Swiss Social Security Benefits - Pillar I

[bigmac2]

Swiss Social Security can offer lump sum payments in lieu of monthly payments to those who have reached retirement age and whose benefits are below full work life benefit - ie. typically alien residents who worked for Swiss company for limited number of years.

Does the Pillar I Swiss Social Security (AHV) qualify as "qualified plan" for US tax law? If so can this lump sum payment which represents Social Security payments for future years be transferred to an IRA? Or does the entire amount have to be claimed as income in the tax year received?

[DaveF1006 · Accepted solution]

No, Swiss Social Security is not a qualified plan for tax law. You would need to claim any payment received as taxable income in the year received. This money cannot be transferred into an IRA for a tax-free benefit.  You can use the money to deposit into a Roth IRA but this would be a non-deductible contribution that is subject to a contribution limit as well as income limits. 

Please see this IRS website for further information regarding income limits.. As an FYI, the contribution limits are as follows.

For 2023, the total contributions you make each year to all of your traditional IRAs and Roth IRAs can't be more than:

• $6,500 ($7,500 if you're age 50 or older), or
• If less, your taxable compensation for the year

[bigmac2]

Thanks. When reporting it as income in year received, I assume it would be shown with Social Security payments, i.e ssa 1099 and other?

[ThomasM125 · Accepted solution]

Per this excerpt from an IRS article, you would treat foreign social security pension benefits as pensions or annuities, and as such they would not be eligible for the benefits afforded domestic social security income, unless there was a treaty allowing for such treatment:

Here is a link to the full article:  Foreign pensions

[bigmac2]

Thanks, I have read most of the references provided in the link. In Article 19.4 of the Totalization Agreement (1996) and Technical paper discussing this Agreement Social Security payments are specifically treated separately from the more general subject of Pensions, Annuities, etc. My reading would say that the US will treat all Social Security payments by either US (to Swiss National) or Switzerland (to US National) under the US Model. While not precisely the case, an example given uses the 85% rule (US Model) to calculate taxes on a Social Security payment.