Fidelity 401k And W-8BEN

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Topic Author
mrploppy
Posts: 61
Joined: Thu May 04, 2017 5:20 pm

Re: Fidelity 401k And W-8BEN

Post by mrploppy »

Last question on this subject - honest. Fidelity have behaved themselves this US tax year (2019) and not made any withholdings from my 401(k) withdrawals. They have duly produced a 1042-S which shows no tax deductions. I assume, given that I would owe no US tax, that I don't need to file a US tax return. Is that correct?
TedSwippet
Posts: 3563
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Fidelity 401k And W-8BEN

Post by TedSwippet »

mrploppy wrote: Thu Mar 05, 2020 5:42 am Last question on this subject - honest. Fidelity have behaved themselves this US tax year (2019) and not made any withholdings from my 401(k) withdrawals. They have duly produced a 1042-S which shows no tax deductions. I assume, given that I would owe no US tax, that I don't need to file a US tax return. Is that correct?
Correct, as long as this is your only US source income, and you don't owe any early withdrawal penalties, and you're not under the jackboot of any of the US's 'expatriation tax' rules.

Nonresident aliens don't need to file a US tax return when their US tax withholding exactly matches their US tax liability and they have no US 'effectively connected income'. See entries 2 and 3 in Table A of the 1040-NR instructions. There's a requirement to file one if US tax was under-withheld (not possible in your case!), and a strong motivation to file one if US tax was over-withheld.
Topic Author
mrploppy
Posts: 61
Joined: Thu May 04, 2017 5:20 pm

Re: Fidelity 401k And W-8BEN

Post by mrploppy »

Thanks. As it turned out, it was fairly simple to file last year to reclaim tax withheld but (when it's not possible to file electronically) it's not cheap to mail a return to the US - if you choose some sort of tracking. In that case the only admin I have to keep on top of is ensuring my W-8BEN is current. It needs renewing this year - every 3 years I think. Now, if only FIdelity would send monies directly to a UK bank - that would be the Holy Grail.
Bakewelltart
Posts: 6
Joined: Mon Nov 16, 2020 5:29 pm

Re: Fidelity 401k And W-8BEN

Post by Bakewelltart »

Thank you for this thread. Unfortunately Fidelity staff are still incapable of dealing with 401(k) withdrawals with 0% tax withholding under the US/UK income tax treaty and with a W-8BEN in place. Having spent over 2 hours on the phone with various people, much of which has been spent on hold while they request more information, I have never been given the same answer twice! The latest I was told today is that unless my regular withdrawals cover a period of 10 years or more, they will withhold 20% federal tax. I want to bring my 401(k) money over to the UK over the next 3-4 years. Can I ask if they said the same to you, though perhaps you want to take your withdrawals over a longer period than I do? I have written to them today as you did and hope to get a positive response in a few weeks. Thanks.
Spiderv6
Posts: 11
Joined: Sun Mar 29, 2020 9:32 am

Re: Fidelity 401k And W-8BEN

Post by Spiderv6 »

mrploppy wrote: Thu Mar 05, 2020 5:42 am Last question on this subject - honest.
Oh I hope not. Following every post!

I’m not yet at the withdrawal stage but otherwise you-are-me. This is so helpful for my future planning. :sharebeer
TedSwippet
Posts: 3563
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Fidelity 401k And W-8BEN

Post by TedSwippet »

Welcome.
Bakewelltart wrote: Mon Nov 16, 2020 5:40 pm The latest I was told today is that unless my regular withdrawals cover a period of 10 years or more, they will withhold 20% federal tax.
Have you asked them where on earth this requirement comes from? The US/UK treaty says to treat 'lump sums' differently to other withdrawals, but (rather unhelpfully) says nothing at all about what differentiates 'lump sum' from normal withdrawals, and certainly contains no mention of any ten-year period. Similarly, withholding 20% looks ... off. Usual rates for nonresident aliens are 0%, 15% treaty rate, or 30% standard nonresident alien rate. 20% is the standard rate for US citizens/residents.

