UK Pension rollover into 401K or IRA?

If you are researching UK Pension rollover into 401K or IRA, you may be wondering what are the main US and UK work based retirement plans?

If you live in the US and have worked in the UK in the past, you might own a UK pension and are wondering if you can combine it to your US retirement plan. In this article, we will define the main types of UK retirement pensions as well last the US ones. We will also review what your options are as a US resident with UK assets.

What UK pension is similar to a 401K?

In the UK, the Defined Contribution Scheme is similar to a 401K. It is a tax-deffered retirement plan where the employee makes a contribution and can be matched to a certain degree by the employer.

In the UK the employers are mandated to auto-enroll employees in a qualified pension plan. The government is wanting to help people save more money for retirement since the state pension is not enough to provide the income needed in retirement.

In the US, the 401K is the most common tax-deffered retirement plan. Most employers offer their employees to contribute to a plan and if not offered the employee might contribute to an IRA. 401K plans have higher contribution limits.

The contribution limit in 2023 is $22500 or $30000 if you’re 50 or older compared to $6500 or $7500 for an IRA. The plans is similar in the way that the employee and employer contribute to the plan but it is not mandated for the employer as it is in the UK.

Can I rollover my UK pension to my 401K?

Under current USA legislation, it is impossible to transfer a UK pension into a US retirement plan. The assets inside the UK pension have provided tax relief on the contributions and the UK Government would like to get some of that back at some point. It is similar to the tax deduction on a 401K contribution in the USA.

In the case of the 401K, the IRS in the USA will always tax the withdrawal no matter where the person lives in the world. For a UK pension, it is possible to ask the HMRC in the UK for a NT Code that would remove the UK tax withholding on a withdrawal from a UK pension if the person is living outside the UK.

What should I do with my UK pension if I am in the USA?

If you have a UK pension and you moved to the USA, you might be wondering what is your best option to access your pension while living abroad. It is important to understand your limitations as a non-UK resident. Your UK pension might already have limitations. Some UK providers will freeze or place limitation on your investments since they most likely can’t advise you anymore.

The best option available to US residents is to transfer their UK pension into a UK SIPP available for US residents. This will keep the tax deferral and allow for draw down at 55 years old.

Benefits of using a UK SIPP for US residents

Keeping the tax defferal
Ability to apply for NT Code and only have taxation of the withdrawals in the US
The flexibility of the investment options
Access to the funds at 55 years old
Multi-currency investment options (USD and GBP)
Withdrawal and bank transfers to US bank accounts in USD
low-cost fee-based investment platform

NT (Nil Tax) Code for US resident?

The NT Code means that there is not UK tax withholding on a withdrawal. It is possible to request this code from the HMRC in the UK if you live outside the UK and the country you live in as a double tax agreement with the UK.

The USA has a double tax treaty with the UK so this is great for UK expats living in the USA.

Once you have the NT Code, you can take money out of your UK SIPP without any UK taxation. You will then have to declare that income when filing your US taxes. With US tax rates being lower than the UK, it can be a great benefit.