Roth IRA withdrawals while living in the UK

When is a Roth IRA withdrawal tax-free in the US

When it is a qualified distribution. Two conditions must hold together: the five-year period that starts with the first tax year for which you contributed to any Roth IRA has ended, and the payment is made at or after age 59½, because of disability, after your death, or for a first home within a lifetime cap.

IRS Publication 590-B sets out these conditions, and it says that neither a qualified distribution nor a return of your regular contributions is included in gross income. The five-year clock runs by tax year, not from the date money went in. One clock covers every Roth IRA you hold, so opening a second account later does not restart it.

A non-qualified distribution is reported on Form 8606, filed with Form 1040 (opens the official IRS page in a new tab). The original owner of a Roth IRA never has to take required minimum distributions, so the timing and size of each withdrawal are yours to choose. That freedom matters more to a UK resident than to anyone, because the UK result follows the US one.

• The five-year period. Counted from 1 January of the first tax year for which any Roth IRA contribution was made
• Age 59½. The usual trigger once the five-year period has ended
• Disability or death. Either qualifies, including a payment to a beneficiary or to the estate
• A first home. A qualifying purchase, within a lifetime cap set by the IRS

Which part of a non-qualified withdrawal comes out first

Your regular contributions come out first, then converted and rolled-over amounts in the order they went in, and earnings last. Only the earnings are income on a non-qualified distribution, so a withdrawal that stays within your own contributions is free of US income tax at any age.

Within each conversion, Publication 590-B treats the part that was taxed on conversion as leaving before any part that was not, such as after-tax basis carried over from a traditional IRA. Distributions and contributions are added together across all your Roth IRAs for the year, and contributions made for the year up to the return due date count in the total.

Conversions carry a second clock. Each conversion has its own five-year period starting on the first day of the year in which it was made, and taking out the taxed part of a conversion inside that window can attract the additional tax on early distributions unless an exception, such as reaching 59½, applies. That separate charge is where the UK answer becomes less tidy.

• Regular contributions. Never taxable when withdrawn, whatever your age
• Conversion and rollover amounts, earliest first. Not taxable again, though the taxed part may attract the additional tax inside its own window
• Earnings. Taxable on a non-qualified distribution, and possibly subject to the additional tax as well

Does HMRC tax a Roth IRA distribution to a UK resident

Not to the extent the US would exempt it. Article 17(1)(b) of the treaty requires the country of residence to exempt any pension amount that the scheme's own country would exempt for its residents, and HMRC's Double Taxation Relief Manual applies that rule directly to distributions from US individual retirement accounts.

The treaty is published on GOV.UK as USA: tax treaties (opens the official GOV.UK page in a new tab). The exchange of notes lists Roth IRAs under section 408A among US pension schemes, and the Treasury's technical explanation (opens the official US Treasury page in a new tab) uses a Roth IRA as its example: a distribution to a UK resident is exempt in the UK to the same extent it would be exempt in the US if paid to a US resident. HMRC's page on the US treaty, DT19853, says the same of IRA distributions, though it does not name the Roth.

Two things follow. The protection is measured against a US resident, so a qualified distribution and a return of contributions are exempt, while the earnings inside a non-qualified distribution are not. And the saving clause does not undo it. Article 1(4) lets each country tax its own residents as if the treaty did not exist, but Article 1(5)(a) excepts sub-paragraph 1(b), so it binds HMRC. Our post on the saving clause lists the other exceptions.

Exempt does not mean unreported. The SA106 notes say that where a pension is not taxable in the UK because of a double taxation agreement, you give the pension's payer, the pension and the agreement in the any other information box of your return. The notes are on the SA106 page (opens the official HMRC page in a new tab), and our UK Self Assessment service prepares that disclosure.

Why a single large withdrawal is less certain

Because the treaty has a separate rule for lump sums, and HMRC reads it as leaving the UK free to tax its own residents. Article 17(2) gives a lump sum from a US scheme to the US, and HMRC's International Manual says the saving clause in Article 1(4) in effect overrides that paragraph.

