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Old 24.02.2015, 20:26
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Retirement savings for US citizens - what's possible?

Hi all -

We're trying to be responsible about our retirement and wanted to understand what US retirement savings vehicles that we can use in the US if we're working basic jobs for Swiss employers in Switzerland.

For example: can we still put money up to the maximum into Traditional IRAs or Roth IRAs? 529s? Some kind of US self-employment fund?

Would appreciate any experience/thoughts on this. We're not sure where we want to retire, but there's probably a good chance it's the US.

Thanks in advance!
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Old 25.02.2015, 23:19
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Re: Retirement savings for US citizens - what's possible?

I don't know enough about the US domestic pension system to be able to comment on that, but certainly there are some very tax-efficient offshore pension vehicles (in neutral jurisdictions) which are aimed at expats and will accept US citizens.

They insist however that you sign a disclaimer to discharge their liability to report to the IRS - i.e. you need to do the reporting yourself or get your tax advisor to do it.
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Old 26.02.2015, 10:09
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Re: Retirement savings for US citizens - what's possible?

Thanks Mr. Moose - any specific names/examples you have would be great. I guess we're not looking to get too complicated here, but just if we can actually deposit into standard US tax retirement vehicles in a way that makes sense or if we should take them off the table entirely.

I've heard conflicting stories from different advisers...
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Old 26.02.2015, 21:34
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Re: Retirement savings for US citizens - what's possible?

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Hi all -

We're trying to be responsible about our retirement and wanted to understand what US retirement savings vehicles that we can use in the US if we're working basic jobs for Swiss employers in Switzerland.

For example: can we still put money up to the maximum into Traditional IRAs or Roth IRAs? 529s? Some kind of US self-employment fund?

Would appreciate any experience/thoughts on this. We're not sure where we want to retire, but there's probably a good chance it's the US.

Thanks in advance!
Be careful. Do not rely on gratuitous advice on Internet forums as legal advice.

That said, here's the relevant section of the US-Switzerland tax treaty (until fairly recently, tax treaties did not address pension funds -- many still don't -- and in that case the pension savings are taxed when earned by the USA and then again when paid by the other country. Not a problem anymore for Switzerland.)

ARTICLE 18
Pensions and Annuities
1. Subject to the provisions of Article 19 (Government Service and Social Security), pensions and other similar remuneration beneficially derived by a resident of a Contracting State in consideration of past employment shall be taxable only in that State.
2. Subject to the provisions of Article 19 (Government Service and Social Security), annuities derived and beneficially owned by a resident of a Contracting State shall be taxable only in that State. The term "annuities" as used in this paragraph means a stated sum paid periodically at stated tines during a specified number of years or for life under an obligation to make the payments in return for adequate and full consideration (other than services rendered).

In general -- and I am not giving legal advice here -- if the wages or earnings derive from one state then you can deduct the pension contribution paid to a pension in that state from tax in both countries.

Given that the IRS does not always interpret treaties the way taxpayers think the plain English justifies, your mileage may vary.

Whatever Swiss pension scheme you invest in will continue to be respected as tax-free (until paid out) by the USA even if you later move back there. And in fact the IRS will never tax it.

Whether you can buy into a Roth IRA I cannot say: but bear in mind Switzerland's tax system is partly geared to wealth taxation, and that element of tax is not deductible against US federal or state tax unless it relates, for example, to rental income from real property in which case it is an expense.

The issue of 529s is delicate. Several countries have tax-sparing educational funds and they are generally not tax-exempt in another country. The US worldwide taxation of its citizens invites conflicts. (Articles 18 & 19 of the tax treaty avoid conflicts for pensions, but not for education savings or disabled dependent trust funds.)

To the degree that the different "pillars" of Swiss pension savings are available to you, take advantage of them. You cannot save Swiss tax by investing abroad; you may be able to save US tax in either case.

If your domicile is in an aggressive jurisdiction like MD, VA, DC be careful: they will try to tax you, now or when you return.
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Old 27.02.2015, 09:30
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Re: Retirement savings for US citizens - what's possible?

That provision is nothing new, its been a part of the same tax treaty since it was signed in 1996. Although it sounds clear from the article, you would have to scroll down to the end of the treaty to find the catch.....the "saving clause" by the USA.

