EXPAT - Pension help needed!
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$40k as a lump sum should get you about a 12% US tax rate, from memory. Not bad, then, in comparison with UK rates.OldMusicGuy wrote: »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.
With patience though, I think that over a decade you might be able to get the entire lot tax-free. Converting $4k/year to a Roth IRA would keep you within the US 0% tax band. And once over age 59.5 any Roth withdrawals should -- I think, but do check -- be exempt from the Roth 10% early withdrawal penalty for taking out stuff from a Roth that is less than five years old.
Obviously, the latter course assumes no tax law changes come along to mess that plan up.0 -
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.
CBT is a cross to bear for the US citizen and there are certainly restrictions. UK employer pensions should not be an issue, but ISAs are out. Capital gains needs to be navigated. I'm a US/UK dual citizen with 30 years residency in the US and I've organized my finances to make it easy to return to the UK and deal with the taxation.
I've used the ROTH expensively and now do annual IRA to ROTH rollovers. All my non pension accounts are invested in Vanguard Index funds that can be converted to EFTs with out capital gains so they become UK reporting. There will be US withholding on IRA withdrawals by treaty resourcing makes it easy to claim the FTC and the withholding back on the 1040. My US social security and state pension can be directly deposited in the UK and I have kept up my UK voluntary NI payments as part of my plan too........I suggest the OP look into that.
I will keep all my investments in the US because, frankly, the expenses and unnecessary complications of UK investing just isn't for me so I'm not worried about any FATCA restrictions on investment accounts.
If the OP is applying for a GC they should be planning for a long time in the US and should plan to maximize their US investing opportunities rather than looking over their shoulder at the UK.
There are certainly pitfalls for the unprepared, but with some planning and organization they can be avoided.“So we beat on, boats against the current, borne back ceaselessly into the past.”0 -
Im going for the Green Card as, at present, Im on a transfer visa (L1). While this has two years to run, its not without its draw backs. Esseentially, Im tied to my company; theres a couple of problems with this;
1. Theres a great deal of uncertainty around staffing levels/org structure; the job is not particularly stable
2. The company has all the power; Im unable to look for alternate roles if Im not enjoying my current one.
After speaking to some immigration lawyers, they recommended the green card route - While Im in the US, this should be only positive. The only issue will be when/if I leave. If this happens, Ill immediately rescind my GC, which should remove the majority of issues in the US.0 -
$40k as a lump sum should get you about a 12% US tax rate, from memory. Not bad, then, in comparison with UK rates.
With patience though, I think that over a decade you might be able to get the entire lot tax-free. Converting $4k/year to a Roth IRA would keep you within the US 0% tax band. And once over age 59.5 any Roth withdrawals should -- I think, but do check -- be exempt from the Roth 10% early withdrawal penalty for taking out stuff from a Roth that is less than five years old.
Obviously, the latter course assumes no tax law changes come along to mess that plan up.
Paying the 10% penalty and US tax on the lump sum is the quickest and most expensive way to get at the IRA. I like the rollover to a ROTH strategy. If you keep the amount below your exemptions ($4050 if you are single) you'll pay 0% US tax on the rollover (there's no UK tax liability as the rollover is from one US qualified plan to another) and then 0% tax in the US and the UK on withdrawals.“So we beat on, boats against the current, borne back ceaselessly into the past.”0 -
Right. I had the same reasons when I took out my green card(*). Not so much a long-term commitment to living in the US, but rather a much shorter term aim of having some choice about my employer and my location. A bit of freedom, in other words.After speaking to some immigration lawyers, they recommended the green card route - While Im in the US, this should be only positive.
Do be aware, though, that this is not the US govt's view of a green card. It very much sees the green card as a step towards taking out US citizenship. Once you have one you are as closely tied to US tax and other responsibilities as any other US citizen. Except, of course, for still having no vote or voice in how the US govt spends your money.
Green cards are risky things these days. Keep a watchful eye out for any rumblings about US tax law changes that could hole your plans below the waterline, or for aspects of US tax laws that contravene or renege on the US/UK tax treaty. For example this one, which argues that the 'exit tax' should apply not just to long-term green card holders but to any former long-term US residents, no matter their immigration or visa status. Or this one, which proposes an automatic US entry ban on 'covered' expatriates (where 'covered' includes anyone who failed to file any US tax form over five years).The only issue will be when/if I leave. If this happens, Ill immediately rescind my GC, which should remove the majority of issues in the US.
(*) In reality it's much more pink than it is green.0
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