Fidelity appear to be continuing the long and glorious tradition of US brokers to simply make stuff up when dealing with nonresident aliens. Not that Vanguard don't indulge in this either, of course. Pretty depressing though, isn't it? Worst case, you'll have to swallow the 20% withholding and then reclaim it in full annually from the IRS with a 1040-NR followed by a long delay. Which is precisely the thing that the IRS publishes its withholding tables to avoid.
Bakewelltart
Posts: 6
Joined: Mon Nov 16, 2020 5:29 pm

Re: Fidelity 401k And W-8BEN

Post by Bakewelltart »

Every time I ring I get told something different. After the last conversation where the 10 year requirement was mentioned he sent me a Tax Notice which he said explained it - it doesn't as it's a Special Tax Notice - Your Rollover Options. I have skimmed through and there are references to 10 years but in terms of rolling over to an IRA. I don't want to do a rollover I just want my money tax free which I'm entitled to! In the tax document there is even the following paragraph:

'If you are a nonresident alien and you do not do a direct rollover to a U.S. IRA or U.S. employer plan, instead of withholding 20% of the taxable amount, the Plan is generally required to withhold 30% of the taxable amount for federal income taxes. If the amount withheld exceeds the amount of tax you owe (as may happen if you do a 60-day rollover), you may request an income tax refund by filing Form 1040NR and attaching your Form 1042-S. See Form W-8BEN for claiming that you are entitled to a reduced rate of withholding under an income tax treaty. For more information, see also IRS Publication 519, U.S. Tax Guide for Aliens, and IRS Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities.'

I did ask if the 10 year thing was specific to Fidelity or a general requirement for 401(k)s - all he said was what he was telling me was 100% accurate and no-one at Fidelity could make the payments without withholding tax.

They are all clueless and say regardless of the tax treaty, they still have to withhold tax! I'm hoping I'll get a positive response like the original poster did.
Last edited by Bakewelltart on Thu Nov 19, 2020 7:13 am, edited 1 time in total.
Bakewelltart
Posts: 6
Joined: Mon Nov 16, 2020 5:29 pm

Re: Fidelity 401k And W-8BEN

Post by Bakewelltart »

If they do insist on witholding 20% couldn't I just tell the taxman here that tax was deducted in the US so I don't have to pay it here?
TedSwippet
Posts: 3563
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Fidelity 401k And W-8BEN

Post by TedSwippet »

Bakewelltart wrote: Thu Nov 19, 2020 6:59 am I did ask if the 10 year thing was specific to Fidelity or a general requirement for 401(k)s - all he said was what he was telling me was 100% accurate and no-one at Fidelity could make the payments without withholding tax.

They are all clueless and say regardless of the tax treaty, they still have to withhold tax! I'm hoping I'll get a positive response like the original poster did.
I suppose I should be surprised that Fidelity's own documentation tells you that you can claim reduced withholding, and points you to the precise IRS instructions for this, yet in the same breath Fidelity go and deny you any actual treaty benefits. And a few years ago, I might have been. Today, I am not. US brokerages now simply make stuff up when it comes to handling nonresident aliens. Worse, it appears that they all do this, for example, my own current problems with Vanguard.

If Fidelity do not bend, the only solution would appear to be filing a 1040-NR with the IRS, followed by a lengthy wait, to get the entire withholding back.
Bakewelltart wrote: Thu Nov 19, 2020 7:02 am If they do insist on witholding 20% couldn't I just tell the taxman here that tax was deducted in the US so I don't have to pay it here?
Unfortunately not. The UK only allows foreign tax credits up to the limit of the foreign tax that is permissible under any applicable treaty. And in the case of the US, unless you take your 401k or IRA as a 'lump sum' (not properly defined in the treaty), the US's tax on those withdrawals under the US/UK treaty is 0%.

https://www.gov.uk/government/publicati ... eement-dta
Under the terms of a Double Taxation Agreement (DTA)
The notes to the foreign pages (SA106) explains DTAs. Essentially, if a DTA gives exclusive taxing rights to the UK, no foreign tax is payable and so there is no question of relief.
Bakewelltart
Posts: 6
Joined: Mon Nov 16, 2020 5:29 pm

Re: Fidelity 401k And W-8BEN

Post by Bakewelltart »

OK, thanks for that. I'll see what their response is to my letter. I was thinking of calling the IRS as I spoke with someone quite helpful at the start of the process, not sure if they could do much even though it's in their interests not to have to process reclaims.

We do have a friend who transferred his Fidelity 401(k) to a T Rowe Price one before he moved back here and has had absolutely no problems having his withdrawals paid gross!

Sorry you are having problems - it's so frustrating isn't it when you know more than they do - these situations may crop up infrequently but they should have a procedure for staff to refer to.
whiskymcK
Posts: 1
Joined: Mon Feb 15, 2021 1:12 pm

Re: Fidelity 401k And W-8BEN

Post by whiskymcK »

Hello

I am about to look at with drawing funds from my Fidelity 401k. I am a UK resident
what is the summary of advice for withdrawal under a tax treaty USA - UK?

Thanks
TedSwippet
Posts: 3563
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Fidelity 401k And W-8BEN

Post by TedSwippet »

Welcome.
whiskymcK wrote: Mon Feb 15, 2021 1:18 pm I am about to look at with drawing funds from my Fidelity 401k. I am a UK resident what is the summary of advice for withdrawal under a tax treaty USA - UK?
Just checking ... you say you're a UK resident, but I take it you're not a US citizen and not a green card holder? If you are either of these things, the tax rules for you are entirely different from those described below.

