# US tax treatment of UK pension contributions



## whicuz (Apr 23, 2009)

Hi all - I know there are other threads touching on these issues, but they didn't really seem to answer my fundamental questions. Based on my reading of the tax treaty and the notes, I have reached the following conclusions but also a few questions (I am a US citizen) that I am hoping to have answered before I move to London in the fall:

Certain:
1) I can deduct for US tax purposes contributions to a UK employer-sponsored pension of up to $16500 (the amount allowed in a US 401k)
2) Any contributions I make to an equivalent scheme would reduce my eligibility for an IRA or Roth IRA.
3) Contributions within these limits will grow tax-deferred.

Are these correct?

Questions:
1) Can I deduct up to $5000 that I contribute to a pension scheme that would be equivalent to an IRA, if I would be eligible for an IRA if I were living in the US (e.g. my income is low enough)? The technical explanation for Article 16 paragraph 5 subparagraph (d) say that these rules only apply to employer-sponsored plans, meaning that you could not deduct for an IRA equivalent, but the explanation for subparagraph (c) say that your contributions will determine whether or not you have over-contributed to an IRA! These seem contradictory. 
2) Can I contribute to either a SIPP or my employer plan to get the IRA-equivalent deduction?
3) Can I contribute to either a SIPP or my employer plan to get the 401(k)-equivalent deduction?
4) What contributions count against my roth ira limit? E.g. if I contribute $21500 total to pension schemes can I no longer contribute to a roth? Do SIPP contributions not count (as per the rules in 1... sort of)
5) Most importantly (to whether or not I care about the Roth) if I contribute over that $21500 deductibility limit, will the growth on those contributions be tax free? Section 16 paragraph 1 (which is not subject to the savings clause) seems to say yes. In that case it seems like I could defer (essentially) all of my UK income below the exclusion level? E.g. can I earn $70000 in the UK, contribute $50000 to my SIPP or employer account, then have it taxed at the US rates on retirement while living off of savings (or some such)?
6) If I do over-contribute, and I am over the exclusion limit, did those contributions come from my over- or under- money? e.g. is my tax credit going to be 0 because they count my tax liability on my "next dollar" as having been 0 for being contributed, or is it going to be my UK marginal tax rate because the money was from my "pre-exclusion" funds?
7) How do I get a deduction anyway? Itemize then fill in 8833?
8) Passive Foreign Investment Companies in broker SIPPs or company plans don't require special disclosure because they are part of the tax-deferred pensions, correct?


Sorry for all of the questions! Hope someone can help... The UK gov't has much more information on their site, which is sadly not of much use on the US side. 

I can't post URLs so this is the best I can do: 

Tax Treaty: www DOT treas DOT gov/offices/tax-policy/library/uktreaty.pdf
Technical Explanation: www DOT treas DOT gov/offices/tax-policy/library/teus-uk.pdf


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## Bevdeforges (Nov 16, 2007)

You say you're moving to London in the fall. Be very careful, because if you are planning on taking the overseas earned income exclusion, all bets are off.

IRA and 401K contributions can only be deducted against earned income that is subject to US tax. If you're on salary and excluding your earned income on a form 2555, you can't deduct any IRA or 401K contributions. 

If your overseas earned income is greater than the exclusion limit, you have to apportion your deduction according to how much of your salaried income is taxable.

You cannot make contributions to an IRA from "unearned" (i.e. passive) income, so if your London salary is your only source of earned income, you can't deduct anything if you're excluding your earned income.

Download a copy of IRS publication 54, which is the overall guide for filing taxes from overseas.
Cheers,
Bev


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