Post retirement treatment of a Third Pillar account

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Post retirement treatment of a Third Pillar account


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Old 3rd December 2019, 01:51 PM
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Default Post retirement treatment of a Third Pillar account

Originally Posted by Bevdeforges
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=...the W-9 is a CYA thing for the bank. It never leaves the bank in any event. The FATCA reporting for foreign financial institutions only really went into effect starting in 2014, so some banks are only just getting around to checking their customer lists for customers with US birthplaces (which they are required to do).

Basically, you have nothing to worry about unless, like Boris Johnson, you get lots of publicity when you sell your 4 million GBP home for a big profit, or if you somehow pop up on the radar screen of the IRS for being a potential source of lots and lots of back taxes...
My situation is in no way comparable to B. Johnson's, but the balance on my savings account has changed due to my retirement. In Switzerland one has the possibility to put money aside in a so-called 3rd-pillar bank account. I'm sure there are similar options in the USA, but I don't know what they are called and how they function. Here one is not required to declare this money until after retirement and it never appears on any bank or tax form until that time. The money therein accumulates over the years and is tax-exempt until one reaches retirement age. Since I've been putting money into the account for the past 35 years (which is when the option became possible in this country), I've accumulated a sizeable sum (at least to me). In any event, after retirement one is required to dissolve the account, and declare it as a savings account. In my case, it means that this account jumped from a middle two-digit balance to a low 6 digit balance.

Based on this, my questions are quite basic. Do I need to be concerned or worried about this? Does this trigger some FATCA flag in my direction? Do I now have to hide money under my pillow?

To reiterate my CV: entire adult life in Europe, first in Germany, then in Switzerland. Never worked in USA, no assets, no financial ties; became a Swiss citizen in 1999.


Last edited by Bevdeforges; 3rd December 2019 at 02:22 PM. Reason: Quote parameters don't resolve.
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Old 3rd December 2019, 02:38 PM
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Have moved you into a thread of your own because you raise an important and interesting point here.

There are a number of things to consider here: Have you been filing US income taxes up to now? And have you been filing FBARs? If so, have you included anything regarding this "3rd pillar" account? Or has the bank where the account is held ever asked you about your tax residence status, or asked you for your US social security number? Do you have any "US indicia" that might flag you as a "US person" to the bank?

Net-net, the US Treasury Department (which includes the IRS) won't know anything about this 3rd pillar account until and unless the bank reports your account to them (based on their knowing or thinking that you are a "US person"). If a large sum drops into an account you have been reporting on your FBARs, it doesn't necessarily mean that you'll get reviewed or questioned by either the IRS or the Treasury Dept.

Though there are somewhat similar types of accounts in the US, the IRS does not recognize them (usually) as tax-free or tax-deferred - but check the Swiss tax treaty with the US to see how they handle lump sum pay-outs of retirement plans.

Or, as someone will no doubt drop in here to mention at some point, if you haven't been filing your returns and FBARs, this probably isn't a very good time to start.

If, on the other hand, the bank has been reporting your accounts (i.e. because you've given them a W9 with your SS number, or they have a record of your US birthplace) then you have a decision to make about how and whether to report the dissolution of the "tax-free" account. If the tax treaty has some provision for lump sum pension payouts, I'd try using that option if you will be filing going forward.

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Old 3rd December 2019, 03:43 PM
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Indeed. If you haven't been filing your returns and FBARs, this probably isn't a very good time to start.

In other words, how you handle this issue depends on how you approach the problem of US tax compliance. Given that Switzerland is a bit of a police state as far as FATCA is concerned, I assume you're subject to some sort of reporting if you've been identified as a US citizen, but that doesn't mean you need to be filing US tax returns.

