Webinar: Pensions and Other Retirement Accounts Outside of the U.S. Recording and Q&A Transcript
On July 19, 2022, we hosted a webinar on Pensions and Other Retirement Accounts Outside of the U.S which included live Q&A with our tax experts. You can access the recording and we’ve also transcribed this Q&A transcript.
We’ve grouped the questions by topic and we’ve also added links to relevant articles below.
Tax treaties/Double taxation
Q: How does the agreement between Switzerland and the USA regarding pension work?
A: The income tax treaty between the US and Switzerland contains complex provisions that cannot be summarized in a short answer – this is the full text (45 page dense PDF) so you understand what we mean :). Reading and interpreting treaties is extremely complex, even for most CPAs and Enrolled agents. There are clauses, then there are exclusions, exclusions to the exclusions, exclusions that apply in certain cases - you get the drift. Our qualified tax experts will at your situation and see how the treaty applies while we prepare your taxes and provide you with the best result in terms of tax savings. Please sign up for our services at taxesforexpats.com and our team will take care of everything for you.
Q: As a dual US and Canadian Citizen - should I be/could I open a US IRA? Is there a benefit to this?
A: Please see IRA Contributions for American Expats Explained.
Q: According to the US-UK tax treaty, under what circumstances do you need to file form 8833 when reporting your pension, and in what circumstances do exceptions to filing form 8833 apply?
A: Review of the US-UK treaty is part of your tax preparation, we’ll handle everything for you. Similar to the Switzerland question, tax treaties are extremely complex. If you experience insomnia, we recommend reading them as a way to help fall asleep.
Q: As a dual Canadian/US citizen, I declare my Canada pension plan and Old Age Security income from Canada on my US tax returns. Any issues to be aware of?
A: Similar to the US, Canada has a number of different retirement plans. We'll need to look at which specific pension plans you have in order to diagnose any potential issues. Our qualified tax experts can address this while we prepare your taxes and provide you with the best result in terms of tax savings. Please sign up for our services at taxesforexpats.com
Q: Will a sale of security that’s in a foreign retirement account (Denmark, already taxed contributions) be taxed in the US as a realized gain?
A: The answer will depend on how much of the contributions have already been taxed in the US in the past to determine how much is taxable in the year of distribution. Our qualified tax experts can address this while we prepare your taxes and provide you with the best result in terms of tax savings. Please sign up for our services at taxesforexpats.com
Q: With a UK private pension I can withdraw 25% tax free. I live in the USA (since 1995) and I would like to know if that withdrawal would be tax free in the USA also?
A: Our qualified tax experts will need to examine the details of your case in relation to the US-UK tax treaty to provide you with a detailed answer. Our experts can do this while we prepare your taxes and provide you with the best result in terms of tax savings. Please sign up for our services at taxesforexpats.com
Q: In the next year, I will retire from the UK Royal Air Force with a yearly pension of £40,000 per year. They will also give me a one-off, tax-free lump sum of £120,000. Will this lump sum be free of tax?
A: To answer your question, our qualified tax experts will need to discuss this issue with you in detail and see how it relates to the US UK tax treaty and the specific provisions regarding pensions during a tax planning consultation.
Q: Where can we go to learn about the US tax treaty with the Netherlands?
A: The US-Netherlands income tax treaty is available online at the IRS website. If you have any specific questions related to the treaty, we will be able to answer them when we prepare your return. Please sign up for our services at taxesforexpats.com.
Q: If you're not a US citizen or living in the US, but have a US pension, are you expected to report distributions to the IRS? (UK citizen)?
A: Would need to review the treaty, but generally pensions are taxable only in the state of residence. There are other implications as well though, for instance, if the broker withheld federal tax.
Q: I am an Irish citizen and I’m applying for my green card currently. I will keep my Irish job once I get my green card so I will be taxed in Ireland. The taxes in Ireland are much higher than in the US so it’s unlikely that I will have to pay tax in the US (although I will have to file). Does that mean that I won’t have to pay tax on my pension either (because I’ll have already paid so much tax in Ireland)?
A: Our qualified tax experts will need to crunch the numbers to see if you will owe tax. It depends on a myriad of factors relating to foreign tax credits, the foreign earned income exclusion, and any applicable tax treaty. We can address all of this while we prepare your taxes and provide you with the best result in terms of tax savings. Please sign up for our services at taxesforexpats.com. We can prepare a projection for you so you have an estimate before you take any action.
