# Pension beneficiary?



## sunrise85 (Jul 19, 2013)

My fiancee (US citizen, lives in UK with me) is named as a beneficiary on my pension if I should die. Does this have to be reported on her FBAR? I'm a British citizen so I don't file.

She is not a policyholder and has no way to access or control the money, so it's pretty similar to a will I suppose, which makes me doubt the need for reporting.

Ta.


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## BBCWatcher (Dec 28, 2012)

sunrise85 said:


> My fiancee (US citizen, lives in UK with me) is named as a beneficiary on my pension if I should die. Does this have to be reported on her FBAR?


The FBAR requires "signature authority." Check the instructions, but from your description I'd say no.


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## sunrise85 (Jul 19, 2013)

That's what I thought, but the instructions, as ever, aren't as straightforward as they should be. 

"The United States person had a financial interest in or signature authority over at least one financial account located outside of the United States..."

What do you reckon? Seems a stretch to me.


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## BBCWatcher (Dec 28, 2012)

Your fiancée clearly doesn't have signature authority over your pension if I'm understanding you correctly. You make all pension decisions (including naming a new beneficiary theoretically), and she can make exactly none. She does have a financial interest in _you_ (and your well being, your ability to contribute to the household, etc.), but at the present time (and hopefully for a very long time to come) she has no financial interest _in your pension_. In fact, if she predeceases you (God forbid), she will never have a financial interest in the pension.

It's not a problem to overreport, but I'd still say no. If and when you were to predecease her, yes, then she'd have a requirement to list the account -- her account -- on her FBAR. Or, as another example, if you were to grant her power of attorney over the pension (either specifically or more generally, over a broad range of affairs) she'd then have "signature authority."

Please note that she's the U.S. citizen, and she's solely responsible for the filing requirement if there is one. She can only report that which she is aware of or could reasonably ascertain. There's no need to withhold such information from her, but -- again theoretically -- if you put a letter in a sealed "open when I die" envelope entrusted to a third party and otherwise refuse to tell her anything, she's off the hook for as long as she genuinely has no idea. I'm certainly not recommending that, but I suppose it's theoretically possible.

Yes, this is all slightly crazy. Stipulated. 

Congratulations on your pending nuptuals.


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## sunrise85 (Jul 19, 2013)

Cheers BBCWatcher, we're off to South Carolina next Saturday to get married. I believe the IRS and treasury will be there as it seems I'm marrying them too, haha!

I've just checked and it turns out she's not a beneficiary on either, my mum is! I'll have to change that  We probably won't report it in the future as it's a very fine detail, but if I do add her, but if I did it would be easy enough to add on there that she was just added as a beneficiary, hence the sudden gain of large amounts of theoretical money. 

We may consider filing jointly next year, so I thought it was worth asking as I wasn't sure if filing jointly then required me to file an FBAR too, but I guess it doesn't based on what you're saying.


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## BBCWatcher (Dec 28, 2012)

Oddly enough the FBAR requirement is separate. So it is possible to make what's called a Section 6013(g) election (to treat a non-resident alien spouse -- that'd be you -- as a U.S. resident for tax purposes) in order to file jointly but for that same non-resident alien spouse not to be required to file a FBAR. (Though you might have a FATCA filing requirement since that is part of the tax return.)

As it happens that's what we do in our household. I'm the U.S. citizen. My wife is not subject to FBAR even though I am. We made the Section 6013(g) election and file a joint tax return. We live in a comparatively low tax jurisdiction (Singapore), so we take the U.S. Foreign Earned Income and Foreign Housing Exclusions.

Bear in mind that the Section 6013(g) election is once per lifetime. You get one trip in and one trip out. When/if you revoke a Section 6013(g) election it's permanently revoked.

Since you both live in the U.K. chances are you shouldn't be making that election, that your wife should file "Married Filing Separately," and that she should not take the Foreign Earned Income Exclusion but rather rely solely on the Foreign Tax Credit. (Though that last part is more situational and worth running the calculation both ways.) You only ought to drag yourself into U.S. tax filing if there's a decent tax benefit for the household, i.e. if you help your wife reduce her U.S. taxes. "Not usually" if you're both living in the U.K., but I suppose it's possible. In particular, if she has substantial lightly taxed income she cannot exclude via the FEIE/FHE, and if you can, then a joint filing could make sense.