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Old 3rd December 2019, 03:49 PM
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Quote:
Originally Posted by Bevdeforges
. There are a number of things to consider here: Have you been filing US income taxes up to now? And have you been filing FBARs? If so, have you included anything regarding this "3rd pillar" account? Or has the bank where the account is held ever asked you about your tax residence status, or asked you for your US social security number? Do you have any "US indicia" that might flag you as a "US person" to the bank?
Short recap: I am non-compliant. I have never filed US income taxes in my life, neither in the US (because I was too young and never had employment), nor here in Europe. Was not aware of the obligation until the issue with FATCA started.

Yes, I am flagged as a US person by my bank, starting already in 2012.

Quote:
Originally Posted by Bevdeforges
. Net-net, the US Treasury Department (which includes the IRS) won't know anything about this 3rd pillar account until and unless the bank reports your account to them (based on their knowing or thinking that you are a "US person"). If a large sum drops into an account you have been reporting on your FBARs, it doesn't necessarily mean that you'll get reviewed or questioned by either the IRS or the Treasury Dept.
After the 3rd pillar account is dissolved into my savings account the only thing I can imagine is that the FATCA report will show the balance of the savings account, which will have increased. I've seen such a report from one bank. It is very cut-and-dry: "name" "address" "account" "SS number" "balance(s)" and a few other details. Up till the present I haven't been bothered. As you have mentioned in previous threads, such balances as I have are too small for the IRS, et. al. to bother with, even though the balance was always above the so-called threshold.

The question I am now asking is, what is too small to bother with?

Quote:
Originally Posted by Bevdeforges
. If, on the other hand, the bank has been reporting your accounts (i.e. because you've given them a W9 with your SS number, or they have a record of your US birthplace) then you have a decision to make about how and whether to report the dissolution of the "tax-free" account. If the tax treaty has some provision for lump sum pension payouts, I'd try using that option if you will be filing going forward.
In Switzerland we do have such provisions in place. There is a separate tax on the dissolution of the 3rd pillar for the tax period in which it was dissolved, after which it will be treated as the balance of a normal savings account in subsequent periods.

Expats are generally discouraged from opening a 3rd pillar account while they reside in Switzerland by virtue of the different systems in questions. For an expat there is nothing to be gained. Apparently, it would make his/her tax situation more complicated with no advantage gained.

Based on your replies in previous threads I would tend to think that, now as before, I don't have anything to worry about, because 1) I never filed 2) have no assets in the US 3) have no income form the US 4) have no plans of retuning to the US.

I am more or less curious (worried?) about what such a moderate change to my account could trigger, if anything at all.

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Old 3rd December 2019, 04:12 PM
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Originally Posted by Nononymous View Post
Indeed. If you haven't been filing your returns and FBARs, this probably isn't a very good time to start..
I agree, I have no intention of starting anything. The only thing that concerns me is if the IRS wants to start something.

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Given that Switzerland is a bit of a police state as far as FATCA is concerned, I assume you're subject to some sort of reporting if you've been identified as a US citizen, but that doesn't mean you need to be filing US tax returns.
I wouldn't go so far as to claim that Switzerland is "a bit of a police state ..." As a matter of fact, the bank employees I've dealt with are rather embarrassed by having to categorise expats. I think they try to be as supportive as they can, given the circumstances.

As a Swiss citizen I am in a better position. They can't deny me certain services, but it is still very uncomfortable, because, as in the present situation, I am not sure about what to think, i.e. what is a real assessment or am i being overly worrisome. Indeed, I haven't yet given up the idea of relinquishing or renouncing.

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Old 3rd December 2019, 04:42 PM
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I would give some consideration to renouncing before the money is moved and your balance spikes. I doubt very much that the IRS will ever care to get in touch with you over a six-figure amount, given that there's nothing they can do to you, but for $2350 having the CLN might be cheap peace of mind. As you are no doubt aware, you can renounce without any form of US tax compliance.

It sounds like you are in a good situation with your bank though. There are a few reports here and there of banks being very difficult with some US customers, demanding to see copies of their tax returns and FBARs each year, and requiring them to sign statements agreeing that the bank is entitled to hand over money to the IRS in the event of an investigation. The fact that you've been a Swiss citizen for 30 years probably works to your advantage here.