The page is INTM163160, on pension lump sums. It says the country where the recipient lives can also tax the payment, with relief from double taxation available under the treaty in the usual way. It does not mention Roth IRAs, and it does not discuss how Article 17(1)(b) applies to a lump sum.

That is the open point. The technical explanation says that although a pension would ordinarily include a lump sum, paragraph 2 provides specific rules for lump sums, so they are not subject to the general rule of paragraph 1. Read strictly, a Roth payment that counts as a lump sum would sit outside the matching exemption. The treaty does not define a lump sum, and we have found no HMRC guidance applying any of this to a Roth IRA. Regular, smaller withdrawals sit more comfortably within paragraph 1.

Are conversions and contributions made while UK resident at risk

Possibly, and the official material does not settle it. The treaty, the technical explanation and HMRC's manuals describe how Roth distributions are treated without addressing money added, or converted, after the holder became UK resident. How HMRC would apply the matching exemption to those amounts is unconfirmed.

Conversions carry a particular risk. A conversion is taxed in the US on its pre-tax part, and the matching exemption only exempts what the US would exempt, so it offers no obvious shelter for the conversion itself. We have found no HMRC guidance on whether it treats a conversion by a UK resident as a payment to the member.

There is a smaller open point on the additional tax. A converted amount withdrawn inside its own window is not income in the US but can attract the additional tax on early distributions, and we have seen no guidance on whether that affects the UK exemption. Before any conversion, our US-UK pensions team reviews both sides, and our US-UK tax treaty summary sets out the articles involved.

How does this work for a couple in Edinburgh

Take two US citizens married to each other and resident in Edinburgh for a decade. She is a university lecturer in her early sixties whose Roth IRA was opened in Boston in her twenties. He is in his early fifties and opened his only Roth IRA four years ago, from London, by converting a traditional IRA.

Her withdrawals are qualified. She is past 59½ and her five-year period ended long ago, so nothing is taxable in the US, and under Article 17(1)(b) nothing is taxable in the UK. She takes a set amount each year rather than emptying the account, which keeps her clear of the lump sum question, and discloses the payments on her return.

His position is different. Any withdrawal now is non-qualified: his first Roth contribution was the conversion, so his five-year period has not ended, and he is under 59½. Under the ordering rules a withdrawal comes first from the taxed part of the conversion, which is not income again but can attract the additional tax because the conversion's own window is still open. After that comes any after-tax basis, and then earnings, which are taxable in the US and, under the matching rule, in the UK too.

The conversion itself happened while he was UK resident, the point no official source addresses. Waiting until he reaches 59½ turns every later withdrawal into a qualified one in the US, but it does not answer the UK question about the conversion year. Our individual tax returns service models both returns before he draws anything.

A decision table for each slice of a withdrawal

Read each slice across to the UK. The table assumes a UK resident under the treaty and a payment that is not a lump sum. A US citizen also reports the payment on the US return, while for someone who is neither a citizen nor a green card holder, Article 17(1)(a) generally leaves a pension to the country of residence.

Where both countries tax the same earnings, HMRC's manual says relief from double taxation is available under the treaty in the usual way, and GOV.UK's guidance on income taxed twice (opens the official GOV.UK page in a new tab) explains how a claim is made. Our treaty relief service works out the credit on both returns together. Our guide to avoiding US-UK double taxation shows how the pension articles fit with the rest, and the IRS treaty documents (opens the official IRS page in a new tab) hold the text itself.

• Qualified distribution, any slice. US: not taxable. UK: exempt under Article 17(1)(b), disclosed on the return
• Regular contributions, non-qualified. US: not taxable. UK: exempt to the same extent
• Converted amount inside its own window. US: not income, but the additional tax may apply. UK: effect of the additional tax unconfirmed
• Earnings, non-qualified. US: taxable for a citizen. UK: taxable, with treaty relief for any overlap
• The whole account in one payment. US: as above, slice by slice. UK: unsettled since HMRC's lump sum guidance
• A conversion made while UK resident. US: taxable on the pre-tax part. UK: no published HMRC position