Hi there,


I read through many threads regarding US taxes on the payout from a Swiss Vested Benefits Account, but none have the information relevant to my specific situation. I would appreciate some input from people that were/are in a similar situation or by US-CH tax experts.


My situation:
I'm a Swiss citizen that left Switzerland for the US in 2013. My 2nd Pillar (2te Saule) savings were transferred into a Vested Benefits Account (Freizuegigkeitskonto) in Switzerland. I was unable to invest any of that money and I earned no interest on this account since I moved to the States.


In 2014, I became a Green Card holder (permanent resident of the US).


In 2016, I cashed out the money from my Vested Benefit Account into a bank account in the US (where I lived). A portion of the amount was withheld in Switzerland (Quellensteuer).


Now I'm preparing my 2016 taxes here in the US and I'm wondering how to report this payout to the IRS. I have read several articles on this forum on the US tax treatment of these types of payouts. They can be summed up in two, antithetical interpretations:


Interpretation A:
The US and Switzerland have a Dual Taxation Treaty and Article 18 deals with distributions from pensions (or similar arrangements). These distributions are taxed by the country of residence, but only by that country.
In my case, the country of residence is the US. Therefore, I have to pay US income taxes on the full amount of my defined benefit account distribution. I will be able to claim back the withheld amount from Switzerland.


Interpretation B:
The Vested Benefit Account has resulted from the occupational pension (2te Saule). This pension was created through employer and employee contributions and interest earned. At the time the contributions were made and interest was earned (prior to 2013), I was neither living in the US, nor was I a US Green Card holder (permanent resident). Therefore, the payout from the Vested Benefit Account does not contain any taxable income.


Both interpretations make sense to some degree. Does anyone with experience know if interpretation A or B is correct?


Thanks

Probably B as the US does not recognise it as a pension.
You would not get any deductions & would need to pay tax on the employers contribution when it was originally invested.
I believe a US person is only taxed on any interest each year so the payout is not taxable.

You have to fill out and file the Swiss tax to get the withholding back. IRS has nothing to do with it!

I'm afraid I wouldn't be so sure. What I heard from colleagues from left CH and moved to the US was that if the 2nd pillar was paid out after their arrival in the US, they had to pay US income tax (as this was income previously not taxed). I can try asking how they handled the Swiss tax liability.

It should have been declared & taxed each year, Swiss pensions can't be deducted from US tax as they don't qualify.

That's clear. But he was not a US tax when participating in the 2nd pillar plan. So there was nothing to declare back then. Only now the payout becomes a taxable even in the country of (tax) residence.

A tax law firm's blog covers the issue of whether a US IRA withdrawal would be a taxable event in the US and Switzerland for a US Person resident in Switzerland. It may not answer your questions completely but the interpretation on the tax treaty presented might increase your understanding of the topic:

https://hodgen.com/ira-distribution-...ntry-taxes-it/

Thank you all for chipping in. As you can see in your replies, the interpretations vary widely. Here are my replies to you individually:

@jjake It would be great to hear about the experience of one of your Swiss friends that became GC holders and cashed out the 2nd pillar. Nothing beats a real- life account of how to handle this. Thanks so much!

@Mullhollander this is an excellent link. It shows me the applicable paragraphs of the law and the reasoning tax lawyers follow. Following this, I believe I will have to tax the full amount as income. I can thereafter reclaim the withheld Quellensteuer from the Swiss tax authorities.

@Robbob see above, I would claim the Quellensteuer from Swiss tax authorities.

@fatmanfilms. I wish it would be option B. Do you have any evidence why you think I could declare it as non-taxable income?

Isn't there any IRS form where you should or could have had listed the foreign assets and thus make it transparent and not appearing out of the blue?

Hi everybody,
I'm in the same situation, i'll be a green card holder soon, and i don't know what to do with my 2 pillar.

how the irs tax a vested benefit account invested in fund? do they tax only the capital gain at the end, at the cash out? or do they tax yearly on capital gain?
what if you cash out when it s time to retired and buy annuities in a assurance company?
thanks a lot