- be exempt from the Roth 10% early withdrawal penalty for taking out stuff from a Roth that is less than five years old.

    Obviously, the latter course assumes no tax law changes come along to mess that plan up.
    • bostonerimus
    • By bostonerimus 14th Jun 17, 12:56 AM
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    bostonerimus
    It does? You have direct experience of this?

    A US citizen living in the UK cannot make use of an ISA; what the UK relieves in tax the US will take instead. They cannot easily save in pensions. They cannot use the UK's £11k/year annual capital gains tax allowance. They cannot sell their primary home inside of two years of residency or with a gain above $250k without paying US tax on the gains. They face annual US tax reporting requirements with the potential for huge and life-changing penalties for foot-faults. Thanks to FATCA they will now have problems even opening new accounts at several banks, building societies, and investment platforms. And potentially problems holding on to any they already have open.

    Meanwhile the cost of US citizenship renunciation has risen from $0 to $450 in 2010, to now $2,350, around 20x the norm for a developed country, and pretty much the highest in the world. And yet record numbers of US citizens are currently renouncing US citizenship, with many of them citing the above tax problems as their main motivator.

    If you plan to stay in the US for the remainder of your life, taking out US citizenship is probably a decent move. Certainly not really a damaging one. If you plan to leave the US at some point, though, holding US citizenship will be far more of a ball-and-chain than an asset. Many tax professionals now advise international employees against both green cards and taking out US citizenship.
    Originally posted by EdSwippet
    CBT is a cross to bear for the US citizen and there are certainly restrictions. UK employer pensions should not be an issue, but ISAs are out. Capital gains needs to be navigated. I'm a US/UK dual citizen with 30 years residency in the US and I've organized my finances to make it easy to return to the UK and deal with the taxation.

    I've used the ROTH expensively and now do annual IRA to ROTH rollovers. All my non pension accounts are invested in Vanguard Index funds that can be converted to EFTs with out capital gains so they become UK reporting. There will be US withholding on IRA withdrawals by treaty resourcing makes it easy to claim the FTC and the withholding back on the 1040. My US social security and state pension can be directly deposited in the UK and I have kept up my UK voluntary NI payments as part of my plan too........I suggest the OP look into that.
    I will keep all my investments in the US because, frankly, the expenses and unnecessary complications of UK investing just isn't for me so I'm not worried about any FATCA restrictions on investment accounts.

    If the OP is applying for a GC they should be planning for a long time in the US and should plan to maximize their US investing opportunities rather than looking over their shoulder at the UK.

    There are certainly pitfalls for the unprepared, but with some planning and organization they can be avoided.
    Last edited by bostonerimus; 14-06-2017 at 1:08 AM.
    Misanthrope in search of similar for mutual loathing
    • spodrod1
    • By spodrod1 14th Jun 17, 1:29 PM
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    spodrod1
    Im going for the Green Card as, at present, Im on a transfer visa (L1). While this has two years to run, its not without its draw backs. Esseentially, Im tied to my company; theres a couple of problems with this;
    1. Theres a great deal of uncertainty around staffing levels/org structure; the job is not particularly stable
    2. The company has all the power; Im unable to look for alternate roles if Im not enjoying my current one.
    After speaking to some immigration lawyers, they recommended the green card route - While Im in the US, this should be only positive. The only issue will be when/if I leave. If this happens, Ill immediately rescind my GC, which should remove the majority of issues in the US.
    • bostonerimus
    • By bostonerimus 14th Jun 17, 4:13 PM
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    bostonerimus
    $40k as a lump sum should get you about a 12% US tax rate, from memory. Not bad, then, in comparison with UK rates.

    With patience though, I think that over a decade you might be able to get the entire lot tax-free. Converting $4k/year to a Roth IRA would keep you within the US 0% tax band. And once over age 59.5 any Roth withdrawals should -- I think, but do check -- be exempt from the Roth 10% early withdrawal penalty for taking out stuff from a Roth that is less than five years old.

    Obviously, the latter course assumes no tax law changes come along to mess that plan up.
    Originally posted by EdSwippet
    Paying the 10% penalty and US tax on the lump sum is the quickest and most expensive way to get at the IRA. I like the rollover to a ROTH strategy. If you keep the amount below your exemptions ($4050 if you are single) you'll pay 0% US tax on the rollover (there's no UK tax liability as the rollover is from one US qualified plan to another) and then 0% tax in the US and the UK on withdrawals.
    Misanthrope in search of similar for mutual loathing
    • EdSwippet
    • By EdSwippet 15th Jun 17, 11:39 AM
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    EdSwippet
    After speaking to some immigration lawyers, they recommended the green card route - While Im in the US, this should be only positive.
    Originally posted by spodrod1
    Right. I had the same reasons when I took out my green card(*). Not so much a long-term commitment to living in the US, but rather a much shorter term aim of having some choice about my employer and my location. A bit of freedom, in other words.

    Do be aware, though, that this is not the US govt's view of a green card. It very much sees the green card as a step towards taking out US citizenship. Once you have one you are as closely tied to US tax and other responsibilities as any other US citizen. Except, of course, for still having no vote or voice in how the US govt spends your money.

    The only issue will be when/if I leave. If this happens, Ill immediately rescind my GC, which should remove the majority of issues in the US.
    Originally posted by spodrod1
    Green cards are risky things these days. Keep a watchful eye out for any rumblings about US tax law changes that could hole your plans below the waterline, or for aspects of US tax laws that contravene or renege on the US/UK tax treaty. For example this one, which argues that the 'exit tax' should apply not just to long-term green card holders but to any former long-term US residents, no matter their immigration or visa status. Or this one, which proposes an automatic US entry ban on 'covered' expatriates (where 'covered' includes anyone who failed to file any US tax form over five years).

    (*) In reality it's much more pink than it is green.
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