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So we've been happily moving along toward relocating to France this fall. We're retiring and planning to move semi-permanently. We would initially be living on 401k distributions from the US.

I've read in this forum and was assuming that my 401k distributions would be taxed in the US but not in France. This seems reasonable to me, and I expect to pay taxes in France on other worldwide income (dividends, etc). That seems fair.

Today I received the opinion from a French accountant that there would be a significant tax due in France on our 401k distributions - about 14% of the amount distributed! I was kindly informed that "some of that might be deductible against your US taxes". Hmm - what about double taxation?

I've seen Bev discuss "cotisations" in this forum before but the rates were fairly low - 4 to 6 percent if I remember correctly. I've never heard anything like this before.

Does this information sound accurate to you folks? Or should I find another accountant?

Thanks in advance!

Rem


Disclaimer: This information came to me second-hand through a US accountant so there may be some misunderstandings. I'm obviously hoping that's the case!
 

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OK - the answer is "maybe." (Like many answers in France.)

The verdict I've heard on IRA and 401K distributions is that, because this is an investment that was funded while you were not subject to French taxation, then the distributions are not considered income here in France - certainly not for income tax purposes. In essence, you are simply transferring funds from your US investment accounts. I tend to go with that one - however, I have the added argument that I set up my IRA many years ago, so can also consider it an "assurance vie" established at a time when those things were exempted from French taxes if held to retirement. (Some time in the 1980's.)

If you declare your 401K distributions as income (even if exempted from taxation), there's a fair chance you'll be hit with the CSG/CRDS, which runs at least 8% and up to about 12% these days. The trick is, that if you pay CSG/CRDS (sometimes called "cotisations" here, though it gets you nothing in the social insurance system) it is most definitely NOT deductible as "taxes paid" on the US side - since it isn't considered an income tax.

Personally, I'd skip the French accountants altogether and talk directly to the tax office after you get here and get established. I know of several folks who have been advised by the tax office not to bother reporting IRA and 401K distributions at all on their French declarations - though I don't know if they have other considerations in there.
Cheers,
Bev
 

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Hi Bev -

Thanks for your quick and informative reply!

I understand what you're saying, but effectively you're recommending that I go into the local tax office and hope that the functionnaire enters my numbers into the right places on the forms. That's kind of scary considering the money involved.

I guess the best thing for me to do is budget as if I'll have to pay income tax twice on 401k distributions, and then if by some luck I don't have to pay the cotisations, I'll have extra money. (I'm not generally a lucky person when it comes to interactions with the French government).

It's kind of amazing to me that this isn't noted in any of the "Retire to France" articles I've read, or here on this forum. It seems like a pretty basic reason why no sane American would want to retire to France. I guess that says something about me...

I think I'll do some more searching and try to find an accountant that backs up your take on the situation.

Thanks again!

Rem
 

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Actually, I just had reason to check out the help files on the French income tax software I use here. They list both public and private pensions from the US as being specifically excluded from French income taxes by treaty. You do, however, report the amounts (and they have changed which box you put this in on this year's tax forms). In essence, you're given a credit equal to whatever French income taxes they generate - so no double taxation. I also see that there seems to be a lower rate of "cotisations" applied to "foreign pension" amounts - either 6.6% or 3.8% - at least on something like those of a 401K type arrangement.

Have not had the chance to research this much more carefully but this is the sort of constantly changing landscape you have to deal with when you retire overseas.

Actually, the French tax office people generally are pretty helpful (not like the IRS - or at least their reputation back in the US - the IRS folks in the Paris office were always quite helpful and pleasant to deal with but they're closing that office later this year).
Cheers,
Bev
 

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they have changed which box you put this in on this year's tax forms
I was about to put my spouse's soc sec on line 1AS, as usual. May I ask which boxes you're referring to and for what kind of retirement income? Don't have distributions yet but would like to have an idea about it.

Thanks,
 

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Apparently it goes on a 2042C form - box 1AH, or BH. And section 8 on the same form.
Revenus d’activité et de remplacement de source étrangère soumis aux contributions sociales Voir document no 2041GG
Like I said, I haven't looked into it too carefully just yet as I'm not quite there. But it seems to have changed from last year.
Cheers,
Bev
 

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Apparently it goes on a 2042C form - box 1AH, or BH. And section 8 on the same form.

Like I said, I haven't looked into it too carefully just yet as I'm not quite there. But it seems to have changed from last year.
Cheers,
Bev
Thanks. There's a line about an exception where a treaty exists. But I'll take a closer look.
 

