What should I do with UK pension - moving to the USA

carmen_blue

I have dual nationality with UK and US. I was raised in US but moved here when I was 21. I'm now 35 and planning on moving back to the US. I have a pension here worth about £30k. My question is: what do I do with it? Unfortunately I cannot transfer it to an American pension company because that isn't allowed. I have a feeling my options are pretty limited so I want to make sure I make the best possible decision (if any) before moving to the States. I'm assuming that if I don't put any more money into it between now and retirement age, it will grow (hopefully) between now and then, and then I'll get £x each month deposited into my UK (or maybe even US) account. Anyway, I don't have the best grasp on pensions but if you have any advice I'd appreciate it. I'm planning on starting another pension when I move to the US.

EdInvestor

Guess what, you'll also have almost half of a UK state pension (and perhaps more) to be claimed when you retire as well

Get a forecast of how much that might be here:

http://www.direct.gov.uk/en/Pensionsandretirementplanning/TaxandNationalInsuranceinretirement/GettingyourtaxandNationalInsuranceright/DG_10021384

You may find that these contributions count towards your eventual US social security entitlement = and vice versa . Ask the international state pensions section in Newcastle for info on how that works.

You're probably best just to keep an eye on the UK pension, making sure the charges are not too high and the money is invested in decent funds. You could look at the QROPS option (Google), but it's very possible the US doesn't recognise this.

Cook_County

You already have basis in the UK pension as you will have been reporting it on your annual US income tax returns. This should lead to far lower US tax when you eventually take benefits.

carmen_blue

Cook _County: I don't recall putting anything about my UK state pension contribution on my US income tax return. Where would that have been on the 1040 or 2555?

AnxiousMum

Make sure you also keep in touch with the state pensions people and that they know your addresses in the next 30 or so years. My parents both live down in Oz, and though they left the UK in their early 30's they still receive a UK pension in their bank accounts down there each month.

Cook_County

carmen_blue wrote: »

Cook _County: I don't recall putting anything about my UK state pension contribution on my US income tax return. Where would that have been on the 1040 or 2555?

I said nothing about the State pension.

You mentioned a UK pension fund of about £30k. This is non-US qualifying so you will already be reporting it on your annual US tax returns.

sibot74

Cook_County actually means that you should have been reporting contributions (yours and emlpoyers i believe) on your annual returns. It is my (limited) understanding that the pension won't be recognised by the IRS as a qualifying pension, and therefore contributions are taxable in the US even though they aren't here.

Whether you actually need to pay tax on the contributions or not depends on where you are wrt foreign earned income and other personal limits, but even if you pay $0 tax you are building a basis in the pension which means you won't be liable for US tax when it is drawn. If you haven't declared the contributions you may be liable to be taxed on your pension payments when you come to draw the pension.

carmen_blue

Thank you Cook_County and Sibot74. I haven't been reporting these contributions (ugh) - do you know where on the return I should be doing this? I've never had to pay US tax while here. I've always qualified and never earned over the threshold. Any suggestions on where to go from here?

Cook_County

You do not say what kind of UK pension plan it is. If employer sponsored it falls under IR Code section 402(b) and the vested accrued benefit (figured using the rules in 402(b) are includible on your US tax return.

If a personal pension plan it is arguably a foreign grantor trust so you may find you should also file forms 3520 and 3520-A annually - in addition to FBAR reporting.