Taxation of Foreign Pension & Annuity Distributions

General Tax Rules on Foreign Pensions and Annuities

U.S. citizens who are working abroad, or who worked outside of the United States in the past, may have a balance in a foreign pension or annuity plan.  Although those plans may provide tax advantages and benefits under local law, in the majority of cases they do not meet U.S. tax qualifications for beneficial tax treatment.


Do I Owe US Tax on my Foreign Pension Plan?

While US employer sponsored pension plans qualify for special tax treatment under the Internal Revenue Code, that is often not the case for U.S. citizens and green card holders who have worked for foreign employers and participated in their foreign pension plan, you may want to contact a Green Card Law Firm to get full details.  These foreign pension plans normally have beneficial tax treatment under local law, but do not meet the U.S. qualification rules. If you’re not a UK resident, you don’t usually pay UK tax on your UK pension transfer to USA, but you may have to pay tax in the country you’re living in – and if you live in a country that doesn’t have a Double Tax Treaty with the UK, you may even have to pay tax in both countries. The USA does have a Double Tax Treaty with the UK but if you’re considering retiring in a different country this may not be the case.

When a U.S. citizen has participated in a foreign pension plan, it is likely that the plan has not meet the Internal Revenue Code’s qualification rules.  Therefore, the U.S. citizen in most cases will subject to U.S. tax on the contributions to the plan and the subsequent growth in said plan.  For U.S. citizens that live in a jurisidiction that imposes an income tax at rates higher than the U.S. rate, the employee more than likely will have accrued “foreign tax credits” that may be used to offset the U.S. tax on foreign sourced income.


Tax Reporting Forms Required to Report Foreign Pensions and Annuities

There are a number of reporting requirements that may apply to individuals with foreign pensions or annuites in addition to their normal U.S. income tax return.  This might include foreign trust reporting returns Forms 3520 or 3520A, as well as Fincen Form 114, which is the Foreign Bank Account Report

Tax Attorney’s to Help Answer Your Foreign Pension Tax Questions

Freeman Tax Law specializes in all types of international tax matters.  We can give you peace of mind in knowing that you are complying with all IRS rules and regulations.  Please contact us if you have questions.  The initial consultation is free, and of course all communication will be private and confidential.