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Finally, I got a chance to do a bit more research online and found this: Convention fiscale - France-Diplomatie - Ministère des Affaires étrangères et du Développement international

Scroll down to the part headed [Pensions (Article 18)] which states pretty clearly that France recognizes the US IRA, 401K and possibly a couple other retirement plans as being "government" retirement plans equivalent to the French benefits. If I read the treaties, protocols and various technical documents correctly, this seems to imply that withdrawals from the US "deferred tax" retirement plans are not even reportable in France. (Which was kind of what I had originally thought - just couldn't find any documentation to back me up.)

Anyone know anything to contradict this? (Unfortunately, there is nothing on the Fisc's website about this that I can find.)
Cheers,
Bev
 

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Discussion Starter #9
Hi Bev -

Thanks for your research and results!

For some reason I didn't receive emails when this thread was updated and didn't realize that you had posted.

In the interim, I've validated your understanding with another tax professional who handles US and French tax. So you can guess who I'm going to choose to do my taxes!

I apologize for not coming back on this sooner - I really thought this thread was dead!

rem
 

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Hi Bev and sd15,

Sorry, I get how pension withdrawals are covered by the treaty and why one would characterize them as a transfer of funds.

But, what did you see/did your accountant say that implies they’re not reportable?

Thanks.
 

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A while back (i.e. a few years ago) I found something in the "help files" of one of the tax preparation software programs that said something about retirement funds that you had contributed to before you became tax resident in France - and that those were thus considered just transfers of capital when you tapped them. Unfortunately, I didn't make a copy at the time, and in the more recent years' programs have not been able to find anything like that (not to mention that the law changed in France on pensions the following year anyhow).

However, I did find the citation I posted quite recently which seems to indicate that you'd put your withdrawals on the 2042-C along with any US SS pension. I know I've been reporting my IRA as an "assurance vie" on our French returns, because I opened my account way back in the 1980's and there is some reason to think I might be able to consider it under assurance vie pensions (which, if opened before something like 1989, are tax free).

Tax law is kinda tricky that way. You squeeze what you've got in under whatever laws/rules you can find.
Cheers,
Bev
 

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A while back (i.e. a few years ago) I found something in the "help files" of one of the tax preparation software programs that said something about retirement funds that you had contributed to before you became tax resident in France - and that those were thus considered just transfers of capital when you tapped them.
US/France tax agreement aside, that is what I was told at my tax office, so in terms of my Australian superannuation, I just declare the earnings and consider the 'pension' payments as draw downs on my pre-existing funds/savings (as they suggested). That said, the Australia/France tax agreement doesn't deal with superannuation funds. It's all very grey, since the fund is a local government one set up under the auspices of the State Govt for local govt employees, who originally had no choice but to have their superannuation in that account and to make higher contributions (taxed on entry) to the fund (therefore the 'pension' payment could possibly, who know, be considered tax exempt).

To add to the complexity, I am covered by CPAM via the CMU and what they consider 'income, taxable or not' is just another layer of complexity! :juggle:

Pfft - I hate, hate, hate trying to work my way through this.
 

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Bev, thanks, I guess I mixed up the posts, thinking you said the withdrawals were not reportable on the declaration des revenus.

What confuses me, is that social security = income while IRA distributions are not (except possibly the growth portion). So it seems odd to me to report them, at least not in the same place as SS.

I haven’t had any distributions yet, so I’m not sure how they're classified on the 1099r from the US. Or even how you can draw down (savings first, then growth or on a proportional basis) — anyone know? I wonder if only lines 15b and 16b of the 1040 might be reportable.

EH, thanks as well, just saw your post which would make me think solely the earnings/growth portion of an IRA might be reportable. OTOH, almost all the growth for retirees to France took place while in our home countries. OTOOH, guess you’re not benefiting until you take it out. UGH!

Regarding the CPAM, exactement ! That’s one of the reasons I’m wondering what’s reportable and therefore included in the RFR.

Did you wind up filing on line? I chickened out.

Bonne chance à toutes et à tous !

P.S. I tried to thank you both via the little box but it said I have to spread my thanks around
 

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No, I don't think you mixed up the posts. I've definitely changed my mind/approach a couple of times over the last few years.

And if it makes you feel any better, several years ago at the AARO tax seminar, one of the tax lawyers there basically said that they "don't advise" people to declare their IRA withdrawals on their French declarations - nor to report them as foreign bank accounts. It was shortly after that that I came up with the idea on my own to declare my IRA as a foreign "assurance vie" after reading the rules in the French tax instructions.

Once again, there is no one "correct" way to file these things. You just need to have a justification you can explain if they come back to ask why you did or didn't do it a certain way.

The other thing to remember is that the definitions of "income" do vary between France and the US. One of the big differences is that the IRAs and 401Ks are "tax deferred" plans - which justifies their being taxed on withdrawal in the US. (And taxed on the full amount of the withdrawal - not just the gains on the money you and your employer put in for you.) As far as France is concerned, this is a US government sanctioned pension plan, so there is a distinct question as to whether any of your withdrawals can be considered "income" for French purposes. You're literally paying tax to the US on "income" from before you were subject to French taxation.

