US Citizen looking for 401(k)/IRA equivalent

gglaze

Hi everyone,

I'm a US Citizen who has been working and living in the UK for 5 years now, and since I moved over here, my pension has been sitting stagnant in my old IRA back in the US.

I've finally decided to get off my a*se and try to get some kind of pension schedule going again. I'd like to find something as similar as possible to what we have in the US, which is either a 401(k) or a IRA.

From what I've gathered, the SIPP is pretty close, and the ISA could be another alternative that handles the tax-deferring idea in a slightly different way. I'm disciplined enough to not be worried about the main issue people have pointed out with ISA - the temptation to draw funds out early. So for me, I think the concerns are (1) which has the best financial upside; and (2) which offers the investment options I want.

Very good online service is definitely a top priority for me. Can anyone give any input on which SIPP providers have the best online services?

I'm not clear on the whole split broker/account concept. I've read in some other threads about people using a combination of sippdealextra.co.uk + fidelity broker. Presumably this means I manage my account (balance, contributions, etc.) via the sippdealextra service, and I manage my portfolio and trading via the fidelity service?

I've started checking out some of the SIPP providers, such as Hargreaves. They make some mention of investing in foreign stocks, but it's not clear that this is really possible or flexible enough to do online, and it's also not clear what the pricing will be. If I use a dedicated broker such as Fidelity, presumably cost of trades is much better, and my range of options for trading (such as foreign markets) is also better?

If possible, I'd like to be able to invest in some foreign, most likely US stocks and bonds - things I'm more familiar with. I suppose that if this isn't a good option with the SIPP, I could just invest in some UK funds that are accomplishing something similar? I am not very familiar with the UK markets.

Regarding cost of trades - am I reading this correctly, that Hargreaves for example charges between £9.99 - £29.99 for every trade, and more for foreign trades? And the more money I hold in my account, the more a trade costs? This all seems very expensive, and counter-intuitive. In contrast, my IRA in the US costs about $7 (~ £3.5) per trade, and gets cheaper as I hold more money, to the point that trades are actually free. Perhaps I have misunderstood the costs?

In terms of priorities, I can probably live with being limited to UK investments only, if necessary. I can even probably live with these fairly high execution costs, since I'm not going to be day-trading on my pension account. I'm also not very concerned about cash interest rates, as I'm not going to hold much cash for very long. But certainly a very good online service is top priority, and also a cost-effective overall tax savings is the next priority. Given that set of priorities, I'd love to hear recommendations from those who have experience with various accounts and providers.

Thanks for all your help!

dunstonh

Regarding cost of trades - am I reading this correctly, that Hargreaves for example charges between £9.99 - £29.99 for every trade, and more for foreign trades? And the more money I hold in my account, the more a trade costs? This all seems very expensive, and counter-intuitive. In contrast, my IRA in the US costs about $7 (~ £3.5) per trade, and gets cheaper as I hold more money, to the point that trades are actually free. Perhaps I have misunderstood the costs?

HL's SIPP is a SIPP but it isnt really marketed at those interested in self investment. It is aimed at those that want investment funds (which is the majority reality). It is priced with investment funds in mind.

You must remember that the HL business model is to earn 0.5% fund based trail commission on the pension fund value. So they have a vested interest in encouarging as many people into funds as they can. Direct investments dont pay any trail commission so they have higher charges instead.

If you want direct investment then there are better SIPP providers available to you.

EdInvestor

If you want to invest directly in shares including foreign shares, have a look at www.sippdeal.co.uk. Sippdeal administrates the pension and the inhouse broker (james brearley) deals with trading.

If you think you might deal fairly frequently, it might be better to use Sippdealextra, where you can choose a different broker such as www.selftrade.co.uk.The latter is cheaper and more sophisticated.You will pay a small annual fee for admin if you take this option.

As mentioned HL ( and Fidelity) are largely orientated to mutual funds.HL has a broking service but it's expensive and not well regarded.

Not sure of arrangements in the US, but assume you are aware that once you put money in a UK pension you can't get 75% of it out ever except as a (taxable) income after age 55.If you feel you might prefer to maintain control of your capital, use an ISA.Selftrade is a good provider.

gglaze

Thanks, that's very helpful.

In fact after some research, SelfTrade + SippDealXtra is exactly what I was considering. I haven't signed up yet, but from the outside, the SelfTrade website looks really nice, and their offering for investment choices is spectacular. Does anyone here have any experience with this particular combination of provider and broker? Any pos/neg feedback?

If I understand how this works, I would be able to manage my funds, and transfer in new funds, via the sippdealxtra website. I would then be able to do my actual portfolio management, buying/selling, etc. via the SelfTrade website. Is that right?

Regarding the 75% taxable thing - if I understand it correctly, the idea is that at retirement I will be able to pull out a full 25% of my fund's value without any tax whatsoever - is that right? Then for the remaining 75% I understand that there will be cap gains and/or income tax?

