Planning for US 401K and SSi Draw-down

Tabasco_Green

Hello,

I’m looking for some clarification regarding how best to drawn down on my US retirement income when the time comes.

I worked in the States for approximately 15 years saved into a 401K and understand that I am also eligible for social security. I am a UK citizen and UK resident having returned some years ago. I did not take American citizenship and my green card has expired. I do not intend to return to the USA for anything more than a holiday.

I have a basic understanding of the process and accept that I will have to declare this income on my UK tax return, but I have the following general questions: -

1. Is it worth engaging the services of a US tax accountant in country who is au fait with expat taxation to file my W8 or can I do this myself?
2. Will I need to file a US tax return once I start drawing down on my 401K?
3. I assume I will need a US bank account to receive the funds and if so, can I open one remotely or will I need to do this in person?
4. Are there any additional considerations in regard to receiving SSI payments? - although this seems relatively straightforward and the SSI administration website is very informative.

In summary my main concern is understanding how best to access the funds so that I can plan accordingly. In addition, if there is anything else that I should consider with respect to the above then please let me know.

Many Thanks

EdSwippet

AvonAndy said:
I did not take American citizenship and my green card has expired.

Expired, or surrendered?

US tax rules are pretty explicit that even though your physical green card may expire, your permanent residency status does not expire until you affirmatively surrender it, typically USCIS form I-407 (or less likely, a US court relieves you of permanent residency status in some way).

Americans Overseas offers more detail. Hopefully this doesn't come as a horrible shock. (Unfortunately, it does to some folk.)

Is it worth engaging the services of a US tax accountant in country who is au fait with expat taxation to file my W8 or can I do this myself?

Certainly nothing to be gained by using a tax professional to complete any W-8BEN forms. It's a one-page thing that the broker or payer retains. They use it to set the correct US tax withholding on payments to non-US persons, based (in your case) on details in the US/UK tax treaty.

Will I need to file a US tax return once I start drawing down on my 401K?

Typically, no. Provided you have no other US source income, and in particular no US source employment income, you should have no need to file any US tax returns. The general rule is that if the US tax withheld equals your US tax liability, there's no requirement to file a US nonresident return form 1040-NR.

Your provider should set the correct withholding, based on treaty, given a W-8BEN, so once that's done there should be nothing more. Under the US/UK treaty, a 401k is taxable only to 'state of residence'(*), so the UK. No US tax liability on these payments, then. Your 401k provider should not withhold any US tax at all, then. If they do -- and some are not clued up and do not follow the rules correctly -- then in that case you would need a 1040-NR return to reclaim all the US tax withheld.

At the end of the year, the provider will send you a form 1042-S indicating what they paid you. A copy of this goes via the IRS to HMRC (perhaps!), so be sure to account for all of this properly on UK self-assessment.

I assume I will need a US bank account to receive the funds and if so, can I open one remotely or will I need to do this in person?

If you don't already have a US bank account, it's unlikely you'll be able to open one remotely. And perhaps not at all; the US is paranoid about everything 'foreign', and bank KYC rules make opening accounts for non-US persons something that banks generally would rather avoid.

Instead, investigate a Wise 'borderless' multi-currency account. This gives you a full-on US account and ACH routing number, but attached to a UK account and sort code. To the payer, it will look just like a US bank account. To you, it is multiple accounts with both US and UK facets and one-click currency conversion at a reasonable rate.

Are there any additional considerations in regard to receiving SSI payments? - although this seems relatively straightforward and the SSI administration website is very informative.

For Social Security, you need to work through the Federal Benefits Unit (FBU) at the US embassy in London. None of the main US SSA forms or online systems work for non-US persons not living in the US.

It takes some time to get the attention of the FBU folk, so plan ahead. Two to three months or more. However, once you have their attention they are clued up and efficient. And in particular, they know how their part of things intersects with UK rules, pensions, accounts, and so on.

Once set up, the US SSA pays your SS in GBP and directly into a UK bank account. The GBP amount you get varies somewhat from month to month, because it's based on a spot USD/GBP rate. However, the SSA's rate is good; generally better than you can get elsewhere (think mid-market), so better than having this paid in USD and then converting for yourself, which is what you'll need to do for your 401k.

As with the 401k, the US/UK tax treaty reserves tax on US SS to the UK only. So again, no US tax withholding, no US tax liability, and no need to file any US tax return unless something has gone wrong.


(*) Except for 'lump sum' payments, which reverse this. The treaty does not ever define 'lump sum' though, so it's a grey area. It's a reasonable assumption, though not cast-iron, that monthly small payments over time are not lump sums, and withdrawing the entire 401k in one go is a lump sum. Tread carefully if planning anything outside the most vanilla.

Tabasco_Green

Ed,

Many thanks for taking the time to provide such a detailed reply.

This really helps fill in the gaps and puts me in a much more informed position. I'll be sure to check out the link also.

Your insight is very much appreciated.

Thanks again