Foreign Pension Plan Contribution and Taxation

U.S. citizens currently residing and working abroad and foreign residing in the United States who are participating in a foreign retirement contribution plan, should evaluate the most recent federal Internal Revenue Service (“IRS”) tax reporting requirements to avoid penalties on those assets or future estate transfer. Foreign pension fund contributions made in the interest of retirement and trust formation in preparation of an estate, may be subject to taxation without the professional assistance of an estate law attorney.


Tax Exemption and Treaty

U.S.-based participants contributing to foreign pension funds in some jurisdictions such as Canada, the United Kingdom and Belgium, are not required to file tax reporting with the IRS due to treaty. An example of tax-free treaty is Article 18 of the U.S./U.K. Income Tax Treaty, which allows for transfer without taxation by either jurisdiction. The U.S. also allows for a U.K. national assignee to be temporarily employed in the country while continuing participation in a 401k pension plan abroad with limited tax obligation under IRC section 402(g) covering tax treatment of earnings in a foreign plan. Pension funds located in non-treaty host countries are subject to taxation if a fund is not considered a “qualified plan” under IRS rules.   


U.S. Tax Treatment of Foreign Pension Funds

Foreign retirement funds not structured to be compliant with IRC section 401 rules, are those not in accordance with established U.S. federal guidelines to tax-exempted trusts. Contributions made to foreign retirement plans, therefore, are not tax-deductible for U.S. taxpayers.


This includes IRS tax treatment of any matching contributions made by an employer. U.S. federal taxation is relevant to any foreign pension fund contributions. If the beneficial interest of the participant is not at a substantial risk of forfeiture (vested) at time contribution, tax will apply.


Foreign privatized social security contribution taxes are an IRS creditable foreign tax under IRC Title 26 CRF § 1.901-2. Tax-exemption consideration may also be given to investments supplementing a foreign retirement plan. Offshore (U.S. tax compliant) life insurance policy transfers are a common vehicle for continuing the tax-free benefits of retirement permanently (IRC §101[a]).


Which Forms Should I File?

To fulfill IRS requirements for foreign pension plan tax reporting, participants now must file:

  •         Form 1040 – reporting annual (trust) income;
  •         Form 3520 – reporting contributions and distributions;
  •         Form 8938 – reporting plan assets; and
  •         Form TD F 90-22.1 – Foreign Bank Account Report (FBAR) to be compliant.


New York Estate Law Attorney

Foreign pension fund contributions made by U.S. citizens or foreign nationals residing in the U.S. may be subject to taxation. A licensed estate law attorney can advise client of the federal guidelines to tax-exemption, as well as of the obligation to taxation if a fund located in a jurisdiction where there is no reciprocal treaty. Ettinger Law Firm is a licensed New York attorney practice with experience in international estate law planning and probate litigation. Contact Ettinger Law Firm for consultation about a foreign retirement contribution plan.

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