From past reports, the tl;dr is unfortunately that Fidelity will do whatever it decides to do for you based on unrevealed and potentially random criteria. You can maximise your chance of them doing the right thing by ensuring you have as many W-8BEN forms on file with them as needed (if they're anything like Vanguard, they will want one per account you hold). Once that's in place, the correct tax treatment is: normal withdrawals are taxable to the UK only; lump-sum withdrawals are taxable to the US only.

Two thoughts. Firstly, it is unlikely that Fidelity will be able to separate out these two cases (not least because ... well, see next sentence), and so they will perhaps withhold US tax at some rate, leaving you with the requirement to file a 1040NR to recover any overwitholding and/or net things out. Secondly, nowhere in the treaty is the term 'lump sum' defined, and since the US and the UK use the term differently in some contexts, this can be a hard determination for anyone, broker or otherwise, to make. The general definition of 'lump sum' for the US is empty the entire account in one go. I guess you're not planning that?
dmaxel
Posts: 3
Joined: Mon Feb 15, 2021 5:14 pm
Location: Germany

Re: Fidelity 401k And W-8BEN

Post by dmaxel »

TedSwippet wrote: Thu Mar 05, 2020 6:04 am Correct, as long as this is your only US source income, and you don't owe any early withdrawal penalties, and you're not under the jackboot of any of the US's 'expatriation tax' rules.
Sorry to ask a question on something that was posted nearly a year ago, but since this has been a very informative thread I thought I might as well ask...

You mention "as long as...you don't owe any early withdrawal penalties." Is this in general or does this somehow apply to the tax treaty with the UK? I ask because, in my case, the tax treaty with Germany gives Germany sole taxation rights on pensions if I live there, no matter if it's a periodic of lump-sum payment. I would assume that this means that the US has no right to levy any sort of taxes on the withdrawal, and the early withdrawal penalty is within the scope of that. If one were to have to file a tax return, I'd think you could attach Form 8833 and argue that no withholding tax and no early withdrawal penalty should apply.

Looking forward to your reply. :happy
TedSwippet
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Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Fidelity 401k And W-8BEN

Post by TedSwippet »

Welcome along.
dmaxel wrote: Mon Feb 15, 2021 5:21 pm I would assume that this means that the US has no right to levy any sort of taxes on the withdrawal, and the early withdrawal penalty is within the scope of that.
Honestly, I simply don't know whether or not treaties protect against early withdrawal penalties. I have turned up articles over the years claiming entirely opposing outcomes, but none seemed authoritative enough to be fully believable. Somebody may know, but I have yet to uncover them.

I stopped looking for the answer to this after hitting age 59.5. Sorry I can't be of more help. If you can find an answer though, please post it on the forum here. It would be nice to nail down this unknown.
dmaxel
Posts: 3
Joined: Mon Feb 15, 2021 5:14 pm
Location: Germany

Re: Fidelity 401k And W-8BEN

Post by dmaxel »

TedSwippet wrote: Mon Feb 15, 2021 5:41 pm Honestly, I simply don't know whether or not treaties protect against early withdrawal penalties. I have turned up articles over the years claiming entirely opposing outcomes, but none seemed authoritative enough to be fully believable. Somebody may know, but I have yet to uncover them.

I stopped looking for the answer to this after hitting age 59.5. Sorry I can't be of more help. If you can find an answer though, please post it on the forum here. It would be nice to nail down this unknown.
I can't say for certain either (I haven't tried to see what happens after making a withdrawal), but it's relevant for me because I have a long way to go until I reach age 59.5. :wink:

My arguments would boil down to this:
  • IRC Section 72(t) (https://www.law.cornell.edu/uscode/text/26/72) defines the "early withdrawal penalty" as an additional tax, not a penalty. This tax is only triggered via the 401k withdrawal (albeit premature), so I'm not sure how else you could classify it so that it is out of the scope of the tax treaty in regards to pensions.
  • I've found three different law firms that claim you can be excluded from the early withdrawal "penalty" by invoking the tax treaty. I'd link them if interested, but I'm choosing not to do it in this post so that it doesn't get too full of links.
Everywhere that's said that the early withdrawal penalty still applies either has completely ignored the effect of tax treaties or has only applied them halfway without explaining why the penalty would still apply.
assyadh
Posts: 319
Joined: Tue Sep 18, 2018 12:44 pm

Re: Fidelity 401k And W-8BEN

Post by assyadh »

Please do link the articles.