If she does not take the FEIE/FHE then it's a lot easier for her to make contributions to the U.S. tax-advantaged/treaty-respected Roth IRA. She should if she can unless the FEIE/FHE is better.

In Singapore, with our household, yes, joint filing is financially advantageous (and nontrivially). Though it does require some more paperwork and information from my wife, and tax filing is not fun for anybody.

Also note that your wife is limited in how much money she can transfer to you per year without paying U.S. gift tax. The limit is $143,000 for tax year 2013. It doesn't matter whether you file jointly or not. Household, medical, and educational expenses generally do not count against that annual limit (or against the estate limit), so it's often prudent for the U.S. citizen in the household to bear all those costs as much as possible.

OK, that's enough for now. There are more important things to worry about when you're soon to be married. Best wishes.


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## Bevdeforges (Nov 16, 2007)

Filing jointly won't require you to file an FBAR - but it will require you to declare your worldwide income and then formally exclude it (via a 2555) or produce sufficient income tax credits (or deductions) to nullify the need to pay US taxes on your income. It isn't a given that living in a higher tax country will work out to your advantage because only "income taxes" as such are creditable against taxes on the US forms. So try things both ways to be sure.
Cheers,
Bev


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## sunrise85 (Jul 19, 2013)

Thanks guys. 

At the moment she earns the equivalent of around $45,000 and uses the FEIE. I'm not sure how the Foreign Tax Credits work or what they're used for, I just assumed that the FEIE was the right thing as long as you earned below $90-something thousand. 

The only benefit I can see right now from filing jointly is if we were to sell our house and it generated enough money to be hit with capital gains tax, or our savings went over a certain amount, as I believe filing jointly increases that limit. For the immediate future we'll do married filing separately.


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## BBCWatcher (Dec 28, 2012)

sunrise85 said:


> At the moment she earns the equivalent of around $45,000 and uses the FEIE. I'm not sure how the Foreign Tax Credits work or what they're used for, I just assumed that the FEIE was the right thing as long as you earned below $90-something thousand.


Not necessarily in a comparatively high tax jurisdiction which the U.K. is. She should run the numbers both ways to see which is better (with or without the FEIE).

Without the FEIE she would be able to make Roth IRA contributions, as mentioned. With the FEIE she couldn't.



> The only benefit I can see right now from filing jointly is if we were to sell our house and it generated enough money to be hit with capital gains tax, or our savings went over a certain amount, as I believe filing jointly increases that limit. For the immediate future we'll do married filing separately.


Probably not. Assuming sale of the primary residence, her first $250,000 in capital gains are generally U.S. tax exempt -- even a bit more when counting the annual exemptions/deductions. She'd also be able to subtract U.K. taxes paid on any gains above that amount, so if the U.K. tax rate is equal or higher she's done anyway. And all of that is assuming the U.S.-U.K. tax treaty isn't more generous, and it might be.

If you file separately you sometimes get to choose the more favorable tax treatments for savings. As a simple fictitious example, suppose the U.K. taxes bank interest at 10% and the U.S. taxes bank interest at ordinary income tax rates (which begin at 10%). In that case who should hold the bank deposits in the household? You should, in your name only, because your wife would pay a higher tax rate on bank interest. Your wife also has Passive Foreign Investment Company (PFIC) complications if she puts her savings in the wrong non-U.S. vehicles while (if she files separately) you don't. So almost always she should save in maximally U.S. tax-friendly/tax-advantaged ways (such as a Roth IRA if she can do it) and you should do the same for the U.K. And with the $143K/year limit in one direction (she to you) you can move money around in the household. This is all assuming of course you don't become subject to the U.S. tax rules (by moving there as a green card holder, for example).

I'm getting a little fancy here but only a little. Any of that make sense?