A saving clause preserves or “saves” the right of each country to tax its own residents or citizens as if no tax treaty existed. It appears the treaty is definitely valid for swiss citizens in the USA, but the savings clause casts shadow over article 18ths validity in the USA.

From what I have understood over time, you cannot deduct your and your employeers contributions to Pillar 2/3. You also have to declare interest earned. When it gets paid out, you will only get taxed by Switzerland as you will have built up a basis with your declarations and possible taxation.
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Old 27.02.2015, 14:39
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Re: Retirement savings for US citizens - what's possible?

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That provision is nothing new, its been a part of the same tax treaty since it was signed in 1996. Although it sounds clear from the article, you would have to scroll down to the end of the treaty to find the catch.....the "saving clause" by the USA.

A saving clause preserves or “saves” the right of each country to tax its own residents or citizens as if no tax treaty existed. It appears the treaty is definitely valid for swiss citizens in the USA, but the savings clause casts shadow over article 18ths validity in the USA.

From what I have understood over time, you cannot deduct your and your employeers contributions to Pillar 2/3. You also have to declare interest earned. When it gets paid out, you will only get taxed by Switzerland as you will have built up a basis with your declarations and possible taxation.
1. My apologies for not paying proper attention.

2. The correct answer (IRS opinion letter, consistent with CCH and RIA) is here:
http://www.irs.gov/pub/lanoa/pmta_2010-02.pdf
Discussed here:
http://hodgen.com/ira-distribution-t...ntry-taxes-it/

3. And compare (and, for some, weep) a significant difference for Italian-US dual nationals in Italy (if only...):
http://www.irs.gov/pub/irs-wd/05-0212.pdf

4. Pension clauses have varied over the years. When the current model is introduced, excluding from tax internal income and gains of private pensions, this is not retroactive. Tax advisors worry that foreign tax agencies may claim against their clients for prior liability. The German case is often cited. This issue I was (perhaps inartfully) alluding to is what you said: that in the absence of the modern US pension clause, internal gains and earnings (interest, dividends) may be currently taxed by the other country. This leads to double taxation. I think (I'm not looking it up now) the US-UK tax treaty resolves this, as do some other modern ones. The IRS does not (apparently) investigate this issue: sometimes (not always of course) their examiners avoid looking for patently unfair double-taxation cases. Or cases where tax exceeds 100% of earnings and eventual bankruptcy is the only solution. (But, hey, under the BAPCA and without a US domicile, bankruptcy may not even be possible. The IRS won't appear in a foreign bankruptcy so a US tax debt will be discharged in, say, the UK or Canada but not in the US. I don't think Swiss bankruptcy law is useful here.)

5. See this article published in Forbes last March:
http://www.forbes.com/sites/janetnov...s-expatriates/

6. United States employers -- at least in the days when final salary (defined benefit) pensions were the norm -- had to integrate their pension schemes with Social Security. This causes some anomalies for the beneficiaries. Government retirees -- including those of quasi-governmental agencies -- do better under most, maybe all, treaties. Except that US states are not bound by tax treaties and so income excluded from federal taxation may be (and is) taxed by states. The privatization of government functions has put the pensions (assuming they still have any) of many workers out of art. 19 (government pensions) and into art. 18, less favorably taxed. (assuming I have those article numbers right).

e.&o.e. (I should always append that to my postings.) https://en.wikipedia.org/wiki/E%26OE

Last edited by Potrzebie; 27.02.2015 at 14:50.
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Old 27.04.2015, 12:50
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Re: Retirement savings for US citizens - what's possible?

All I can say is that my wife converted her pension from AT&T to Roth IRA's in addition to our contributing each year once she lost her job in 1998. We also contributed each year to Coverdale Educational IRA's for our two children. Before agreeing to come to Switzerland from the US we asked Deloitte about these accounts - they told us they were not subject to wealth taxes. Well for 2013, everyone we had talked with from Deloitte left or were fired - and we were told we had to declare these "private pension accounts" as wealth. We are now being creamed by wealth taxes in Baselland which is slowly eating away at my wife's retirement (and me also without a pension) that is driving us to leave Switzerland within 2 months.