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Old 3rd December 2019, 04:46 PM
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Also, if you can claim relinquishment when you took Swiss citizenship in 1999, that would be worth the effort, as doing so prior to 2004 frees you from any tax obligations - i.e. congratulations, you were compliant all along. You would simply need to state that you intended to lose US citizenship and that you never behaved as a US citizen after that point, by voting or filing taxes or renewing a passport. It's the same cost as renouncing but in this case worth doing because then there is absolutely no question of ever receiving any (toothless) hate-mail from the IRS.

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Old 3rd December 2019, 05:38 PM
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Originally Posted by Nononymous View Post
Also, if you can claim relinquishment when you took Swiss citizenship in 1999, that would be worth the effort, as doing so prior to 2004 frees you from any tax obligations - i.e. congratulations, you were compliant all along. You would simply need to state that you intended to lose US citizenship and that you never behaved as a US citizen after that point, by voting or filing taxes or renewing a passport. It's the same cost as renouncing but in this case worth doing because then there is absolutely no question of ever receiving any (toothless) hate-mail from the IRS.
Advice well taken! However, it's a bit late to wait before I renounce, or better, relinquish. Swiss policy requires me to dissolve the 3rd pillar account by the end of the year.

In a past thread I found a link to the form for relinquishing. It looks a bit tricky. Not sure if I would require counselling. I'm going to try to find the link and see if there is more information.

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Old 3rd December 2019, 06:20 PM
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I wouldn't worry about it then. Do what you need to do with the account this year, odds are the US government will never notice. There have been literally no reports of the IRS reaching out to any fully non-compliant non-residents on the basis of FATCA information. I suspect that likely won't change for sub-seven-figure amounts.

If indeed you "intended to give up" US citizenship when you became Swiss in 1999, and never "acted" as a US citizen after doing so - no tax filing, voting or passport renewal, basically - then for all intents and purposes you haven't been US citizen for the past 30 years. You simply chose not to spend money documenting the fact, and you supplied your bank with an SSN because you were required to. If you ever do pop up on the IRS radar, document relinquishment and you'll be retroactively cleared of any obligations because it happened prior to 2004.

If you could only renounce (i.e. you were not able to prove that you relinquished in 1999) then it would be hypothetically advantageous to do so immediately, before you dissolve the account.

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Old 3rd December 2019, 08:40 PM
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Quote:
Originally Posted by Nononymous View Post
If indeed you "intended to give up" US citizenship when you became Swiss in 1999, and never "acted" as a US citizen after doing so - no tax filing, voting or passport renewal, basically - then for all intents and purposes you haven't been US citizen for the past 30 years. You simply chose not to spend money documenting the fact, and you supplied your bank with an SSN because you were required to. If you ever do pop up on the IRS radar, document relinquishment and you'll be retroactively cleared of any obligations because it happened prior to 2004.
Yes, I would be able to meet the requirements; e.g. no voting or passport renewal (since the mid-nineties). And your comment about the SSN and the banks is basically true. At the time the issue of FATCA arose I had to literally dig up my SSN. I had completely forgotten about it.

I also located a past thread "FATCA and renouncing Citizenship" on this forum from 10 October 2018 where a link to the form "REQUEST FOR DETERMINATION OF POSSIBLE LOSS OF UNITED STATES CITIZENSHIP". It seems straight forward enough, but a bit tricky. For instance, question 13e asks Do you file U.S. income or other tax returns? If yes, please explain.
Isn't this a bit odd? If I state that I've never filed income or other tax returns, won't that cause trouble for me?

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If you could only renounce (i.e. you were not able to prove that you relinquished in 1999) then it would be hypothetically advantageous to do so immediately, before you dissolve the account.
Either way, over here it takes a bit of time to go through with any of the two options. It won't happen from one day to the next. And I'm not sure what to expect if I contact the embassy here with a request or questions. I'm concerned that it would raise FATCA-flags.

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