Deadlines/Extensions
Q: Does that mean one has until April 2022 to contribute to 2021, or until April 2023 to contribute to 2021?
>A: April 2022 to contribute for the tax year 2021 and April 2023 to contribute for 2022 for IRAs. Reason: IRS lets you prepare your return first to let you see where you stand, whether the contribution makes sense.
FATCA/FBAR
Q: What if the pension balance is not available?
A: Please find details in the article How to Determine Maximum Annual Account Balance for FBAR.
Q: I don’t know my highest foreign pension balance so I haven’t been filing it in my FBAR. I am UK based.
A: In this case, you can report the foreign pension account as having an unknown maximum balance. This is a checkbox on the form. Our qualified tax experts can address this while we prepare your taxes and provide you with the best result in terms of tax savings. Please sign up for our services at taxesforexpats.com
Q: IRS could not answer what value to put on an employer pension (can’t remember the right word.. but a pension connected to your pay, not a portfolio value)
A: As far as the basis? Many values surround a pension, and determining the taxable amount can be difficult, even for a US pension. That's why the 1099-R has a "taxable amount not determined" because sometimes even your broker doesn't know! But we can work with you and through your statements to figure it out. For FBAR and 8938 is the maximum value during the year. If you don't know, you can estimate or mark the maximum value not determined.
Q: Does having superannuation in Australia mean I'll always have to submit FBAR forms in the US for as long as I work here?
A: If the balances in your Superannuation account and foreign bank accounts exceed the FBAR filing threshold of $10K USD, then you would have a filing requirement for each year you meet the threshold. Our qualified tax experts can help you determine if you have an FBAR filing requirement, as well as if you have other filing requirements, such as for FATCA. We can determine this while we prepare your taxes and provide you with the best result in terms of tax savings. Please sign up for our services at taxesforexpats.com.
Q: Do distributions from a foreign pension or social security typically impact the social security amounts I receive from the US government? Can I live abroad and still receive US social security if I had worked in the US?
A: Please see Social Security & Expats - Q&A.
RRSP & TFSA
Q: Is it typically tax deferred as is the case with a Canadian RRSP or treated like a regular investment income?
A: Please see Are Canadian RRSP & TFSA accounts reportable? regarding RRSP & TFSA
Q: I have RRSP in Canada and IRA in the USA. I'm about to start distributions in 2023. I can live in the USA (citizen) or in Canada (Perm Resident). I wonder if there are any tax reasons to choose one country to retire in versus the other?
A: There are other factors to consider besides your RRSP. Our qualified tax experts can discuss this with you and answer your question in depth during a tax planning consultation.
Q; I’m in Canada and we have a tax free savings account (TFSA) and wondering since it’s tax free, if I would be taxed by the US. I think there is a 5K limit per year that I can put in. I do realize it will need to be reported, but is it taxable in the US since it’s not taxable in Canada?
A: Think of it this way — a) is it reportable and b ) is it taxable. All you have to know is if it’s reportable and we’ll handle the rest. Tax impact will always depend on factors. Please see Are Canadian RRSP & TFSA accounts reportable?
US Citizenship
Q: Do you have experience with people giving up their US Citizenship? I know several people who are doing this to keep from having to give up so much of their pensions. I understand that it would depend upon individual circumstances, but in general, when does it make sense to do this?
A: Yes — we have a lot of experience with expatriation. It’s a very personal decision which also has a lot of procedural steps should you choose to go that route. Some articles we’ve written about expatriation and what is required in order for a U.S. citizen to expatriate cover the logistics.
SFOP/PFIC
Q: How does TFX handle likely PFICs, such as ETFs and mutual funds, in the streamlined process? Or is this a separate issue outside of an SFOP?
A: The Streamlined filing offshore program (SFOP) program requires the last 3 delinquent years, so if your 2021 extension is not filed, it is overdue as the deadline is passed.
Social security
Q: Do distributions from a foreign pension or social security typically impact the social security amounts I receive from the US government? Can I live abroad and still receive US social security if I had worked in the US?