Be careful - we have never had so much grief over taxes and returns in our 28 years of working. Swiss taxes are a nightmare, and we are finding that Deloitte and other advisors are not eager to help argue for the rights of Americans working here or explaining the intentions or restrictions on private pension accounts.
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Old 27.04.2015, 19:16
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Re: Retirement savings for US citizens - what's possible?

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All I can say is that my wife converted her pension from AT&T to Roth IRA's in addition to our contributing each year once she lost her job in 1998. We also contributed each year to Coverdale Educational IRA's for our two children. Before agreeing to come to Switzerland from the US we asked Deloitte about these accounts - they told us they were not subject to wealth taxes. Well for 2013, everyone we had talked with from Deloitte left or were fired - and we were told we had to declare these "private pension accounts" as wealth. We are now being creamed by wealth taxes in Baselland which is slowly eating away at my wife's retirement (and me also without a pension) that is driving us to leave Switzerland within 2 months.

Be careful - we have never had so much grief over taxes and returns in our 28 years of working. Swiss taxes are a nightmare, and we are finding that Deloitte and other advisors are not eager to help argue for the rights of Americans working here or explaining the intentions or restrictions on private pension accounts.
The 'wealth tax' will get you, often. BUT: Swiss tax law (and Civil Code) was not drafted with trusts in mind. (Once the banks decided they wanted the benefits of The Hague Convention on Trusts Switzerland did ratify it.) And cantonal tax authorities do not necessarily understand tax treaties.

You won't get proper advice on a forum, of course. And paying big bucks doesn't even mean you'll get better advice.

The spouse of one of my best friends works for Deloitte. First in the USA, now in the UK, and about to return to the USA. What does she say? "I'm an administrator. I would never work on the accounting or tax side. Never."

FWIW.

And let me add a Postscript. One time I had to resolve a problem for my (then) employer on Puerto-Rican mirror tax issues in relation to US federal tax. At the same time I was dealing with my mother's estate. I asked the IRS estate tax audit lawyer to refer me to somebody who knew something about this esoteric problem. He gave me a telephone number in Washington and added this: in any tax agency there may be one and only one person who knows what s/he is talking about when it comes to some difficult (especially international) matter. If you look online at some of the IRS Revenue Rulings you will see what I mean. There is probably some one person in Berne who knows how to deal with this American problem and s/he probably sees or speaks to or writes to his/her American colleague from time to time. Find that person. Don't waste your money and your time with the Big 4.

Funny thing this: when I got to speaking to the PR guy in Washington, he told me his sister had married a Brit and was living in rural England. And wanted to know what I knew about life in England. Meanwhile the IRS audit lawyer was curious to know what I knew about Algeria. (Never mind, I know something).

But that was long ago, and this is now. Still, I doubt much has changed.

Except that I met once, with tax questions, with a cantonal tax person, a specialist in international tax. It turned out he was new on the job and I knew more than he did. Still, he tried to be helpful. Really, not all tax enforcers are cerbères rébarbatifs. I found, in my long career that intermediaries, so-called experts, often knew less than I knew, or could find out. Of course the US Tax Code & Regs, and Simon's Taxes in the UK, have twice as many pages as in my day.

The Swiss cantonal tax declarations are daunting. I remember once refusing to fill out the forms from one canton and instead giving them the forms I'd filled out from another, and just signing the declaration. I did that for a few years: they went along with it. I have to say this: the Swiss are more reasonable than the IRS. Which reminds me of something an Inland Revenue guy (as they then were) once told me: We watch TV too. Unlike the IRS we are not gangbusters.

That too was then, and this is now. What do I know.

Good luck.

Last edited by Caryl; 27.04.2015 at 19:38.
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Old 28.04.2015, 18:56
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Re: Retirement savings for US citizens - what's possible?

Thanks all.

@SteveKamm - So sorry to hear that, it's terrible getting wrong advice! (especially when it messes with your financial well-being! I'd be upset too). Just so I understand - did you contribute to the college fund and Roth IRA while you were in Switzerland?

Maybe a question for all - Are Roth IRAs that you had PRIOR to moving to Switzerland considered part of your wealth tax or exempt?
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