Ex-Pat question – how to declare foreign private pension funds (form 8938 & subsequent) in TurboTax

[UK3]

Situation: I am a US resident, but have two UK private pension funds that just sit there, I do not contribute to them any more, nor do I draw from yet (I am not at retirement age)

In the “income and expenses” section, under “1099-OID, Foreign Accounts” I always declare my foreign bank account, but I always keep the balance under $10,000 so that I can avoid being directed to submit an FBAR.

I am now aware that I should declare my foreign (in my case UK) private pension accounts under a subsequent question of “Foreign Financial Assets”.   I am now in a position where those private pension accounts are worth a total of > $150,000.

By answering “Yes” (…more than $150k) turbo tax helpfully directs me that I’ll need to report those assets on Form 8938 (Statement of Specified Foreign Assets) with the helpful comment “We’ll talk you through it!”

The next page though is not terribly helpful, but says if I’ve filed any of the following forms (not available in Turbo Tax) the 8938 is not needed:

Form 3520         (seems to be to do with foreign trusts)

Form 3520-A   

Form 5471         (seems to be to do with foreign corporations)

Form 8621         (seems to be if you are a shareholder in a passive foreign Investment company)

Form 8865         (seems to be to do with reporting about controlled foreign partnerships)

In my case I’m pretty sure those don’t apply to me, so I leave that blank and move to the next page:­

Which is what I assume will populate the 8938.  It  asks for details of Interest,  Gains/Losses,  Dividends, Deductions, Royalties, Credits & other income.  (Two sections, one for Accounts, one for Assets)

I assume I leave the top section (foreign accounts) blank, since (as already described) I only have a minimal balance in my UK bank account, and it (sadly) gets next to no interest.

The lower section (Other Foreign Financial Assets) I guess is where I enter the details of what gains the funds may have made in the last year.  Since I am not drawing anything from the funds, they are unrealized gains I think is the right term?  So if my total fund values went up by $15,000 – I assume this is where I simply type that in against “Gains (losses)”

Question 1:  Have I understood correctly the use of the “Amounts Related to Foreign Financial Assets” page?

Question 2:  Can I assume that my tax bill won’t change because I am entering these gains in my foreign pension funds?  (the little ‘running total’ figure in the corner of the screen for TurboTax online is no longer there so I can’t see the immediate effect)

Question 3:  The Note on the page says “These amounts should also be reported in the appropriate income, deduction, or credit area of TurboTax”.   (Which is where the next page takes me to) > BUT – Am I right to assume I can leave those blank as I am not getting any income until retirement from the funds? 

Thanks, and sorry for the long and detailed question.  I think it will help a lot of people in my situation to understand though.  It seems there can be a $10k fine for not reporting an 8938.

[DaveF1006]

Yes. You are correct.  Your pensions are foreign financial assets and are reported and reported as such.  You would enter your unrealized gains but these do not need to be reported as income in your tax return. Your tax bill won't change.

In fact, you do not need report these in any other section than the 8938 you are preparing.

[UK3]

Thanks very much!   If someone had the remnants of a final salary (defined benefit) scheme in the UK, how or where would you declare that?  (Since that person would have no idea what the current 'value' of the fund is, or what gain or loss it may have made through the year)

I want to assume that would only need declaring at the point when they stated receiving the benefit / income?

[DaveF1006]

Yes. This would  still be considered a financial asset.  If you know the balance of  the final salary balance, you can report that amount irrespective of any gains made in the account.

You may try to contact the trustee of the fund that controls this and find out more specific information on what the current balance of the fund is, including any unrealized gains. Remember, this doesn't need to be reported on a 8938 unless the balance of the fund's assets are $50,000 on the last day of the tax year or exceed $75,000 at any time during the year. If you are filing Married Filing Joint, the totals are $100,000 and $150,000 respectively.

[UK3]

Hmm... The whole point of a final salary / defined benefit pension is that you don't have an account with your name on, with a defined balance.  (As you would with a 401k).   Instead there is a communal pot of money that aims to provide the defined benefit at retirement (perhaps calculated as "Years service" * "1/80th" * "Final salary at retirement") to all the retirees that it looks after.
There is a communal fund value, but there is no 'personal' fund value.

[DaveF1006]

It depends.  The whole point of my previous answers is that I was under the impression that this was a private account that was listed in your name that you owned. You don't own anything because the money is a communal fund and not privately owned. 

You don't need to report anything at this point until you start receiving income.  At that point, the payments you receive will be taxable income at that time.