can a 401k distribution be rolled over to an account in England?

[Guest TeriWB]

An employee moving to England wants to roll over to account there. Is their a way to do this?

[Lori Friedman]

This is an unresolved matter, and you'll get different answers from different sources.

Under the terms of the U.S.-U.K. tax treaty (signed 07/24/01 and ratified 03/01/03), a transfer between "personal pension schemes", including a rollover, isn't taxable. It's unclear, however, whether this language permits a nontaxable rollover between a U.S. plan and a U.K. plan. One opinion is that a 401(k) plan isn't a "qualified plan" in the U.K. and, therefore, that 401(k) assets can't be rolled into a U.K. pension scheme. Other people take the position that the treaty language authorizes nontaxable transfers between U.S. and U.K. plans.

[Guest TeriWB]

Thank you for the response. Very helpful. Now the question is, since the participant is living in the U.K. and will not return to U.S. is a lump sum cash distribution still taxable?

[Lori Friedman]

Teri, Unlike your first question, your second question has a clear answer.

Lump-sum payments are taxable in the nation of origin. If a U.K. resident receives a lump-sum distribution from a U.S. plan, the distribution will be taxed by the U.S.

Periodic payments are treated very differently -- they're taxable only by the recipient's resident nation at the time of distribution. Your U.K. resident client would be subject to U.K. tax on periodic payments and exempt from U.S. taxation.

You might find it helpful to take a look at the U.S.-U.K. tax treaty. I also recommend IRS Publication 515, which provides a list of tax treaties and some very helpful tables of information.

[david rigby]

There have been some previous discussions on similar topics. For example:

http://benefitslink.com/boards/index.php?showtopic=25894

[Guest TAG]

TerriWB,

Is this participant a US person or a British person. Makes a big difference.

TAG

[mbozek]

I thought the general rule under the US-UK tax treaty was not to tax income of the other's nationals in distribution situations. E.g. UK citizen who receives lump sum distribution from US plan upon return to UK would be taxed only by UK not US. IRS pub 901 on tax treaties indicates on Page 35 that there is no withholding on pensions paid to UK residents. I dont know if rollovers to UK plan are exclcuded from US tax.

[Guest TAG]

Anyone ever heard of NRA rules?

TAG