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Old 09.12.2015, 12:37
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Pillar 2 and Uncle Sam

I'm (still!) trying to get my head around retirement planning while saddled with the blue passport...

Because our dearly beloved Uncle Sam does not consider Pillar 2 a qualified plan, we pay US tax on Pillar 2 contributions, both the employee and employer portions, as earned income in the year accredited, rather than when distributed post retirement. As per our accountant.

Seems sort of illogical to me - not that logic has anything to do with US tax - as the money really isn't ours yet. For instance, if one elects to take an annual payment rather than a lump sum and then shortly thereafter shuffles off this mortal coil, one could end up having paid US tax on a huge amount of money one never actually received.

I'm curious to know if any of you have received different advice from your tax people.
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Old 09.12.2015, 13:01
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Re: Pillar 2 and Uncle Sam

This is consistent with the advice I have received from several different tax preparers, unfortunately.
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Old 09.12.2015, 17:11
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Re: Pillar 2 and Uncle Sam

Thanks, VI.

(That whooshing sound you hear is the pension nest egg rapidly shrinking. A cautionary tale for fellow Americans...)
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Old 09.12.2015, 21:02
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Re: Pillar 2 and Uncle Sam

Yes, the advice you received is correct. This is due to the IRS's PFIC ("Passive Foreign Investment Company") regulations, which punish US expats who invest abroad with onerous tax consequences. Here is a good write-up from EY:

http://www.ey.com/GL/en/Services/Tax...C-shareholders

Last edited by NomadAmericano; 09.12.2015 at 22:00.
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Old 09.12.2015, 21:18
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Re: Pillar 2 and Uncle Sam

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Thanks, VI.

(That whooshing sound you hear is the pension nest egg rapidly shrinking. A cautionary tale for fellow Americans...)
Well as capital gains are taxed more favourably than Income it's actually a better deal over time. Hopefully the pension will be considerably bigger than contributions, assuming you invest in equities rather than just receive interest on bank deposits.
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Old 09.12.2015, 21:52
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Re: Pillar 2 and Uncle Sam

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Well as capital gains are taxed more favourably than Income it's actually a better deal over time. Hopefully the pension will be considerably bigger than contributions, assuming you invest in equities rather than just receive interest on bank deposits.
Are you sure that logic applies to the US tax rate associated with PFICs? I think PFIC income is taxed as income and not as capital gains. Depending on your overall tax profile, I believe the effective tax rate on PFIC income can come to over 50%.

Here's a nice summary:

http://thunfinancial.com/why-america...d-mutual-fund/

You must be thinking in terms of HMRC common sense. The IRS will have none of that, thank you very much.
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Old 09.12.2015, 22:43
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Re: Pillar 2 and Uncle Sam

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Are you sure that logic applies to the US tax rate associated with PFICs? I think PFIC income is taxed as income and not as capital gains. Depending on your overall tax profile, I believe the effective tax rate on PFIC income can come to over 50%.

Here's a nice summary:

http://thunfinancial.com/why-america...d-mutual-fund/

You must be thinking in terms of HMRC common sense. The IRS will have none of that, thank you very much.
Well best not to let your employer pay more than legally required then, only income between approx 20k - 80k has to be pensionable in CH, take the rest as cash & invest in US equities. Then you will have less than 300k invested so it's not applicable to most US citizens
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