# Foreign pension - confusion and questions



## Carmonli (Jul 1, 2014)

I have what is called and known as (here in Israel) a pension account. It's an investment account which, as far as I understand, doesn't cause PFIC issues.

I used to report this account on my FBAR and form 8938.

I've retired and am currently being paid out of this account. I'm now getting the Israeli equivalent of a W-2 at the end of the year (as though I was employed by them). Do I still need to report this account, but as "balance unknown"? Because this account had the vast majority of my savings, not reporting it may put me under the threshold of having to report at all.

Thanks for any advice.


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## Moulard (Feb 3, 2017)

Short answer is yes - nothing has changed in the nature of your relationship with the funds in the account so it would still be reportable so long as the balances remain above reporting thresholds.


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## Carmonli (Jul 1, 2014)

Moulard said:


> Short answer is yes - nothing has changed in the nature of your relationship with the funds in the account so it would still be reportable so long as the balances remain above reporting thresholds.


Thanks for your response. I guess I wasn't perfectly clear in my original post.

I no longer get any statements as I used to in the past. For this type of fund, the balance is irrelevant since they will be paying me a monthly payment for life - it doesn't matter how much is actually in the fund. The money is no longer mine - it belongs to the fund. These monthly payments were set (barring minor actuarial fluctuations) according to my retirement age and the amount that was in the fund when I started receiving the payments.

Let's say that my other financial acccounts do not put me over the threshold (for Form 8938 - I'll still need to file an FBAR in any case). So in this situation, should I just report it as "balance unknown"?


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## Moulard (Feb 3, 2017)

OK. So it is, for want of a better term what you have is an annuity bought with the funds held in the pension plan.

I will admit, I am not fully across treatment of annuities, but if my understanding is correct, an annuity policy is reportable the same way an insurance policy is reportable.

What you report is the cash value of the policy - if it has no cash value then the value is reported as 0

So if it had no cash value and your other financial accounts did not put you over the threshold to report then you would have no reporting requirement.

Of course the income stream from the annuity is reportable as income. But I assume you are aware of that.


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## Carmonli (Jul 1, 2014)

Moulard said:


> OK. So it is, for want of a better term what you have is an annuity bought with the funds held in the pension plan.
> 
> I will admit, I am not fully across treatment of annuities, but if my understanding is correct, an annuity policy is reportable the same way an insurance policy is reportable.
> 
> ...


Thanks very much for your response. That all makes very much sense and takes away a bit of my anxiety.

One more question if I may - there exists a tax treaty between Israel and the US (which I understand is fairly common in such treaties). And it contains a clause that says:



> Except as provided in Article 22 (Governmental Functions), pensions and other similar remuneration paid to an individual shall be taxable only in the Contracting State of which he is a resident.


So does this mean that I have to report it and state that it is all exempt from taxes according to the treaty? Or just not list it at all?


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## JustLurking (Mar 25, 2015)

Carmonli said:


> One more question if I may - there exists a tax treaty between Israel and the US (which I understand is fairly common in such treaties). And it contains a clause that says:
> 
> 
> > Except as provided in Article 22 (Governmental Functions), pensions and other similar remuneration paid to an individual shall be taxable only in the Contracting State of which he is a resident.
> ...


You are quoting treaty Article 20(1). But ... you are -- presumably, since you file FBAR etc -- a US citizen (or perhaps a US green card holder?). In which case, you need to take account of treaty Article 6(3), which says:


> 3. Notwithstanding any provisions of this Convention except paragraph (4), a Contracting State may tax its residents (as determined under Article 3 (Fiscal Residence) and its citizens as if this Convention had not come into effect.


Article 6(3) eviscerates the bulk of the treaty for US citizens. And Article 20 is not one of the listed exceptions given in Article 6(4). This means that your pension payments are taxable to both Israel and the US, but with Israel as the primary (that is, you will need to use US foreign tax credits to offset any tax paid to Israel).

All in all, the US makes this quite a PITA, doesn't it?


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