Taking my fire service pension to the USA

[yogi3859 6]

Does anyone know a good resource for pension information. I'm very confused dot com!

I will be marrying my USA girlfriend within the next 2 months and moving over.

My specific questions are...

i will have a lump sum paid into a UK bank account and a monthly income paid into the same UK bank from my fire service pension.

How does everyone else here transfer their money? I have previously been using a fairfx card.

What are the USA tax issues?

Is it best to keep my lump sum in the UK or split it or transfer it to the USA?

Any ideas will be gratefully received

[TBoneTX 45,310]

*** Thread moved from the "Moving Here" forum to the UK regional subforum for country-specific insights. ***

[QueenOfBlades 224]

Pretty much everywhere I've said says it's impossible to transfer a pension to the US as the pension types are incompatible. There was a huge topic about it over on britishexpats.com and everyone deemed it virtually impossible. I'll be freezing my small pension here and leaving it here. Also, be aware of FBAR/FATCA that you may have to file with the IRS.

[rjm_cmyk 75]

My specific questions are...

i will have a lump sum paid into a UK bank account and a monthly income paid into the same UK bank from my fire service pension.

What are the USA tax issues?

Are you saying that you are already receiving the pension or is that what you will get when you reach pensionable age/ choose to take your pension.

My understanding is that you can't transfer your pension *fund* to a US provider. If you're already in receipt then my understanding is that the monthly is taxable as overseas income as far as the IRS is concerned but you can probably transfer the lump sum if you already have it when you move here (and transfer it then)

For most of us who will claim lump sum and monthlies at a later date the lump sump is irritatingly taxable even though it isn't in the UK.

There will be others along shortly who know a lot more about this but they'll need that first question answering

Edited August 18, 2013 by rjm_cmyk

[Kiwinyc 62]

Does anyone know a good resource for pension information. I'm very confused dot com!

I will be marrying my USA girlfriend within the next 2 months and moving over.

My specific questions are...

i will have a lump sum paid into a UK bank account and a monthly income paid into the same UK bank from my fire service pension.

How does everyone else here transfer their money? I have previously been using a fairfx card.

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I don't know what that is but i'll be using an online currency broker that gives better rates than a normal bank for a start, they don't normally charge transaction fees over a min amount either. I have regular child support payments made to me.

What are the USA tax issues?

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Until you become a US citizen my understanding is that there are no tax issues as only US citizens are taxed on worldwide income.

Is it best to keep my lump sum in the UK or split it or transfer it to the USA?

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You HAVE to keep the pension itself in the UK. The USA is not one of the countries that allows you to transfer these products. IF you cash it in you can bring a lump sum to the US and put it into a US pension product (A ROTH IRA for example) but you can't avoid paying tax on it in the UK when you cash it in so it might be worth leaving in the UK.

Any ideas will be gratefully received

[Owen_London 65]

Until you become a US citizen my understanding is that there are no tax issues as only US citizens are taxed on worldwide income.

You HAVE to keep the pension itself in the UK. The USA is not one of the countries that allows you to transfer these products. IF you cash it in you can bring a lump sum to the US and put it into a US pension product (A ROTH IRA for example) but you can't avoid paying tax on it in the UK when you cash it in so it might be worth leaving in the UK.

I agree that using an online broker is the way forward. Bear in mind that you get better rates from them, the more you transfer, though. That is how they get around not charging fees.

What makes you think that non-citizen US residents are taxed differently by the IRS? The only difference I know of is a much lower estate tax threshold when inheriting from a US citizen spouse. As far as I know income tax liabilities are exactly the same.

I agree that the pension can't be transferred, but I'd be surprised if transferring into a Roth IRA is a feasible option. Clearly it would be worthwhile consulting with a financial planner before the lump sum is paid. I believe the current tax position is that the lump sum would not be taxable for UK residents by HMRC, but is subject to tax in the US.

Edited August 19, 2013 by Owen_London

[Nich-Nick 3,354]

What are the USA tax issues?

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Until you become a US citizen my understanding is that there are no tax issues as only US citizens are taxed on worldwide income.

We are discussing various issues here, but if you live in the US, you have US tax issues whether a citizen or not in many circumstances.

Example-- my husband entered US 2008. We filed a joint return even though he was a K1 and had no greencard or US employment in 2008. We had to report worldwide income., meaning his UK income from Jan-Sept when he quit his job to immigrate. There is a foreign income exclusion for that year. I just didn't want people to think no US tax filing, etc until you are a citizen which is kinda how that struck me on first read.

The UK-US tax treaty basically says pay tax to the government where you are living and not where the money was generated. So you reach age 65 and start getting monthly payouts from a UK pension. Report/pay to the US according to the tax laws in effect at the time.

If you have a chunk of money in your UK bank account that was already paid, settled, taxed, whatever---then you just transfer the money over with no US tax worries., because at that point it's just your money like any other savings or what was in your piggy bank.

I learned from my Congressman this week at a Town Hall meeting that the current US tax code is 4 million words and 72,000 pages. (Part of his agenda when Congress resumes in the fall is tax reform.). But my point is --there are probably 15 ifs, ands, or buts we could add to any discussion of US tax situations and they change every year. So take everything as a general concept that may not fit your exact situation.

