Check out some similar questions!

SarahRajiv · Aug 30, 2006, 09:43 AM

Hello
I was working in the US until July 1st of this year (and since 2003). Ever since I have been living and working in the UK. I had earned about $46000 gross in my previous company in the US in those 6 months. I have about $20000 in my 401K account. I was planning to transfer all my 401K balances, but when I called Fidelity and explained my situation, the customer service rep said I could avoid the 20% withholding and the 10% penalty if I filled in the Form 8BEN for foreign beneficiaries. Now, after a lot more "forms-reading" and Google searches I have still not got all my questions answered. I really hope the experts on this forum will help me

1. I had lived in the USA this year for exactly 182 days and will be in the UK for the remaining 183 days. Can I claim to be a non-resident alien for using the foreign beneficiary form to not withhold 20% off my 401K return ? I believe I can claim to be a non-resident because I was a resident of another country after July 1st. UK-USA seem to have a treaty and it appears there would be 0% withholding on pensions and annuities according to page 37 of publication 515 (http://www.irs.gov/pub/irs-pdf/p515.pdf). I am not sure if I am perhaps interpreting the treaty wrongly

2. Even if the US source (Fidelity) does not withhold tax will I end up paying that when I file tax returns in 2007 for year 2006 ? I don't know if I should file tax return as a dual status alien or a resident alien by virtue of the substantial presence test.

3. Will I have to pay tax in UK for the 401K transfer for funds ? It is really money being transferred from my bank account in USA to bank account in UK. So there is no way the UK tax department would know its 401K money.

I believe if I do not do any of the things above and ask for early withdrawal from the 401K, I could lose as much as $9000 of my $20000 401K fund in taxes and penalties. Would I benefit by withdrawing the money in 2007 instead ? I would prefer to do that only if the money saved is at least $1000, other wise I may have to bite the bullet and take it out now.

I really am at the mercy of the internet because being in the UK I cannot even approach a US tax advisor. I appreciate the help so much.

Cheers,
Rajiv

AtlantaTaxExpert · Aug 30, 2006, 02:03 PM

First, what was your visa status? J-1? F-1? H-1? H-1B? It makes a difference.

2) Taxes will probably be due.

3) No expertise in UK taxes, so I cannot answer.

SarahRajiv · Aug 30, 2006, 02:53 PM

Sorry, I forgot to mention that - I was on a H1-B visa in the US.

AtlantaTaxExpert · Aug 31, 2006, 07:22 PM

1) Okay, since you were here since 2003, you are considered a resident alien and are subject to the same taxes as a U.S. citizen, to include the early withdrawal penalties. Now, it is likely you can transfer the money tax-deferred into some pension plan in the U.K. You need to contact an expert in British tax law to determine if that is possible.

If not, you can set up a withdrawal plan where you can withdraw the money gradually, definitely NOT pay the early withdrawal penalties and, very likely, not pay too much in taxes. Regardless, there is no reason to withdraw the money right away. Do a trustee-to-trustee transfer from the 401K to a traditional IRA which you can manage from the U.K via phone and e-mail.

SarahRajiv · Sep 1, 2006, 05:06 AM

Thanks a lot ! I got similar advice from the tax department of Fidelity as well. I am going to look at rolling over into a pension in the UK.

AtlantaTaxExpert · Sep 1, 2006, 08:03 PM

Glad to help!

Leigh60615 · Sep 15, 2006, 04:54 AM

Hi Did you get anywhere with your attempts? I am in axactly the same situation. Ex H1B holder with 5 years in the states and $40,000 in a 401K with Fidelity. I'm sure I was classed as a non-resident alien. My UK pension firm is telling me my 401K is 'stuck' in the states and I'll end up paying tax if I try to move it. I hope this is a lack of experience on their part. Let me know how you got on.

SarahRajiv · Sep 19, 2006, 09:13 AM

We decided that best alternative for us was to not transfer to a pension fund here but to withdraw out of american 401K every year so that we would be below taxable income but lose the 10% penalty every time. This would give us the most money, but in our pockets. Of course you would need to file a W8BEN to make sure fidelity does not automatically withhold 20% on tax from this annual withdrawal.

