Moving US pension pot to UK

dunroving

I currently have investments in a US Defined-Contribution style retirement scheme, with TIAA-CREF. For various reasons, I am not happy with my US pension provider and would like to move the pot over to the UK.

I have read enough threads on other forums to realise that a straight transfer is not feasible (QROPS is for those with big money; that's not me).

Unless I am missing something, the following plan should allow me to move it without any real penalties.

At 59.5 years of age (to avoid the 10% penalty for early withdrawals), start disinvesting (withdrawing capital).

Use the US-UK tax treaty to avoid US tax, via Form Form W8-BEN.

Pay UK tax on the income.

Put the income into a UK SIPP.

Get UK tax paid (above) "refunded" via the 20% top-up (plus more, via self-assessment, if I withdraw sums that take me into the 40% tax bracket, when added to my regular salary).

Can anyone see any errors in this plan (mainly from the tax perspective)? I am aware of the new annual limits on pension contributions and will need to do my sums carefully to avoid exceeding these limits.

I can fill in other details of the why/how as/when needed but thought it best to start with the basic idea.

kangoora

That's what I'm planning on doing, although my pot will be relatively small (expecting no more than £20k).

You could try asking on this forum

http://britishexpats.com/forum/usa-57/

There's some knowledgeable people on that forum who answered some questions for me regarding US Social Security I have built up - you might want to check out that thread also p32 onwards

dunroving

kangoora wrote: »

That's what I'm planning on doing, although my pot will be relatively small (expecting no more than £20k).

You could try asking on this forum

http://britishexpats.com/forum/usa-57/

There's some knowledgeable people on that forum who answered some questions for me regarding US Social Security I have built up - you might want to check out that thread also p32 onwards

I know that forum pretty well - and I was a respondent many times in that specific thread! They are very helpful bunch for expats but I thought I'd ask the question here as the problems I have encountered don't affect the guys on the other forum as they all are currently US residents (I came back in 2006) or they are US citizens.

EdSwippet

I'm in a similar situation, and have already considered something similar for myself. I can't see any holes in your plan. It does have a lot of 'moving parts' though, so you will have to be very careful not to blow past a limit somewhere along the line.

If you really want to sail close to the wind, have you thought about using a 72t SEPP plan to withdraw without penalty before age 59.5? Or is that just one constraint or complication too far?!

gadgetmind

Does your UK employer provide any kind of pension? Can you use salary sacrifice?

dunroving

EdSwippet wrote: »

I'm in a similar situation, and have already considered something similar for myself. I can't see any holes in your plan. It does have a lot of 'moving parts' though, so you will have to be very careful not to blow past a limit somewhere along the line.

If you really want to sail close to the wind, have you thought about using a 72t SEPP plan to withdraw without penalty before age 59.5? Or is that just one constraint or complication too far?!

I've never heard of a 72t SEPP before, though after Googling it I realised I have heard of the concept before. As I will be 59.5 in less than two years, I am thinking it is probably simpler to just wait until then, but I will look further into the SEPP first, just in case it looks like it will work. As you say, it may be one complication too far.

Do you currently live in US or UK? If you are still in the US, or have a US Roth, there is a more advantageous method I can suggest for you (I can't use it because I am not living in the US and don't have a Roth).

dunroving

gadgetmind wrote: »

Does your UK employer provide any kind of pension? Can you use salary sacrifice?

Yes, I have a work-based pension and am putting as much into it as I want. I'd rather use a SIPP for the US-equivalent funds that I am trying to bring over.

EdSwippet

I'm not in the US, not a US citizen (thank goodness) and not already in possession of a Roth. So very much as yourself, then. I may have seen the Roth discussion you're thinking of, but it helps me no more than you. On the plus side, my 401k is with Vanguard, and so in pretty safe hands. (On the minus side, I do not trust the US congress at all, so there would be my impetus to move if I could.)

To (what I believe is) gadgetmind's point -- and I'm not clear you've caught this -- 'salary sacrifice' is more than just automated contributions from your salary by your employer into a pension. The 'sacrifice' element gives an NI saving to both you and your employer. A really good employer will then add their NI saving to your pension contribution, giving a considerable uplift over simply paying into a non-employer pension plan.

For example (and all numbers rough and ready) suppose you earn £10k and withdraw £10k from your US pension in a year, this is your only income, and the UK tax allowance is £10k. If you do the simple thing and funnel the £10k from the US into a SIPP you'll have around £9.5k (after NI) from salary to live on, and £10k in your SIPP after tax reclaims.

