How to report foreign pension distribution

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How to report foreign pension distribution


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Old 12th September 2019, 04:24 AM
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Default How to report foreign pension distribution

I'm a US citizen residing in Israel and will be retiring (finally! yay!) at the end of 2019.

My question is how/if to list the distributions from my pension fund here. I've read the US/Israel tax treaty and it seems to be pretty clear that pensions are taxed only in the country of residence (Israel).

So am I supposed to list the distributions on Form 1040 as some sort of income and then exclude them (how?), or just not list them at all?

Thanks!

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Old 12th September 2019, 06:45 AM
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Best I can do is to pass along the advice from one of the staff at the Paris IRS office (back when there was one) - he said not to bother reporting a foreign pension that is not taxable by the US under the treaty. Seems the most logical approach to me.

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Old 12th September 2019, 07:50 AM
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Quote:
Originally Posted by Carmonli View Post
My question is how/if to list the distributions from my pension fund here. I've read the US/Israel tax treaty and it seems to be pretty clear that pensions are taxed only in the country of residence (Israel).
Article 20 paragraph 1 of the treaty?
Quote:
1. Except as provided in Article 22 (Governmental Functions), pensions and other similar remuneration paid to an individual shall be taxable only in the Contracting State of which he is a resident.
Did you also see Article 6 paragraph 3?
Quote:
3. Notwithstanding any provisions of this Convention except paragraph (4), a Contracting State may tax its residents (as determined under Article 3 (Fiscal Residence) and its citizens as if this Convention had not come into effect.
This would leave you reliant on foreign tax credits to protect against US tax. There is a heap of protocol articles that amend Article 6, but none that I could see on a quick scan through that make Article 20 paragraph 1 an exception. Though I could have missed something; this treaty is a shocking mess, more fixup than original. It needs a total rewrite.

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Old 12th September 2019, 02:08 PM
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Yes, typically those distributions needs to be reported on the US return. Then, depending on how you treated the contributions over the years, will determine how it is taxed. Typically all the contributions are reported as income and the individual contributions are done with already taxed dollars. Since this income has already been taxed, the withdrawal can be tax free (still needs to be reported though).

If you were not taxing/reporting the contributions, then there will likely be some tax due on the distributions.

More details can be read here: https://www.greenbacktaxservices.com...t-us-taxation/

https://www.greenbacktaxservices.com...ment-accounts/

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Old 12th September 2019, 03:11 PM
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Another point is to ensure that some clever tax preparer doesn't try to "protect" themselves by filing 3520 forms calling your pension a foreign trust. Not only is that expensive, it tends not to end well.

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Old 13th September 2019, 07:23 AM
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Thanks all. Will need to speak to a local accountant who specializes in US taxes.

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