My wife is 65 years old and received a lump sum pension (equivalent of US 401K plan) from her employer in Japan. It was a plan, where she contributed 100% of funds, the employer was not participating financially. She stopped working there in 1995, but still she was making small contributions monthly. According to Japanese law, only 50% of her income would be normally taxed in Japan, if she lived there, but because she is a US person and lives in the US, she was told by the Japanese Tax Authority to pay tax in the US.
She mostly contributed to that plan when she was working in Japan, at that time she was not living in the US and she was not a US person. She was a nonresident for US tax purposes. She became a US person in 1999. My question is, does she have to pay tax on whole amount (even on contributions while she wasn't a US person for tax purposes) or only on income after she became a US person (from 1999)? Also, if she has to pay tax on whole pension income here, would the 50% Japanese pension credit apply? I know it's not an easy topic, but maybe there are professionals here who can answer my questions. Thank you, Paul
I found an interesting article (especially last part), but I'm not sure if this this would apply to my wife's pension.
https://www.irs.gov/businesses/the-taxation-of-foreign-pension-and-annuity-distributions
