# Foreign Retirement Accounts (such as ISA) treatment on US tax returns before retirement



## tomspc (4 mo ago)

Retirement accounts give some sort of tax incentive to promote saving and investing for retirement. The US has its Traditional & Roth IRAs, the UK has its ISAs, etc, etc... They typically fall in two categories
- tax deferred (us: traditional)
- after tax (us: roth)

Do *tax treaties* (or totalization agreements) regulate how foreign retirement accounts are treated with respect to profit/loss from investments in these accounts on a year to year basis *before the retirement*?

In other words, does the US recognize the retirement accounts of US citizens in other countries as retirement accounts or looking at it just like any trading/investment account and would want to have profit/loss included as taxable income on a year by year basis?

Example:
I open a type of Roth IRA (after tax) account in another country that has a totalization agreement with the US and make investments in a stock that pays a dividend. Would the US want to tax this on an ongoing basis even though this is in a retirement account? 

I did look in this forum before posting. The threads I saw were more specific and I though that generalizing this a bit would be a good idea. This is why I am avoiding to make this country specific. This question is asking if there is *ANY* country with which the US entered into this type of agreement to avoid double taxation for US citizens living abroad and saving in foreign retirement accounts. So if you know of one that exists in Canada, Australia, UK, Switzerland, France please feel free to respond.


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## Bevdeforges (Nov 16, 2007)

Generally speaking, the US tax code does not recognize any sort of self-saving retirement accounts other than those defined in US law - so basically nothing outside the US. Some tax treaties with other countries do acknowledge these sorts of accounts, but for example, the US-France tax treaty recognizes the US tax deferred retirement savings plans (IRA, 401K, etc.) as being equivalent to the national government retirement/pension program. I'm not aware of any US-[other country] tax treaties that specifically recognize foreign retirement savings programs like this. (Though I would be thrilled to be proven wrong here.) 

The other "treaty" to consider are the Bilateral Agreements related to the foreign financial institutions' obligations to report accounts held by "US persons." I don't believe they include government backed "retirement funds" though again, I'm not sure about that. I know the Bilateral Agreement with France specifically exempts banks from reporting certain types of "tax-free" (for French tax purposes) savings plans and accounts, so many folks here don't bother reporting those on FBARs and yearly tax returns. To be honest, the IRS has never been terribly specific about their expectations in this area.


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## JustLurking (Mar 25, 2015)

The US/UK tax treaty mostly allows for equivalence across the two countries' _pension_ schemes. Of special note is that the UK respects the general tax-freeness of a US Roth account, and that US PFIC rules don't apply to holdings in a UK pension. This article offers a decent explanation:

Foreign pension plans and the US-UK tax treaty

Now, you mention UK ISAs. Although sometimes usable as a retirement account replacement for a UK pension, an ISA _does not qualify_ as a pension under the US/UK treaty. From the US perspective then, an ISA is an unwrapped investment account, and so comes complete with the usual set of horrible US tax traps, for example PFIC. (And yes, there's an asymmetry here; while the two are broadly equivalent, the UK recognises Roths, but the US does not recognise ISAs.)


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## tomspc (4 mo ago)

Thank you, 


JustLurking said:


> The US/UK tax treaty mostly allows for equivalence across the two countries' _pension_ schemes. Of special note is that the UK respects the general tax-freeness of a US Roth account, and that US PFIC rules don't apply to holdings in a UK pension. This article offers a decent explanation:
> 
> Foreign pension plans and the US-UK tax treaty


This is a very good resource indeed!
Under the *Taxation of retirement earnings/growth *it states


> However, the U.S.-U.K. tax treaty alters this rule by clearly indicating that income earned by the* pension scheme* may be taxed as income of that individual only when distributed, *meaning that earnings inside the plan are tax-deferred* (Art. 18, ¶1).


I suppose the issue is that an individual retirement account in another country would not be considered a *pension scheme *as you state later on*.* 

Nevertheless, this article does prove that these provisions are written into the treaties and so it should be considered on a country by country and retirement instrument by retirement instrument basis - or maybe it is just the UK 



JustLurking said:


> Now, you mention UK ISAs. Although sometimes usable as a retirement account replacement for a UK pension, an ISA _*does not qualify*_ as a pension under the US/UK treaty. From the US perspective then, an ISA is an unwrapped investment account, and so comes complete with the usual set of horrible US tax traps, for example PFIC. (And yes, there's an asymmetry here; while the two are broadly equivalent, the UK recognises Roths, but the US does not recognise ISAs.)


