I know some people also use individual gilts to manage taxes (it's not quite cash, but a gilt held to maturity is very low risk). There's no UK capital gains taxes on individual gilts, and if you buy zero-coupon (or very low coupon), there's (almost) no interest. I haven't done this myself, and you'd need to think through the US tax consequences, but could be another area to research.
Re: HYSA; correct -- no/low personsal savings allowance. Have already maxed premium bonds, but need to find ways to shelter the rest of the cash. The question I need to work through is it better to use the 20k allowance for S&S or Cash ISAs.
The only completely safe thing to do is to not contribute any more than your employer and to keep the combined contributions under the 401k limit ($23k this year). Any more and somebody will say you're not following the rules. If you're very risk averse, that's the best way to do it.To your point though, it appears to be a grey area with no clear case precedence regarding;
1) contributing more than your employer when contributions are taken on a salary sacrifice basis
2) contributing more than the US 401k limits ($23k USD) vs. the £60k GBP pension limits we have in the UK
How did you get comfortable with your approach in these areas?
Personally, my own financial circumstances are such that I'm not overly focused on my pension - my employer contributes a max of 8% as long as I contribute 5%, and I've moved between 5% and 8% contributions myself. There was one year where I salary sacrificed a chunk of my bonus into my pension and did exceed the employer contributions, I don't lose sleep about it. I don't exceed the 401k allowance with my personal contributions, but my employer match does (without exceeding the 401k total limit of $69k).
To me, that feels like I'm following the spirit of the rules, even if the exact wording is subject to debate. If it ever came into question (it hasn't), I could answer with a straight face that everything I've done with my UK pension would have been within IRS rules if it was a 401k. I'm comfortable with that, but it's a very personal decision, unfortunately.
I also don't deduct pension contributions from my US income, so from an IRS perspective I'm paying full income tax on it anyway (I don't actually pay anything because UK tax on after-pension income is higher than US tax on with-pension income, so FTCs wipe it out completely, and then I build up a basis of after-tax contributions that might come in handy in retirement).
Individual 401k isn't something I've spent any time thinking about (not something I have available to me). Assuming you're eligible to contribute to it, I expect the UK sees it as a treaty-protected pension and there's very little difference between a Roth IRA and Roth 401k (in either system). It's probably a case where you can follow normal US considerations without being overly concerned about the UK ramifications - but certainly for you to confirm!For my situation, its more of a question as to whether I should contribute to my Roth IRA or my Individual Roth 401k (tied to my sole proprietor business in the US). Both accounts are already open in the US w/ ETrade.
That all makes good sense. One other way you can consider is actually increasing the number of ETFs, but keeping them in chunks that you'd always sell the entire value as a lot. For example, if you have £40k to invest (across two people or across two tax years) and you'd be comfortable eventually withdrawing in £10k (+growth) chunks, you could buy £10k each of VOO, VTI, VEA and VXUS (or varying proportions for asset allocation, of course). When you go to sell, sell off one at a time, but in full lots of each ETF.Yes -- I had always avoidec S&S ISAs because of PFIC pain and not feeling comfortable creating my own direct index strategy. Only in the past week after speaking to a number of wealth management companies did I realize that I could potentially qualify as an elective professional and was still surprised when IKBR granted the status within 24 hours of applying. I'm annoyed at myself for not doing it sooner.
Now I just need to research which 1-3 fund strategy makes the most sense from the qualified dividend perspective. Will also need to keep things as straightforward as possible to minimize the number of transactions/stock lots to keep track of to make reporting for US taxes as easy as possible. First thought is to select ETFs with no/minimal dividends, make one lump sum deposit / purchase, and to turn off DRIP to keep things as clean as possible.
That increases the number of dividends to track annually (which is just a few more lines on an Excel), but keeps the capital gains tracking easier, which is the part I find more complicated.
There's almost no practical difference in either approach, just whichever you find easier to track. I use my latter method in my US taxable brokerage to minimise HMRC reporting headaches (HMRC capital gains reporting on mixed cost bases makes my head hurt...). My ISA is all individual stocks so they're necessarily small lots to maximise diversification, but that's not the problem with ETFs, of course.
Statistics: Posted by tubaleiter — Sun Jul 28, 2024 1:24 am