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## sunrise85 (Jul 19, 2013)

I get a bit of what you're saying, but I'm pretty new to this and learning slowly. I'm the one who looks after the money, she does other stuff. I'm trying to straighten it all out, as you might have seen from my previous threads, because I think we've done a couple of things wrong in the past and want to make sure we do the right thing going forward.

So the main difference with FEIE is that she can't make Roth IRA contributions? I'm not even sure what a Roth IRA is to be honest (sorry)! At the moment she files her taxes and files the FBAR. She uses FEIE and has a joint bank account with me, her own bank account and a savings account she's also joint holder of with me. 

The main thing I think we're doing wrong is that we've never mentioned her Group Personal Pension Plan (at least we think that's the kind of plan) on anything. From next year we'll be adding that to the FBAR and hoping it's ok going forward. 

In all honesty, I read some of the things on here and the lengths people go to, a lot of them doing things a CPA can't even work out or have knowledge on, and I wonder if they're being too cautious or if we're being ignorant. A lot of the people I know in the real world who are American don't mention half the stuff we do and they don't worry about it. I honestly wish I knew less about her taxes, as I never realised what a burden it was until recently!


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## Bevdeforges (Nov 16, 2007)

Unfortunately, in my experience there are very few tax advisors who have much experience with bi-cultural families where there is a US family member. I've actually got a CPA certificate (though I have not kept up the licensing) and I can only tell you my experience and the reasons I do what I do. It's a really difficult area if and when you start getting investments of almost any sort involved.

A couple of the basics, however, include the fact that the US gives you no break for any sort of bank, retirement or investment accounts that have "tax preferred" or "tax deferral" characteristics. I looked into transferring my IRA (Individual Retirement Account) to France, but quickly found that it was only going to mess up my US tax situation.

One other thing to consider is that if you elect to file jointly with your US wife, any savings or retirement accounts YOU have that have tax-free or tax-deferred characteristics will have to be declared for US tax purposes and may possibly be subject to taxes (for which you will have no offsetting UK taxes).

Keep it as simple as you can. 
Cheers,
Bev


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## sunrise85 (Jul 19, 2013)

Keeping it simple is all I want to do. Logic, clarity and simplicity are some of my favourite things in the world. It seems to me though that US returns, especially as an expat, are more about opinion and preference than the three values above.

As I mentioned in a previous thread, she no longer pays into the pension so it's a case of putting it on thr fbar. I know that you, Bev, mentioned not to worry about reporting the contributions and gains anyway as, amongst potential other reasons, it's similar to a 401k.

I'm not surprised to hear about your CPA background, you seem to have more knowledge than the CPAs we've dealt with. It may not mean much to you, but the insight I've gained from yourself and others on this forum, such as BBC Watcher, has been immensely valuable.


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## BBCWatcher (Dec 28, 2012)

About that U.K. pension account.... Yes, it's FBARable. But that's not all. U.S. citizens that save in "non-U.S. ways" can run into really messy tax complications. Stuff like PFICs, for example, which I don't even go near.

I'm a *big* fan of saving for retirement, but the U.S. citizens (and their joint filers, if any) in the household probably ought to be doing that in U.S. tax-friendly/tax simple ways. A Roth IRA is the most popular example.

This all works a bit differently for U.S. citizens who have broad worldwide tax (or at least tax reporting) requirements. Basically the U.S. IRS treats, say, an investment account in the U.K. according to all the U.S. tax rules plus a few more. As an example, just because the account may not be taxed in the U.K., the U.S. doesn't care (unless there's a tax treaty that says otherwise). She doesn't get a U.S. tax break on a U.K. account (absent a treaty provision), and so what's she doing voluntarily saving money in that foreign account before she saves into the U.S. tax-advantaged account (which is generally protected by treaty)?

Likewise, why would you ever open a U.S. investment account when you're subject to 30% U.S. tax withholding because you're a nonresident alien? (OK, *maybe* you might, but probably not.)

Anyway, the basic principle is that U.S. citizens (and their joint filers, if any) should operate in U.S. tax-smart ways no matter where they live. Having foreign (non-U.S.) investment accounts -- just having them -- is automatically a complex thing for U.S. citizens and usually expensive, too.

