I need help with how to treat a UK pension fund that I closed and paid tax on in the UK. I am a US citizen now

[markf1962]

I took a limp sum from a frozen UK pension from I lived there. I was given a p45 substitute by the pension company and paid taxes in the UK. I have tried to understand the tax treaty documents between US and UK. 

I am not certain if the after tax balance that was paid should be reported as US income as I don't think it should be double taxation. 

I was eligible for the withdrawal as I am older than 55.

[KarenJ]

Your UK pension distribution will be taxable in the US (please see below for some articles that may be of assistance) however, you can claim a foreign tax credit for the tax you paid in the UK to offset double taxation. 

You also will probably have a Form 8938 tax filing requirement to report your specified financial assets.   You can file this form with TurboTax.

https://www.irs.gov/pub/irs-pdf/f8938.pdf

https://www.irs.gov/pub/irs-pdf/i8938.pdf

To report your UK pension income:

To enter foreign pension in TurboTax online program, you will need to create a substitute form 1099-R. 

Here are the steps:

1.  Sign into your account and select Take me to my return

2.  At the right upper corner, type in 1099r, then Enter

3.  Select Jump to 1099r

4.  On screen, Your 1099-R, answer Yes and select Continue

5.  Next screen, Choose your bank or brokerage, select I'll type it in myself

6.  On the screen Tell Us Which 1099-R You Have, check the box 

I need to prepare a substitute 1099-R and follow the prompts.  

As to the Federal ID, if your foreign issuer does not have the ID number, try entering nine 9s.  If electronic errors occur due to 1099-R data entry, enter the pension under Miscellaneous income, see below instructions.  As long as IRS has the pension reported and included in total income, it is not problematic. 

1.  In the program, from the top, select tab Federal taxes / Wages & Income -Less Common Income ( very last                          section on the screen) 

2.  Select Miscellaneous Income , 1099-A, 1099-C- Start 

3.  Select Miscellaneous Income- Other income not already reported on a Form W-2 or Form 1099-                                        select Start to information

To report the UK tax paid on your pension for foreign tax credit:

1. Enter foreign tax credit in the search box at the top of the page and click the Jump to link
2. Click 'Yes" you paid foreign taxes
3. Click through the screens regarding foreign interest and dividends
4. Click yes that you have reported all your foreign income already in TurboTax
5. Click that you want to take a credit
6. Answer question about the Simplified Limitation Election
7. Choose income type for pension - it will be General category income
8. Add UK as the county
9. Enter description -UK pension
10. Enter Income amount that you previously reported under UK pension income
11. Enter your taxes you paid on your UK pension in the box "Other income"
12. Continue through the foreign tax credit screens until the program says you are Done.
    

https://www.exfinuk.com/US-taxation-UK-pension-funds

https://www.goldinglawyers.com/u-s-taxation-on-u-k-retirement-pension-irs-offshore-reporting/

[valleybuy]

@KarenJ 

i have Indian  life insurance pension fund bought 20 years back , paid premium only beginning 5 years and it’s maturing next year.

I want to get rid of it so have options to encash the surrender value (grown 5 times) or postpone the maturity or convert to annuity that pays rest of life.

question if I surrender this pension fund is this classified as PFIC form 8621 and hence need to do 1291 excess distributions (highest taxable tax)

I assume pension funds are exempt from PFIC

if not then should I be reporting net of surrender cash value and USD converted premium as other income in 8938 and pay ordinary income tax?