Foreign Pension Plans and US Taxes

Foreign pension plans don't receive the same tax-deferred treatment as US retirement plans like 401(k)s and IRAs — contributions to a foreign pension may not be deductible on your US return, and the earnings inside the plan may be taxable annually rather than deferred. Some US tax treaties provide special treatment for foreign pensions, allowing US expats to defer tax on contributions and earnings until distribution; the UK, Germany, Canada, and Australia all have provisions worth examining if you participate in those countries' pension systems. Without a treaty provision, contributions your employer makes to a foreign pension plan on your behalf may count as taxable compensation. Many foreign pensions also qualify as PFICs under US law, adding another layer of complexity. Expats participating in foreign pension plans should consult a tax professional familiar with the specific treaty and plan rules before assuming any US tax deferral.