I was told it would be possible to roll-over the 401K plan into my current UK pension plan, but I never bothered to enquire further into it because even if I make a loss, the 401K money is more valuable to me in the next few years as cash than inside a pension fund.

mricci · Mar 26, 2010, 08:25 AM

Hello,
I have the same kind of question, but I am French, not living in the UK. I left the US 6 years ago. Could you tell me how to transfer my 401 account savings with as little taxes as possible?
Thanks,
M.

AtlantaTaxExpert · May 4, 2010, 12:54 PM

Further research since my original posting has shown that there are virtually NO tax-free transfer options to foreign pension planes.

That being the case, you should start withdrawing a set amount per year using the acturial tables published by the IRS for your life expectancy if you wish to avoid the 10% Early Withdrawal Penalty.

Better yet, keep the money in the 401K until you reach 59.5 years of age, at which point the 10% penalty no longer applies.

stephlb · Oct 21, 2011, 10:59 AM

Hi where can I find these actuarial tables please? I'm a US citizen living in the UK since 2003 full time. I do not spend any time other than visits for up to 11days in the US to see family yearly, though not in the last 2 yrs. My mother passed away and left me a 401k of $71,000. Ive been told I need to roll it over into an IRA or I will be charged 20% for taxes... How can I make this less painless but still be able to use the money now. I want to put at least $10,000 in an IRA and not touch it until I retire but I want access to the rest of it over the next several years for my wedding and our first house. Any suggestions?

ebaines · Oct 21, 2011, 11:17 AM

You're going to pay taxes on it sooner or later - that can't be avoided. And unfortunately you can't roll it to an IRA because only spouses can roll an inherited 401(k) to an IRA. So you have two choices:

1. Take a lump sum distribution now, and pay the income taxes due. The income taxes you pay are essentially making up for the income taxes that your aunt had deferred. The good news is that inherited 401(k)'s are NOT subject the 10% early withdrawal penalty. This is by far the most common avenue for inherited 401(k)'s.

2. Inquire whether they would allow you to leave a portion behind, so it can continue to sit tax-deferred until some time later. Some plans allow this, but most do not (as it creates more administrative headaches for them).

stephlb · Oct 21, 2011, 11:23 AM

Unfortunately the company is being sold so I can no longer keep the money in. They close all accounts on the 31st of this month. I just got wind of this whole thing on Weds!! I was told I could roll over to a Roth IRA or traditional and would avoid the 20%. But is it worth me splitting it up? And would it be better for them to take 20% of the 10k than the full 71k? I'm so clueless... my mother was a CPA and internal audit manager and she taught me nothing cause she was always working! :(

AtlantaTaxExpert · Oct 21, 2011, 12:03 PM

ebaines:

I am NOT sure, but I believe that the law changed last year to allow children who inherit IRAs to roll them over into a rollover IRA. Before the law change, the rollover option was allowed only for spouses.

ebaines · Oct 21, 2011, 12:50 PM

Originally Posted by AtlantaTaxExpert

ebaines:

I am NOT sure, but I believe that the law changed last year to allow children who inherit IRAs to roll them over into a rollover IRA. Before the law change, the rollover option was allowed only for spouses.

Yes - that's correct - thanks for the clarification. The child can indeed roll it to an inherited IRA using a direct trustee-to-trustee rollover. But by the end of next year he has to start taking required minimum distributions that stretch out over his life time, and reporting them on his US income tax return each year.

stephlb · Oct 21, 2011, 01:59 PM

Since my previous reply I have made a question, if you guys could offer some advice it would be greatly appreciated. https://www.askmehelpdesk.com/taxes/filing-tax-return-uk-605794-new.html Thanks

AtlantaTaxExpert · Oct 21, 2011, 07:37 PM

Ebaines:

That is what I thought, but I was not sure about the required distributions.

StephLB:

I recommend you roll the money into an IRA, if for no other reason than to give you time to make a reasoned decision.

nukalar · Oct 19, 2012, 11:40 PM

I am also currently working in US and planning to move back home next year. One of the post mentions about keeping the money till 59.5 years. Don't we have to pay flat 30% tax since it will treated as a Non-Resident income? Instead of this, If I withdraw 10K per year paying the Taxes as Non-resident, My effective rate would be still 20% right? I would be paying 10% penalty (1000) + taxes of 1000 for 10K. That would be 2K (for 10K) which is 20%.
Am I calculating wrong?

AtlantaTaxExpert · Oct 20, 2012, 09:11 AM

The 30% rate is the default tax rate. Your rate MAY be less based on tax treaties.