US Non-resident Pension Planning Management
Foreign Pension Plans
The Internal Revenue Service (IRS) does not recognize foreign pensions as qualified plans in the US, so any contributions you make to a foreign scheme won’t be tax-deductible in the United States, plus contributions made by your employer will only increase your taxable income.
Foreign pension plans can become even more complicated if invested in foreign Exchange Traded Funds (ETFs) or mutual funds as these are classed as passive investment companies and are likely to incur tax.
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.
401k Retirement Plans
If you have the choice of a 401k, this is often the best option. 401ks are a common retirement plan with eligibility requirements that incorporates a provision enabling an employee to choose to have a section of their salary contributed by their employer into an individual account established within the plan. For the latest contribution requirements click here.
If you did decide to leave the US, you would have to roll the plan over into another account or withdraw funds. If you are younger than 59½, you will be subject to a 10% early withdrawal penalty.
IRA Rollovers
401ks can be rolled into IRAs as long as you set up the IRA in advance. If you are younger than 59½, you will be subject to a 10% early withdrawal penalty just like 401ks. There are advantages and disadvantages to rolling a company retirement plan into an IRA.
