Planning and taxation of pensions is complex enough for US citizens who live in the country, but, for those classified as non-residents, pension planning management can seem like a real minefield.
Whether you plan to eventually settle in the US, to return to your country of origin or to settle elsewhere, there are so many factors for you to consider that it is important that you take advice regarding the consequences of your foreign pensions as well as your US-based pension arrangements.
Blacktower (US) LLC is fully licensed and regulated by the SEC and has over 30 years’ experience in the offshore and cross-border expat market. We are excellently placed to manage clients' US-based assets, including 401ks, IRAs and 529 education plans.
Our aim is to offer robust and conservative long-term growth, aligned with careful planning and management from start to finish. We welcome expats specifically, by offering a complete holistic wealth management approach.
Foreign pension plans
Foreign pensions are difficult to manage as they are subject to strict and complex reporting requirements. Additionally, the IRS (internal revenue service) does not recognise foreign pensions as qualified plans in the US so any contributions you make to your foreign scheme will not reduce your US taxable income, while contributions made by your employer will only serve to increase your taxable income.
Foreign pension funds may be further complicated if they invest in foreign exchange-traded funds or mutual funds as these will be classed as passive foreign investment companies and are likely to be taxed punitively.
Lastly, it is important to remember that any distributions from your fund are likely to be taxed by both your country of domicile and the country you reside in—although some investors may be able to claim Foreign Tax Credit and others may be able to utilise tax treaties to avoid double taxation.
For many non-resident aliens, the best option may be a SIPPs. More information about the workings and benefits of SIPPs can be found here.
401(k) retirement plans
For those who have the choice, investment in a 401(k) retirement plan may be the best option. However, these employer-sponsored retirement plans require careful management depending on your circumstances.
For example, if you eventually end your association with the US, you will have to decide whether you wish to roll the plan over into another account or to withdraw funds. You will also have to decide how to best manage your tax liability, particularly if you are younger than 59½ and are subject to the 10% early withdrawal penalty.
Another option is to rollover the 401(k) into an IRA. However, you can only do this if you set up the IRA in advance.
Be aware that IRAs are also subject to a 10% tax penalty on withdrawals made by those who are younger than 59½; however, there are a range of options available to IRA members which, subject to certain criteria, you may be able to take advantage of so that you avoid this tax.
Talk to Blacktower (US) LLC today
- Report of Foreign Bank and Financial Accounts (FBAR)
- Passive Foreign Investment Companies (PFICs)
- Foreign Account Tax Compliance Act (FATCA)
- Qualifying Retirement Plan & Individual Retirement Accounts (IRAs)
- 401(k) management
- Bespoke US SIPPS
Ever since its inception in 1986 the Blacktower Group has been providing clients in the UK, the EU, and the Cayman Islands with wealth management services, including pension transfers advice, to help them achieve their retirement objectives.
Since expanding our operation to the US in 2017 we have been able to offer the Blacktower service to both expats and locals in the US, helping them find the solutions to their most difficult pension planning and wealth management problems.
For more information talk to us today.