# UK National Insurance Payments on US IRA Distributions?



## NYCEnglish (Mar 22, 2021)

In the US IRA distributions are taxed as income, however, IRA distributions are not subject to social security taxes.

My understanding is that the UK/US tax treaty determines that UK taxation of US pensions should follow the same rules as the US IRS - does this mean that if someone has IRA distributions prior to retirement age, let's say at 60, then they would not be subject to NI payments related to the IRA distributions? 

Thanks!


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## JustLurking (Mar 25, 2015)

NYCEnglish said:


> My understanding is that the UK/US tax treaty determines that UK taxation of US pensions should follow the same rules as the US IRS - does this mean that if someone has IRA distributions prior to retirement age, let's say at 60, then they would not be subject to NI payments related to the IRA distributions?


You shouldn't need to go to the treaty for this. UK NI only applies to employment income, and not pensions, investment income, and so on:

National Insurance contributions explained - IFS

This makes sense; your 401k or IRA contributions were still subject to US FICA (social security tax) when you made them. If they were to be hit by FICA or the UK equivalent NI again on withdrawal, that would be double tax. (Not, of course, that either the UK or the US government goes _hugely_ out of their way to avoid _all_ cases of double-tax. :-( )

As for FICA itself, the US and the UK have a 'totalization agreement' that means that your US SS contributions can count for UK NI. Or, if you were in the US long enough to amass 40 quarters of FICA contributions, you qualify for US social security payments in retirement. Do research the "windfall elimination program" though, to see how the US backpedals on that to a degree.


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## NYCEnglish (Mar 22, 2021)

Thanks for the reply!

I do understand the windfall elimination program but do not think it applies in this situation. The reason the tax treaty is important is to understand if the UK recognises an IRA as a 'pension', which I think it does (even though payments/distributions will be made prior to retirement age). You make a great point about IRA contributions not reducing the social security taxes and hence double taxation; I hadn't thought of that and this should definitely exempt IRA distributions.


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