Instead you might salary sacrifice your entire £10k salary and live on the £10k from the US. This gives you £10k to live on (no NI or tax on that), and maybe £11k in your employer's pension (NI bypassed with salary sacrifice, and an uplift from your employer passing on some of their NI saving).

This assumes that your employer offers a salary sacrifice scheme, and not all do. Also that you like your current employer's plan enough to want to do this. If it's a group personal pension with decent fund choices that's one thing; if it's a defined benefit scheme the opacity there makes this a harder choice.

kangoora

dunroving wrote: »

I've never heard of a 72t SEPP before, though after Googling it I realised I have heard of the concept before. As I will be 59.5 in less than two years, I am thinking it is probably simpler to just wait until then, but I will look further into the SEPP first, just in case it looks like it will work. As you say, it may be one complication too far.

Do you currently live in US or UK? If you are still in the US, or have a US Roth, there is a more advantageous method I can suggest for you (I can't use it because I am not living in the US and don't have a Roth).

Being cheeky but any chance you can report back how it went with the transfer in a couple of years time? I'm about 7 years from 59.5 so it will be a while before I can do anything.

It's always useful if someone else is the guinea pig

dunroving

EdSwippet wrote: »

I'm not in the US, not a US citizen (thank goodness) and not already in possession of a Roth. So very much as yourself, then. I may have seen the Roth discussion you're thinking of, but it helps me no more than you. On the plus side, my 401k is with Vanguard, and so in pretty safe hands. (On the minus side, I do not trust the US congress at all, so there would be my impetus to move if I could.)

To (what I believe is) gadgetmind's point -- and I'm not clear you've caught this -- 'salary sacrifice' is more than just automated contributions from your salary by your employer into a pension. The 'sacrifice' element gives an NI saving to both you and your employer. A really good employer will then add their NI saving to your pension contribution, giving a considerable uplift over simply paying into a non-employer pension plan.

For example (and all numbers rough and ready) suppose you earn £10k and withdraw £10k from your US pension in a year, this is your only income, and the UK tax allowance is £10k. If you do the simple thing and funnel the £10k from the US into a SIPP you'll have around £9.5k (after NI) from salary to live on, and £10k in your SIPP after tax reclaims.

Instead you might salary sacrifice your entire £10k salary and live on the £10k from the US. This gives you £10k to live on (no NI or tax on that), and maybe £11k in your employer's pension (NI bypassed with salary sacrifice, and an uplift from your employer passing on some of their NI saving).

This assumes that your employer offers a salary sacrifice scheme, and not all do. Also that you like your current employer's plan enough to want to do this. If it's a group personal pension with decent fund choices that's one thing; if it's a defined benefit scheme the opacity there makes this a harder choice.

I had read about salary sacrifice before but wasn't sure if this would have an effect on final salary schemes. If someone was on a £40k salary but used salary sacrifice, would final salary pension not be based on a lower salary?

My employer has a salary sacrifice scheme for the Cycle To Work scheme, not sue if they allow it for pensions. I don't especially like my employer's DC plan as it has too limited fund choices, which is why I was looking at also opening a SIPP.

kangoora wrote: »

Being cheeky but any chance you can report back how it went with the transfer in a couple of years time? I'm about 7 years from 59.5 so it will be a while before I can do anything.

It's always useful if someone else is the guinea pig

Yes, I will definitely come back and relate my experiences. I have heard that drawing money out of a TIAA-CREF retirement account is a bit like drawing blood from a stone (it's their inefficiencies and the inconveniences of having US finances that lead me to want to move my US pension investments to the UK in the first place).

Watch this space in 2 years!

EdSwippet

dunroving wrote: »

...
If someone was on a £40k salary but used salary sacrifice, would final salary pension not be based on a lower salary?
...
I don't especially like my employer's DC plan ...

Confused. If you have a final salary pension then you have DB, not DC.

In any case, a restricted choice of funds does not necessarily mean a choice of bad funds. All you really need is a couple of trackers. Alternatively you might capture any salary sacrifice uplift with a view to transferring to a SIPP once you've left your employer or are otherwise free to transfer pensions. Putting up with 1% extra fund charges for a couple of years still leaves you well ahead if you get 10% or more into your pension through salary sacrifice.

Yeah, it gets complicated though. More than it should be.