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.