I guess that's why tax accountants and lawyers get the big bucks - to deal with these head banging issues.
Cheers,
Bev
 

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Hi Charlot -

Just my opinion, but the reference that Bev provided is pretty irrefutable. It says explicitly that social security income is only taxable in the country of origin. (this is in the section titled "Pensions (article 18)". It goes on to state explicitly that this includes "qualified plans covered by section 401(a) of the Internal Revenue Code. I'm translating the French and I'm far from an official translator, but that's what I get from it.

In the case of the accountant, the second person I contacted said "of course they're not taxable in France! Who told you they were?"

Note that I'm not saying they're not "reportable". Bev has some info above about where to put them in the French tax forms. You may need to "report" them but not pay tax on them.

Note that I'm not a lawyer or a tax consultant and I don't play one on TV. So my interpretation of French tax law and reporting of second-hand conversation isn't a substitute for professional advice! :)

rem
 

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Did you wind up filing on line? I chickened out.
Have started my on line declaration - and will complete it on line come hell or high water, 'cos if I get it right this year I will be able to continue that way. It's very confusing and might just kill me :D :D As I've mentioned before, my income is substantially different for 2014 and unusually high.

(At the same time, I'm getting ready for the CPAM declaration in October - might as well get it all prepped in one go. I've set up an Excel spread sheet for both, which will come in handy for future years. It's interesting, because I've already used it to estimate my future cotisations which, whilst horribly high for the coming year, are not quite as high as I had thought. At some point I'll include notes re where I reported the various figures on my tax declaration.)

Next thing on my list is to do a new budget that will include tax and the new cotisations.
 

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EH, thanks as well, just saw your post which would make me think solely the earnings/growth portion of an IRA might be reportable. OTOH, almost all the growth for retirees to France took place while in our home countries. OTOOH, guess you’re not benefiting until you take it out. UGH!
Just to be clear, they advised me to report the growth received in the French tax year. My Australian superannuation attributes net earnings on 30 June each year and that's the amount I report.
 

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Hi Charlot -

Just my opinion, but the reference that Bev provided is pretty irrefutable. It says explicitly that social security income is only taxable in the country of origin. (this is in the section titled "Pensions (article 18)". It goes on to state explicitly that this includes "qualified plans covered by section 401(a) of the Internal Revenue Code. I'm translating the French and I'm far from an official translator, but that's what I get from it.

In the case of the accountant, the second person I contacted said "of course they're not taxable in France! Who told you they were?"

Note that I'm not saying they're not "reportable". Bev has some info above about where to put them in the French tax forms. You may need to "report" them but not pay tax on them.

Note that I'm not a lawyer or a tax consultant and I don't play one on TV. So my interpretation of French tax law and reporting of second-hand conversation isn't a substitute for professional advice! :)

rem
Thanks for your input. I was only asking if you're supposed to report withdrawals and where, as this has an impact on other things in France, as EH notes in her posts in this topic. Though not taxable, under-reported revenue could be a serious offense (offence for EH!). And over-reported revenue will mean I have to cut back on pastries.

While many of us on the forum and elsewhere think the treaty is clear, our experiences with the Fisc tell a different story. So you’re right to put the “pretty” in “irrefutable” ;)
 

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OTOH, the Fisc doesn't have quite the same reputation as does the IRS. I know many folks who have gone into their local tax office here and received very good advice on filling out the forms. If the Fisc should come back and question you - or assess you gobs of euros for something you thought wasn't subject to tax, they even will accept to have a nice, pleasant sit-down to go over the matter with you. And (at least in our case), they're more than willing to re-do the assessment, waiving any and all penalties, if you can bring to light factors that show you maybe shouldn't have been assessed.
Cheers,
Bev
 

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Have started my on line declaration - and will complete it on line come hell or high water, 'cos if I get it right this year I will be able to continue that way. It's very confusing and might just kill me :D :D As I've mentioned before, my income is substantially different for 2014 and unusually high.

(At the same time, I'm getting ready for the CPAM declaration in October - might as well get it all prepped in one go. I've set up an Excel spread sheet for both, which will come in handy for future years. It's interesting, because I've already used it to estimate my future cotisations which, whilst horribly high for the coming year, are not quite as high as I had thought. At some point I'll include notes re where I reported the various figures on my tax declaration.)

Next thing on my list is to do a new budget that will include tax and the new cotisations.
You are very brave! Thank you for being this year's trailblazer.

It's funny, I had a good financial year too, but instead of feeling grateful (considering the situation of others), I'm annoyed about how much I'll have to shell out for healthcare next year (even though I just paid a paltry 62 centimes for my Vitamin D). Just can't help it :eek:
 
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