Thanks for clarifying, can't say I am surprised to hear about this asymmetry. It is interesting to know about the U.K. recognizing US Roth though.


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## tomspc (4 mo ago)

Thank you,



Bevdeforges said:


> Some tax treaties with other countries do acknowledge these sorts of accounts, but for example, the US-France tax treaty recognizes the US tax deferred retirement savings plans (IRA, 401K, etc.) as being equivalent to the national government retirement/pension program. I'm *not aware of any US-[other country] tax treaties *that specifically recognize foreign retirement savings programs like this. (Though I would be thrilled to be proven wrong here.)


Right, @JustLurking talks about this type of asymmetry as well with regards to the UK-US treaty. Interesting to know about France recognizing US tax deferred accounts. So then, when a US expat living in France makes a tax deferred IRA contribution to a US IRA, France will also allow for tax deferral, correct?



Bevdeforges said:


> To be honest, the IRS has never been terribly specific about their expectations in this area.


That is an understatement


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## Bevdeforges (Nov 16, 2007)

tomspc said:


> So then, when a US expat living in France makes a tax deferred IRA contribution to a US IRA, France will also allow for tax deferral, correct?


In theory, yes. But, don't forget that IRA contributions have to be made from "earned income" subject to tax in the US. So, if you work in France and take the FEIE, no IRA contribution deduction (in either the US or France) - as I understand it. Though TBH I was never in a position to want or need to make IRA contributions while I was working here in France.


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## tomspc (4 mo ago)

tomspc said:


> Thank you,
> 
> 
> This is a very good resource indeed!
> ...


*UPDATE 1:*
This is another good resource








Crossborder Taxation of Retirement and Pension Plans | SF Tax Counsel


The United States- United Kingdom Income Tax Treaty can potentially be utilized to minimize the income tax consequences on U.S. and U.K based retirement plans.




sftaxcounsel.com





What caught my eye in particular was the definition of *pension distributions *


> “it is understood for this purpose that U.S. *pension schemes eligible for the benefits of paragraph 2 include* qualified plans under Section *401(a)*,* individual retirement plans* (including individual retirement plans that are part of a simplified employee pension plan that satisfies Section 408(k)), *individual retirement accounts*, individual retirement annuities, Section 408(p) accounts and *Roth IRAs* under Section 408(A), Section 403(a) qualified annuity plans, and Section 403(b) plans.”


Your thoughts @JustLurking?


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## Harry Moles (11 mo ago)

Canada. The US does recognize the RRSP (tax-deferred) so those gains are not taxable, and an RRSP can contain any sort of mutual fund without the need for PFIC reporting. The US does not however recognize the TFSA (after tax) so it's not a good option for US citizens who choose to attempt US tax compliance.


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## tomspc (4 mo ago)

Thanks @Harry Moles !



Harry Moles said:


> Canada. The US does recognize the RRSP (tax-deferred) so those gains are not taxable


Right, I see it here


> Article XXIX
> 5. A United States citizen who is a resident of Canada and a beneficiary of a Canadian registered retirement savings plan may elect, under rules established by the competent authority of the United States, to defer United States taxation with respect to any income accrued in the plan but not distributed by the plan, until such time as a distribution is made from such plan, or any plan substituted therefor.





https://www.irs.gov/pub/irs-trty/canada.pdf



Well, consider yourself lucky  Not only is there nothing like that in the US-PL convention, the US apparently is really dragging their feet with respect to the updated treaty approved by both sides in 2013 in Warsaw.


1974 - US-PL original tax treaty
2013 - Signed in Warsaw by both sides
2014 - Received in the US Senate
2017 - Last record in US Senate Treaty Document 113-5 - Convention on Taxes with the Republic of Poland
2018 - Signed into law in PL
Approaching 2023, so almost 10 years 

In the meantime, I suppose one side operates under the updated treaty and the other doesn't.


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