I would tend to agree, my (limited) understanding of tax treaties application is that they override the tax code of the related countries.
dmaxel
Posts: 3
Joined: Mon Feb 15, 2021 5:14 pm
Location: Germany

Re: Fidelity 401k And W-8BEN

Post by dmaxel »

assyadh wrote: Tue Feb 16, 2021 1:39 am Please do link the articles.

I would tend to agree, my (limited) understanding of tax treaties application is that they override the tax code of the related countries.
Here you go!
In the case of the first link, it makes specific reference to the tax treaty with Australia. What the quote is word-for-word also in the tax treaty with Germany.
assyadh
Posts: 319
Joined: Tue Sep 18, 2018 12:44 pm

Re: Fidelity 401k And W-8BEN

Post by assyadh »

dmaxel wrote: Tue Feb 16, 2021 3:09 am
assyadh wrote: Tue Feb 16, 2021 1:39 am Please do link the articles.

I would tend to agree, my (limited) understanding of tax treaties application is that they override the tax code of the related countries.
Here you go!
In the case of the first link, it makes specific reference to the tax treaty with Australia. What the quote is word-for-word also in the tax treaty with Germany.
Thanks. This looks great.

The best outcome would be a broker that applies the correct W8-BEN witholding (ie 0%) so the absence of need to file form 1040NR. That would make IRA withdrawal frictionless
Bakewelltart
Posts: 6
Joined: Mon Nov 16, 2020 5:29 pm

Re: Fidelity 401k And W-8BEN

Post by Bakewelltart »

Finally success - today I received my first withdrawal from my 401k with no tax withheld - it's only taken 8 months, numerous phone calls and a letter sent in November 2020. I called them last Monday as had had no response to the letter. I spoke with someone who, as usual put me on hold to check, then told me she had referred my withdrawal request to the 'back office' to set up the gross withdrawal as their system automatically defaults to federal tax being withheld. She confirmed my W8-BEN was on file and they would be in touch with any queries. Needless to say I was very sceptical but last Thursday I checked my account which showed the monthly withdrawal had been set up with first payment due Monday 15th. Today I received confirmation from the bank that it is in my account!

Based on my experience I think my advice would be to submit the W8-BEN with a letter confirming details of the relevant tax treaty and requesting a withdrawal with no witholding, this can then be followed up by a phone call if necessary.

I did say in my letter that they ought to have a procedure for their staff to refer to for such cases but I doubt that will happen.
Topic Author
mrploppy
Posts: 61
Joined: Thu May 04, 2017 5:20 pm

Re: Fidelity 401k And W-8BEN

Post by mrploppy »

Hi everyone! I'm delighted, and somewhat surprised (well, maybe not!) that this topic I started in 2018 is still going strong. It's been a great source of information for me - mainly, it has to be said, from @TedSwippet. Dealing with Fidelity hasn't been easy, as others have found out, and their reasoning for withholding 30% seems bizarre. The only solution I could find, as you'll have read, is to set up a Systematic Withdrawal Plan which basically means they pay me the same amount every month - forever, or until the money runs out. I can increase the monthly amount and/or increase the frequency but that's all. I guess that way they can convince themselves that they genuinely are periodic payments! I'm not sure if the SWP possibility is available in all plans - I had to get agreement from the plan sponsor. Granted, it's not very flexible though.

Most recently, I had to renew my W-8BEN which was surprisingly easy via their app - basically fill one in, either electronically or by hand, and upload it. No mailing necessary. It was 2020 after all! My only disappointment was that I had absolutely no feedback - no email, no letter. So I ended up calling them to find out if it had registered. All the chap on the phone could tell me was that my next renewal is 2023 - so we assumed it had worked (and indeed it had, based on withdrawals since).

Imagine my delight, now that I've got everything sorted and working smoothly with Fidelity, my ex-company have decided that they're moving the 401(k) plan to a different provider. Oh joy! Forgive me for being pessimistic but I foresee another round of letters/phonecalls/emails/arguments as the new provider gets to grips with an NRA 401(k) holder. I'm not even sure yet if the new provider has such a thing as a SWP.

I'm told that I have the option of rolling over into an IRA with Fidelity and avoid the whole move but not sure if this is an option due to not having a US address. I think I'll start another thread on the pros and cons of that because it deserves to be a different conversation.
Bakewelltart
Posts: 6
Joined: Mon Nov 16, 2020 5:29 pm

Re: Fidelity 401k And W-8BEN

Post by Bakewelltart »

When I set up my withdrawals I was offered monthly, quarterly or annual but I opted for monthly mainly to make sure asap that all was fine and no tax 2as being withheld.

A friend of ours moved his 401k to T Rowe Price before he movedback to the UK and had no problems getting grosspayments set up so hopefully the new company will be better than Fidelity.
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