Move funds to USA 401k?

Suzeegb

I have a personal pension with Abbey Life - it's only worth a few thousand (about 9k) and I wanted to know is it possible to get it either cashed out or moved over to my 401k in the USA? I am now resident in the States and very unlikely to move back to the UK - I am 40yrs old.

I do have one other pension which was a local government pension which I plan to just leave alone.

thanks in advance for any information you may be able to offer.

Cook_County

The US tax system - as you probably know - taxes you on worldwide income. This includes items that would be tax-free in the UK, such as ISAs, PEPs, Premium Bond prizes and National Savings Certificates.

So far, so good...

BUT the US tax system does not know what to do with UK personal or local government pensions. There are some tax advisers who take the view that the growth in the fund is taxable annually as income. Others do not take this view, so you will need an opinion from a US CPA or Enrolled Agent who can be sued if the IRS audit you and take the opposite view.

You CANNOT roll the money from the UK to the US because the IRS only permits rollovers from US qualified plans to other US qualified plans.

If you transfer to another UK plan then this could be treated as a taxable lump sum in the US (subject to US income tax and 10% penalty tax) so may not be advisable (there is however an alternative argument that the US/UK tax treaty might help you in this situation). The best advice from a tax perspective is likely to be to leave it alone until age 59.5 and then to pay US tax on the monthly pension thereafter (you'd have basis in any taxable growth recorded to date); again you should take advice at that point to see if the rules have changed.

EdInvestor

Hi Suze

Cook_County wrote:

If you transfer to another UK plan then this could be treated as a taxable lump sum in the US (subject to US income tax and 10% penalty tax) so may not be advisable (there is however an alternative argument that the US/UK tax treaty might help you in this situation). The best advice from a tax perspective is likely to be to leave it alone until age 59.5 and then to pay US tax on the monthly pension thereafter...

Given this advice, you might like to post more info about the pension, in particular a) what charges you are paying and b) what funds it is invested in and any alternatives on offer.

Then it would be possible to see if it can be made to perform adequately at Abbey, or whether it would be better to seek a transfer and check out the tax treaty angle.

Cook_County

EdInvestor raises some very interesting points here.

However the question I don't know if whether any UK based IFA could advise you while you are a US resident given the UK IFA would not be registered with either the SEC or the regulatory body in the State where you reside.

Even if a UK IFA could advise, would an IFA be willing to do so if he had not gotten advice from a US accountant as to the tax implications. The risk for the IFA if he not got such an opinion are that the advice might not be best advice plus the investor might sue the IFA if the thing went pear-shaped...

I wonder if EdIinvestor knows the answers to my conondrums?

dunstonh

Personally, I wouldnt touch it. I think the best situation is to get a US advisor to look at.

EdInvestor

I meant an intra-UK transfer to another provider.

Cook_County

I don't want to sound dumb but how can a UK IFA advise a US resident on a transfer from a UK pension provider to another UK pension provider without knowing if the SEC has jurisdiction over the transaction, and whether or not the financial advice given is legal in the jurisdiction where the person who receives the advice is resident, let alone whether or not transferring the funds might cause an immediate tax liability to crystalize.

At the risk of being tedious, EdInvestor, would any UK IFA take these risks?