A: Please see Social Security & Expats - Q&A
Q: I seem to be unable to create a social security account online because I no longer have a US address. I live in Norway.
A: Please contact SSA.Gov with questions regarding Social security.
Q: If I have been declaring the employer contribution each year in the questionnaire, is that addressed in that tax year and indicated as taxable income? I live and work in NL filing in the US.
A: It would be added to the basis, small taxable amounts in years of distributions.
Q: Private foreign pension plan to which only I contribute to (NO employer). When and how is that money subject to US tax?
A: Typically, both contributions and distributions would be subject to US tax when the events occur. Our qualified tax experts can address this while we prepare your taxes and provide you with the best result in terms of tax savings. Please sign up for our services at taxesforexpats.com.
Minimum filing requirements
Q: As a US citizen living in Spain will I need to be paying US taxes (and/or need to file) on my monthly Spanish Social Security retirement benefits once I retire? The yearly income should be substantially lower than filing minimums in the US.
A: Filing requirements will depend on your overall income, please see Minimum Filing Requirements and the relevant article Do I Need to File a Tax Return This Year? Common Misconceptions with a similar case.
Tax planning
Q: As an American currently living in the UK with several workplace pensions, is there a possibility of an unfavorable tax event in the future either on pension growth or contributions - whether I continue to live in the UK or move back to the US?
A: Living in the UK, you will likely have a foreign tax credit. Moving back to the US you will pay tax to the US as a US resident. Unfavorable depends on what you mean by this, but no double taxation, so long as your return is prepared correctly (which we do).
Q: Are Foreign Pension distributions considered foreign income and if so, and you claim FEIE status, will distributions still be taxed in the USA?
A: If you are a US citizen, all worldwide income is taxable on your US return. This is the case even if FEIE is claimed. Our qualified tax experts have a lot of experience in this area and we can provide you with the best result in terms of tax savings. We can also take into account your future pension distributions and plan for the best method to report your taxes. Please sign up for our services at taxesforexpats.com.
Q: My mom has Canadian/US dual citizenship, and I'm wondering if she should renounce the US one. She is a director of a company which is the family inheritance - we’re all a bit concerned as to what would happen to that company in terms of taxation after she passes on.
A: Yes, we can help. We (nor anyone) should advise if you should or shouldn’t expatriate, it’s very personal. Recommend your mom schedules a consultation with our team and we can make a plan for her so you are aware of all options. Sign up and click "phone consult" in the left sidebar and schedule a tax planning call.
FEIE
Q: Can you share briefly about contributing to pension when outside of the USA. And best status FEIE vs Foreign Earned Credit. FEIE can not contribute to any Pension unless earning over 100K, but Foreign Credit can do so… however, Foreign Credit is not as favorable as FEIE? Can you share both?
A: As you note, there are a lot of nuances - that’s why you want to hire an expert professional to handle it for you and make sure you are best set up for both retirement and current-day tax scenarios. We’ll handle everything for you during tax prep. Please sign up for our services at taxesforexpats.com.
Q: Does my Norwegian pension income qualify for the FEIE (form 2555)?
A: Only earned income qualifies for the Foreign Earned Income Exclusion. Earned income typically only includes income from employment or self-employment. Pension income would not qualify. Importantly, we’ll handle everything for you during tax preparation, please sign up for our services at taxesforexpats.com.
Q: Considering that an expat residing abroad will have their foreign earned income taxed in the jurisdiction where they reside regardless, why would such an expat want to then contribute their foreign earned income to a US retirement plan? As far as I'm aware, the only real purpose of a US retirement plan is deferred taxation but, in this case, the foreign earned income will already have been taxed before it arrives in the US retirement plan.
A: The IRA comments, we are looking only at US taxation. Traditional IRAs can still save tax in the US when considering foreign earned income exclusion. Roth IRA can be advantageous too since distribution is not just tax-deferred but tax-exempt, but yes, it's true that the distribution may be taxed in the foreign country.
General questions on pensions and retirement
Q: What does “highest value” mean when a pension fund only reports value 1x a year?
A: If the pension fund only reports the year-end value, it's fine to use that as the "highest value" unless you have any other documents showing otherwise.
Q: Is there a limit on how many different pensions from different countries someone can receive? I am currently eligible for four.
A: Nope - enjoy your retirement!