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Old 05-11-2014, 08:04 PM
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Tax on foreign retirement account

I plan to open an individual retirement account in my home country due to its attractive low tax on earnings upon distribution. I'll fund this account with my "after-tax" earned income from the US. Questions: Is this something that I need to report to IRS on my annual tax file? Do I need to pay income tax to IRS as I withdraw money (either contributions or earnings) from this new IRA? (There is no tax treaty between the US and my country as of today) Thank you.



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Old 05-12-2014, 05:57 AM
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Originally Posted by golf2000 View Post


#1; Is this something that I need to report to IRS on my annual tax file?




#2;Do I need to pay income tax to IRS as I withdraw money (either contributions or earnings) from this new IRA? (There is no tax treaty between the US and my country as of today) Thank you.
#1;I don't think you need to file Form TD F 90.2.1,FBAR, for your retirement acct in the foreign country. You don't report the pension on FBAR. Other's may interpret it differently because it's vague. FATCA is the newer /additional thing to file. It has a $100K threshold for married tax filers. It does specifically mention foreign pensions. If you don't have $10k or $100k during the tax year, you do neither form.


Note; If you or your Self Directed IRA LLC or Solo 401K Plan has a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, the Bank Secrecy Act may require you to report the account yearly to the IRS by filing Form TD F 90-22.1, FBAR. The Form must be filed by June 30th.The FBAR is required because foreign financial institutions may not be subject to the same reporting requirements as domestic financial institutions.US persons are required to file an FBAR if the US person had a financial interest in or signature authority over at least one financial account located outside of the US; and the aggregate value of all foreign financial accounts exceeded $10K at any time during the calendar year to be reported.Exceptions to the FBAR reporting;
-Certain foreign financial accounts jointly owned by spouses;
-IRA owners and beneficiaries;
-Participants in and beneficiaries of tax-qualified retirement plans;
-Certain individuals with signature authority over, but no financial interest in, a foreign financial account;
-Trust beneficiaries;
You will notice that there is an exception for IRA owners and beneficiaries as well as participants and beneficiaries of a qualified retirement plan such as a Solo 401K Plan.
Most practitioners take the position that if the foreign bank account is held in the name of the LLC, even though the member if an IRA, the Form TD F 90-22.1 should be completed.

#2;It depends on the tax treaty the US has with your country. Either you will pay US tax on it, or you will pay tax in the other country and get a credit on the US tax return. as there is no tax treaty that specifically addresses the issue the income is fully taxable in the US. income received from foreign pensions/ annuities may be fully or partly taxable, even if you do not receive a Form 1099 R or other similar document reporting the amount of the income. the taxable amount generally is the Gross Distribution minus the cost. Most income tax treaties have special rules for social security payments. In many cases, foreign social security payments are taxable by the country making the payments. Unless specified otherwise in an income tax treaty, foreign social security pensions are generally taxed as if they were foreign pensions or foreign annuities. Unless a tax treaty allows it, e.g., the USA-Canada treaty, they are not eligible for exclusion from taxable income the way a U.S. social security pension might be. However, you may be able to claim a Foreign Tax Credit on your U.S. federal individual income tax return for any foreign income tax withheld/paid from your foreign pension /annuity in the foreign country. If you are required and would pay foreign taxes on the foreign pension, then you can file Form 1116 to claim the foreign taxes as a non-refundable credit on your form 1040 line 47 or treat it as other taxes on Sch A of 1040.



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