EXPAT - Pension help needed!

13

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  • spodrod1
    spodrod1 Posts: 15 Forumite
    If you have to file an 8938 then FBAR would be necessary too as it has a lower threshold. Anything that you have signature authority over goes in the FBAR...so bank accounts and probably a DC pension...but not a DB pension. The threshold for FBAR is $10k in total.

    That makes sense - I guess the only way round this is to file amended FBARs for the past three years. I nknow thats a fairly straightforward process (Ive already amended one of them)
  • bostonerimus
    bostonerimus Posts: 5,617
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    spodrod1 wrote: »
    Sometimes it feels like the system is set up to catch you out - if professionals disagree it doesnt give me much hope that Ill ever get on top of this stuff... what would be the best next step to cover myself on this one?

    Just a couple of fairly small savings accounts and a cash ISA; all declared on the FBAR and 8938

    Are you paying US tax on the interest?

    Personally i would argue that the stakeholder pension is covered by the treaty so that gains are tax deferred.....be prepared to argue that if the IRS ever asks. I would stop making contributions immediately
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • spodrod1
    spodrod1 Posts: 15 Forumite
    Are you paying US tax on the interest?

    Personally i would argue that the stakeholder pension is covered by the treaty so that gains are tax deferred.....be prepared to argue that if the IRS ever asks. I would stop making contributions immediately

    Yes; all interest is being declared on my US tax return.
  • EdSwippet
    EdSwippet Posts: 1,584
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    If you have over $2M and are a long term permanent resident and decide to expatriate, then you will have to mark to market and pay the tax. I get the feeling that the OP is a long way from that.
    So was I when I began funding my 401k to the hilt. Circumstances can change quickly. An inheritance, an ultra-short notice tax law change, and tada!, a potentially huge and possibly retirement-destroying tax bill.

    All I'm saying is to take care. Do not follow the 'conventional wisdom' and rules of thumb around this. They often work for normal US resident citizens, but may well not for folk who don't fit that template. Watch out for future unfavourable law changes.
  • spodrod1
    spodrod1 Posts: 15 Forumite
    EdSwippet wrote: »
    So was I when I began funding my 401k to the hilt. Circumstances can change quickly. An inheritance, an ultra-short notice tax law change, and tada!, a potentially huge and possibly retirement-destroying tax bill.

    All I'm saying is to take care. Do not follow the 'conventional wisdom' and rules of thumb around this. They often work for normal US resident citizens, but may well not for folk who don't fit that template. Watch out for future unfavourable law changes.

    This is where it gets tricky....
    I shouldnt pay into my UK pension for a number of reasons and even if I did, once I get the over contribution situation sorted, Id essentially be paying double tax on this.
    I shouldnt pay into my 401k over and above that required to achieve full employer match.

    So the question is.... where should I be putting money?
  • EdSwippet
    EdSwippet Posts: 1,584
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    edited 13 June 2017 at 8:54PM
    spodrod1 wrote: »
    So the question is.... where should I be putting money?
    Have you considered Roths? Protected and fully tax-free under the US/UK tax treaty, and also immune from US exit tax issues because they are not 'pre-tax' retirement savings accounts.

    To be clear, I'm not saying don't max out the 401k, if that seems like the right thing. Just be fully aware of the risks, both known and unknown, before you do.
  • spodrod1
    spodrod1 Posts: 15 Forumite
    EdSwippet wrote: »
    Have you considered Roths? Protected and fully tax-free under the US/UK tax treaty, and also immune from US exit tax issues because they are not 'pre-tax' retirement savings accounts.

    To be clear, I'm not saying don't max out the 401k, if that seems like the right thing. Just be fully aware of the risks, both known and unknown, before you do.

    Ive read some stuff on Roths and that could be a way forward. Im thinking that I really need to set up a session with a decent cross border specialist; does anyone have any recommendations?
  • bostonerimus
    bostonerimus Posts: 5,617
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    spodrod1 wrote: »
    Ive read some stuff on Roths and that could be a way forward. Im thinking that I really need to set up a session with a decent cross border specialist; does anyone have any recommendations?

    ROTHs are good!......they are a bit like ISAs, but with withdrawal restrictions and a far lower contribution limit.

    I would not let fears about the future limit your 401k contributions or other investments in the US. Just be aware of the $2M net worth mark and the long term permanent resident threshold and take appropriate action....that might be moving or becoming a citizen. I became a US citizen 15 years ago so I just have to deal with theCitizen Based taxation consequences. Seriously if I was to return to the UK I would leave almost all my money in the US and just withdraw when necessary. the tax equalization issues aren't trivial, but forward planning makes them perfectly manageable......One reason I use Vanguard is that their ETFs are kosher for both UK and US tax.....they are not PFIC and are UK reporting too.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • OldMusicGuy
    OldMusicGuy Posts: 1,752
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    EdSwippet wrote: »
    Pretty much. There can however be circumstances where taking it as a lump sum could beat taking it over time, due to US tax rates being lower than UK ones. That would mostly apply where the 401k balance is small or modest.

    A couple of thoughts on this. Firstly, your currency risk (or reward!) comes from the assets you hold in the IRA, not from the fact that the IRA is itself a US pension plan. If you held a pure FTSE 100 fund in it, for example, you would have eliminated all currency issues relative to GBP.

    Secondly, have you considered converting this IRA over time to a Roth IRA? If done carefully and in stages you could capture a lower tax rate and also defuse possible future RMDs that hit at age 70.5. Under the treaty, Roth conversions are taxable to the US but not to the UK, so by converting gradually you could funnel the balance through US nil and low tax brackets. This assumes you aren't a US citizen or green card holder.

    Thanks for the comments, good to hear some confirmation of what I have found out in doing a lot of reading! The value of my IRA is around $40K, held in a near cash USD fund as I plan to repatriate it soon. So a weak pound is all good for me there.

    I could try to spread withdrawals over several years and have it taxed in the UK but it is likely I will have other taxable income that will mean I will be paying basic rate tax on it and in that case it seems better to just take a hit at up to 15% tax rate in the US if I withdraw it as a lump sum.
  • EdSwippet
    EdSwippet Posts: 1,584
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    Seriously if I was to return to the UK I would leave almost all my money in the US and just withdraw when necessary. the tax equalization issues aren't trivial, but forward planning makes them perfectly manageable...
    It does? You have direct experience of this?

    A US citizen living in the UK cannot make use of an ISA; what the UK relieves in tax the US will take instead. They cannot easily save in pensions. They cannot use the UK's £11k/year annual capital gains tax allowance. They cannot sell their primary home inside of two years of residency or with a gain above $250k without paying US tax on the gains. They face annual US tax reporting requirements with the potential for huge and life-changing penalties for foot-faults. Thanks to FATCA they will now have problems even opening new accounts at several banks, building societies, and investment platforms. And potentially problems holding on to any they already have open.

    Meanwhile the cost of US citizenship renunciation has risen from $0 to $450 in 2010, to now $2,350, around 20x the norm for a developed country, and pretty much the highest in the world. And yet record numbers of US citizens are currently renouncing US citizenship, with many of them citing the above tax problems as their main motivator.

    If you plan to stay in the US for the remainder of your life, taking out US citizenship is probably a decent move. Certainly not really a damaging one. If you plan to leave the US at some point, though, holding US citizenship will be far more of a ball-and-chain than an asset. Many tax professionals now advise international employees against both green cards and taking out US citizenship.
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