I don't mean to make it sound bad. There are actually some advantages in a mixed citizenship household. You can do U.K.-friendly things (at least if you're not joint filing), and she can do U.S.-friendly things, financially speaking. You can each cherrypick the best bits. For example, if she can save to a U.S. Roth IRA (which is always in the U.S.) and hold the money in the account until at least age 59 1/2 then all gains are tax free -- tax free in the U.S., and (check the tax treaty) tax free in the U.K. Totally free of tax -- hard to beat that, really, especially if she's using a low cost fund. Versus a non-treaty investment account in the U.K. which is a major tax paperwork headache at a minimum and fully U.S. taxable.

Make sense?

Yes, agreed, most people don't know this stuff. That helps explain why Mitt Romney pays an effective U.S. tax rate below 10% and General Electric pays a negative tax rate. It's complicated stuff, intentionally so (hint: who favors complexity?).


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## sunrise85 (Jul 19, 2013)

In basic terms, yeah, I get your drift. Are you saying she should be doing more than just reporting this pension (balance of around $4k) on just the FBAR? This is where I'm never sure of what to do as there are knowledgeable people with different opinions. A couple of folk on here, and a CPA who is an ex-pat specialist, have told us to mention the balance on the FBAR and not worry about reporting on anything else. 

Do you mean the Roth is better for tax purposes because there won't be any tax to pay on it when she starts drawing down? 

The problem is that her employer was also making contributions, which presumably couldn't happen with a Roth.

While we want to do what's right and be honest and transparent, I'm also starting to feel that doing those things is going to limit our lives and stress us out. I'm wondering if the IRS or treasury would chase someone with a $4k pension for under reporting when their own rules are clearly hard to folow. If they do, I bet there are hundreds of thousands of people who would be in the same situation.


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## BBCWatcher (Dec 28, 2012)

sunrise85 said:


> In basic terms, yeah, I get your drift. Are you saying she should be doing more than just reporting this pension (balance of around $4k) on just the FBAR?


If that pension account is her only account, she doesn't meet the FBAR threshold for filing (a total of US$10,000 in value of foreign accounts at any time during the year).



> This is where I'm never sure of what to do as there are knowledgeable people with different opinions. A couple of folk on here, and a CPA who is an ex-pat specialist, have told us to mention the balance on the FBAR and not worry about reporting on anything else.


Unless there's a tax treaty that says otherwise, she at least has to report the interest, dividends, and/or capital gains on the account. Just because the U.K. thinks it's tax-favored has nothing to do with what the U.S. IRS thinks. And depending on the nature and structure of the account it might trigger PFIC rules which are..."fun."



> Do you mean the Roth is better for tax purposes because there won't be any tax to pay on it when she starts drawing down?


Qualified withdrawals from a Roth IRA -- for most people that means withdrawals starting at age 59 1/2 of funds that were deposited at least 5 years ago -- are 100% U.S. tax free. The U.S. has negotiated many tax treaties that honor the tax exempt status of those accounts. I believe the U.S.-U.K. treaty is one such treaty, but check me on that.

So is your wife saving for retirement? Yes? Can she contribute to a Roth IRA, either directly or through the so-called "backdoor Roth"? (She cannot if all her income is excluded via the Foreign Earned Income Exemption.) Can she beat tax free earnings?

Keep it really simple. (I'll try again.) A U.S. citizen is taxed on her worldwide income regardless of her place of residence. To oversimplify only slightly, she's taxed on the difference (if any) between the foreign tax rate and the U.S. tax rate. If the foreign government decides not to tax a particular financial account, then the U.S. IRS gets the full U.S. tax rate on that account (contributions, earnings -- all income). _Unless there's a tax treaty that says otherwise_.

OK, the big exception to that general principle is earned income (wages, salaries, tips, etc.) -- the first $95,000 or so of earned income can be fully shielded from U.S. taxes via the Foreign Earned Income Exclusion (FEIE) for those U.S. citizens living overseas full time. However, taking the FEIE is a choice and is optional. Sometimes taking the Foreign Tax Credit on that income is more advantageous, but only if the non-U.S. tax rate is at least very nearly equal to or higher than the U.S. rate.