[Owen_London 65]

The UK-US tax treaty basically says pay tax to the government where you are living and not where the money was generated. So you reach age 65 and start getting monthly payouts from a UK pension. Report/pay to the US according to the tax laws in effect at the time.

Agreed. Except there are quite a few exceptions, where the IRS still taxes items that would be tax-free for UK residents. Presumably US citizens who are UK residents also have to pay these taxes to the IRS, providing they exceed the foreign income exclusion. Examples that come to mind include:

- ISAs (both cash and share types)

- Share incentive plans (subject to US capital gains)

- Pension lump sum payments

I imagine there are other examples that I'm not aware of.

[Nich-Nick 3,354]

Agreed. Except there are quite a few exceptions, where the IRS still taxes items that would be tax-free for UK residents. Presumably US citizens who are UK residents also have to pay these taxes to the IRS, providing they exceed the foreign income exclusion. Examples that come to mind include:

- ISAs (both cash and share types)

- Share incentive plans (subject to US capital gains)

- Pension lump sum payments

I imagine there are other examples that I'm not aware of.

Yes to all you said, but I'm not going to list every exception In this thread to people who may or may not have ISAs, share incentives, capital gains, etc. Heck most on VJ seem to need a joint sponsor to even get here, so I don't see them needing rich people's tax strategies. Agree? That can happen in a international financial and tax forum maybe. I bet 90% of American's don't even understand the concept of long term/short term capital gains and determining basis, etc.

[Owen_London 65]

Yes to all you said, but I'm not going to list every exception In this thread to people who may or may not have ISAs, share incentives, capital gains, etc. Heck most on VJ seem to need a joint sponsor to even get here, so I don't see them needing rich people's tax strategies. Agree? That can happen in a international financial and tax forum maybe. I bet 90% of American's don't even understand the concept of long term/short term capital gains and determining basis, etc.

I know what you mean about starting with the basics, but all three of those items are pretty common in the UK. ISAs in particular, because the banks actively market them to anyone with a savings account.

[yogi3859 6]

This is the answer I got from justanswer

Robin D. :

Hello and thanks for trusting me to help you today. I am a tax adviser with over 15 years of experience.
The transfer of money from the UK to the US is not a taxable event. If you were a US person (resident alien) when you received the payment then you would need to report the payment but you may not have any tax to pay.
The taxable amount of a foreign pension for a US person, generally is the Gross Distribution minus the Cost (investment in the contract).
If you were not a US person you would not be required to report the payment in the US.

Robin D. :

If you were a US person (resident alien or citizen) when you received the payment then treaty provisions may apply. As a general rule, the pension/annuity articles of most tax treaties allow the country of residence (as determined by the residency article) to tax the pension or annuity under its domestic laws. This is true unless a treaty provision specifically amends that treatment.

Robin D. :

My goal is to give you excellent service. If you are satisfied, please rate me. If you have follow-up questions on this same topic, use the reply box below. To start a new conversation with me on a new topic request me again.

Customer:

ok just to clear this up...

Robin D. :

Yes?

Customer:

I am a uk citizen but am now a US resident as im getting marrid here in a coupe of weeks

Customer:

yuk at my spelling/typing lol

Robin D. :

Have you received the payment already?

Robin D. :

I won't look at your spelling if you do the same for me

Customer:

no I get the money on 25th Oct

Customer:

my actual retirement date is 24th oct... but my employer owed me some time off

Customer:

so im here in the usa but my money isn't yet!

Robin D. :

Ok, then you will report the total on your US return but the taxable amount will only be the earnings. So all your contributions will be tax free

Robin D. :

I need to look at the treaty though so one sec............

Customer:

does that include the monthly amount I will be receiving from my firefighter pension from the uk as well?

Robin D. :

Yes it will

Customer:

I did read something about a double taxation treaty

Robin D. :

Your residency decides who gets to apply tax. Yes there is a provision for double taxation. Will teh UK tax your pension in the UK while you are not a resident?

Robin D. :

If so then the US allows for a credit

Customer:

ok I think I have to fill in some UK tax forms to make sure that happens

Robin D. :

For the US you will use Form 1116 when you file.

Robin D. :

ARTICLE 17
Pensions, Social Security, Annuities, Alimony, and Child Support
1. a) Pensions and other similar remuneration beneficially owned by a resident of a
Contracting State shall be taxable only in that State.

Customer:

I was just worried that I was going to be hammered for tax as soon as I transferred my lump sum of cash

Robin D. :

No when you tranfer the tax is not applied

Robin D. :

You will declare income when you file in the US

Customer:

ok fantastic

Robin D. :

Just make sure you use a preparer that understands the procedure

Customer:

so the transfer of my lump sum is not counted as income for tax purposes when I file?

Customer:

finding a tax preparer is a whole other question lol

Robin D. :

The transfer is irrelevant but the amount you receive will need to be reported on your tax return. You will show the total as a pension but then the taxable amount is only what you did not contribute.

Robin D. :

Not really

Robin D. :

You should not have a problem in NY

Robin D. :

Just make sure and ask them if they understand teh procedure

Customer:

ok thank you very much for your help... you are a star

[Owen_London 65]

OK, that all makes sense. What I will flag for you, though, is that in the UK it makes sense to take the tax-free lump sum. I'm not sure it makes financial sense in the US, though, as the lump sum will be taxed by the IRS as normal income. The advice I've seen before is that it is better to not take the lump sum and have a higher pension payment instead.