Compared to an IRA in the US this actually doesn't seem like a bad deal - as I understand it, the IRA allows you to invest with tax deferred funds in the same way as a SIPP, but at retirement you still have to pay tax on 100% of the IRA value when you pull the funds out. But don't quote me on that - I may not know what I'm talking about.

EdInvestor

gglaze wrote: »

In fact after some research, SelfTrade + SippDealXtra is exactly what I was considering. I haven't signed up yet, but from the outside, the sippdealxtra website looks really nice, and their offering for investment choices is spectacular. Does anyone here have any experience with this particular combination of provider and broker? Any pos/neg feedback?

I have a SIPP with Sippdeal plain vanilla (no annual fee) and ISA/brokerage account with Selftrade and happy with both.The Selftrade broking operation is considerably more sophisticated and cheaper than the Sippdeal inhouse broker, but as my SIPP is all LTBH investments, this doesn't matter as I rarely trade.

If I understand how this works, I would be able to manage my funds, and transfer in new funds, via the sippdealxtra website. I would then be able to do my actual portfolio management, buying/selling, etc. via the SelfTrade website. Is that right?

That's it.Sippdeal does the actual admin of the pension wrapper (at which they are top rated) while all the actual investing is via Selftrade.

Regarding the 75% taxable thing - if I understand it correctly, the idea is that at retirement I will be able to pull out a full 25% of my fund's value without any tax whatsoever - is that right?

Correct.you can take the 25% from age 55.

Then for the remaining 75% I understand that there will be cap gains and/or income tax?

The remaining 75% is taxed as income at your highest rate.But you are only allowed to extract a specific amount per annum,which varies with your age, your fund value and gilt yields Currently the range is about 6- 10% of fund value. The fund can be revalued regularly so as to deliver "pay rises" if it increases, but in effect you lose control of the capital.If you die before 75 the fund can go to heirs minus 35% tax.After 75, it stays inside the SIPP, delivers income only to survivor and is taxed 80% on the second death.

dunstonh

Are you likely to return to the US or is the UK now your final home (subject to unforeseen events)

Cook_County

The 25% lump sum will still be subject to US tax less your basis in the plan. If you take the lum sum earlier than age 59.5 there may also be 10% penalty tax.

Do make sure whatever you do that you avoid UK collectives (eg unit trusts, investment trusts etc) to avoid the penal PFIC tax regime.

I assume you are still filing annual US tax returns because the reduction in UK you will get once you invest in UK pensions needs to be balanced against the reduced foreign tax credits you'll have in the US.

gglaze

Thanks again for the advice, guys. I'm going to set up Sippdealxtra and SelfTrade this weekend and try to get things going!

Are you likely to return to the US or is the UK now your final home (subject to unforeseen events)

Hard to say, I've been here for a number of years now and will certainly still be around for at least a few more. The final answer may be neither (ultimate retirement in Europe, etc.)

I assume you are still filing annual US tax returns because the reduction in UK you will get once you invest in UK pensions needs to be balanced against the reduced foreign tax credits you'll have in the US.

I am fully taxed in the UK, because I live and work here full time - it's been that way for a number of years now. So yes, I do file a return in the US every year, but it is essentially an empty return - I put in some nominal amounts for my income, but fully offset with tax paid in the UK and pay no tax at all in the US. Even my income from interest from bank accounts in the US is taxed over here.

So are you certain about paying US tax on the 25% lump sum, even in this scenario? If I never return to be a resident in the US, would that still apply? Or even if I do return, will that really apply? All of the contributions to the SIPP would have been made while I was a full-time (and taxed) resident in the UK.

Cook_County

As a US citizen you are taxable forever on worldwide income and subject to reporting of foreign (non-US) items such as foreign bank accounts (on form TD F90-22.1) and foreign trusts on forms 3520 and 3520A if the SIPP is a foreign trust. This is why you and all other Americans in the UK with some income have to file annual US tax returns.

The calculations of taxable/reportable income from a foreign (non-US) pension are highly complex. The short answer is that income and/or lump sums will be reportable but you will have basis in at least your own contributions so that the US will only ultimately tax you on the growth.

I note that you are declaring the US bank interest in the UK. I assume therefore that you have resourced this as foreign on your US tax returns. You need to be cautious with the SIPP that you do not eliminate your UK liability and/or FTC carryovers otherwise you may just end up paying the US instead.

gglaze

Interesting. I guess I'll have to run this by my accountant. It sounds like the good news is that the really complex US tax stuff won't be a concern until I want to withdraw the funds at retirement, so I just need to make sure I'm filing everything else correctly for now.

Cook_County

There are extremely few tax advisers who properly understand the US taxation of UK pensions and the treaty positions available. I have yet to find a single one in the States (personally I am in the UK & have full tax qualifications in both the US & the UK, but to my knowledge there are really only a very few folks that would understand the interaction & opportunities).

Is your "accountant" over here or back home?