> The problem is that her employer was also making contributions, which presumably couldn't happen with a Roth.


Her U.K. employer I assume you mean. Absent a treaty provision that says otherwise, that's ordinary taxable income into a foreign taxable account for U.S. tax purposes. If the U.K. doesn't collect tax on that arrangement (contributions and/or earnings), the U.S. will (absent a tax treaty provision). It's that simple. It doesn't matter what the U.K. calls that account unless the U.K.'s label triggers a treaty provision that the U.S. IRS accepts.

You're marrying an American, not a Frenchwoman.  Americans can't reduce their U.S. taxes solely because some other government gives them a tax break.

Anyway, to recap, wrap your head around the fact that U.S. citizens are different...and very special, as you already know.  They pay foreign tax, yes, but then they get to pay any gap(s) between foreign and U.S. rates to the U.S. IRS on their worldwide income, subject to only a couple major exceptions: the (optional) FEIE and any tax treaty provisions. So to help an American reduce her tax burden (legally) _primarily_ you have to work within the U.S. tax rules.


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## sunrise85 (Jul 19, 2013)

I get your explanation and you definitely sound like you know what you're talking about, it's just that I've heard/been told different from others. 

A couple of months ago I asked a CPA about her pension. He works for an expat tax service and he told me we did not have to report the pension on anything but the FBAR. I asked about contributions and gains, and he said that a UK Group Personal Pension Plan is protected by the treaty and that we have nothing to report. In another of my threads, Bev, who again seems very knowledgeable, also said contributions and gains didn't need to be reported and it was just an FBAR issue. 

I just feel lost and think that no matter what we do it's wrong. Her current workplace doesn't offer a pension at the moment but they will soon and we'll have to make a decision.

As for her 2013 report, she was making contributions from January to April, and so was her employer.


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## BBCWatcher (Dec 28, 2012)

sunrise85 said:


> I asked about contributions and gains, and he said that a UK Group Personal Pension Plan is protected by the treaty....


I think I used the word "treaty" in my explanation nearly half a dozen times!


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## sunrise85 (Jul 19, 2013)

Haha, I know - it's my fault, I read things way too quickly. 

In a couple of months I'm going to call a CPA again and just check that's correct. I knoq they all havw different views on things but I have to follow something I suppose. When this guy aaid it wouls be covered by the treaty I asked him if we needed to file the treaty form, to which he simply replied "No, not necessary".

if another CPA says there are complications or this guy changes his tune I'll bear in mind the Roth IRA.


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## BBCWatcher (Dec 28, 2012)

sunrise85 said:


> if another CPA says there are complications or this guy changes his tune I'll bear in mind the Roth IRA.


Uh, no. The best answer is not necessarily either/or for your wife. The best answer might be both a U.K. pension account and a U.S. Roth IRA. If the treaty makes both accounts tax exempt (or at least tax favored), why not take advantage of both if possible?

I think the U.S.-U.K. treaty language regarding pensions is probably in this document. Other U.S.-U.K. tax treaty documents are located here.


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## Bevdeforges (Nov 16, 2007)

I get nervous when folks say that I said something was or wasn't taxable. If your wife's pension fund works "just like a US 401K" I would very much suspect that it has to be reported like a regular savings or investment account (both income tax and FBAR).

One thing you will get from CPAs or any other tax advisor is advice about how you "can" report things. US tax law is more open to interpretation than in other countries (in part because of the anglo-saxon reliance on "precedence" in law). When I worked for a big, international CPA firm, there were what we called "aggressive tax stances" that we would take on certain types of transactions that might be open to interpretation. Lots of international stuff falls into that category because US tax law (obviously) isn't written to take foreign plans and accounts into consideration.

Just the long way of saying that there are usually several different interpretations for any one foreign investment instrument and any good tax advisor will try to find an interpretation that carries a tax advantage for you. But net-net there is no one "right" answer for any tax situation. You have to find a tax advisor you have some level of trust in - or who is willing to stand behind their interpretation of your situation should the IRS come back with questions or issues.
Cheers,
Bev


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