Early withdrawl of a pension fund from a foreign country

[Lembo]

I withdrew the entire pension fund I had in another country an early withdrawal (I'm not at pension age yet).

Part of the money I gave as a loan to a family member in that country and the rest I move to my account in the US.

I paid full taxes in the other country on those funds during the withdrawal.

The pension fund consisted of a portion taken from my salary, a portion from the employer and the gains over time.

How do I need to file this and would TurboTax have all which is required?

[RobertB4444]

As a US resident or citizen you have to report all income that you receive which includes this pension.  On the upside you will also get credit for the foreign taxes that you paid.  Also, because of this you'll have to paper file your tax return.

To start with you'll enter the pension amount as a substitute 1099-R.  Go to the retirement income section of the wages and income section of your federal return.  Click start next to the 1099-R button.  Then, when it asks how this was reported, click the box for "I need to prepare a substitute 1099-R".  Enter the information about the pension that you have available.  Don't enter anything for federal income tax withheld since it was not US tax taken out.

Then you'll go to Deductions and credits and scroll down to 'Estimates and other taxes paid'.  Click start next to 'Foreign Taxes'.  Then enter the amount that you paid in foreign taxes on your pension.  You'll receive a credit for that amount against any taxes you will owe for the pension in the US.

@Lembo 

[Lembo]

why would it need to be paper filed? 

in previous years I had foreign income and tax credit (not from the pension fund) though it was file electronically

[DianeW777]

It is the pension that is causing it. The reason it must be mailed is because you need to create a 'substitute' 1099-R.  When this happens the return must be mailed. You will send a copy of the detail you used to create the substitute and you will also file a Form 4852 with your return.

@Lembo 

[Lembo]

Does TurboTax provide / generate those forms?

to clarify I need both substitute 1099-R and form 4852?

"You will send a copy of the detail you used to create the substitute" what would that be? the details of the withdrawal? but it is not in English as it is from a different country so what is the requirement there?

[AmyC]

The Form 4582 is the substitute 1099-R.  The program will create it for you.

There is a workaround if you want to efile. If your state offers an exclusion or deduction for retirement income, it needs to be filed first with the 1099-R information.

Otherwise, you can remove the 1099-R and enter it as other income. Follow these steps to enter the income:

1. go to the federal income section
2. scroll to the bottom
3. Miscellaneous Income, 1099-A, 1099-C, Start
4. Scroll to the bottom
5. Other reportable income, Start
6. Other taxable income?
7. Select YES
8. Description  - Foreign pension
9. Amount, enter your amount 
10. Continue

The foreign taxes paid on the money can be entered for the foreign tax credit on Form 1116. Some states also allow a credit for foreign tax paid.

You should check United States Income Tax Treaties to see if it is taxable and to what extent.

[Lembo]

Thanks @AmyC. 

I am from WA state, would either 1099-R sub and just miscellaneous income be ok tax code wise?

as for the amount should it be the full final amount or the amount should be calculated by employer contributions + gains but without my own contributions? (this is what I understood from a different source)

[DaveF1006]

Yes, you may use the miscellaneous income path to report your pension and this is acceptable by the IRS.  The full distribution received would be reported as taxable income.

[Lembo]

For reporting the foreign tax credit should it be general income or a lump sum? lump sum sound more fitting but I wasn't able to get it reflected in the credits when selecting the lump sum and it was saying the I am missing a value for line B 

[MaryK4]

Unfortunately, for the foreign tax credit, the lump sum must be from a qualified plans of participants born before January 2, 1936 (or a beneficiary of).  The qualified plan must be U.S. based, so this usually applies to people who worked in the U.S. but collected the pension in their home country. 

See Foreign employment contributions. 

@Lembo 

[Lembo]

@MaryK4 so General category income is the correct one?

the credit is not one to one? if so, around17k credit for 28k paid taxes on a 91k reported as other income makes sense?

[MaryK4]

@Lembo It depends- do you know what your total U.S. AGI and the U.S. tax due?  The credit has to be in line with what is taxed with adjustments for deductions ratably so it depends also on how much other income you have- so it never quite is one-to -one but the ratio you got on its face seems a bit off. 

[Lembo]

@MaryK4 
From what I was able to input into the system.
~423K which include the 91k as other income which is the foreign pension early withdrawal and then 394k after standard deduction.

Taxes came to came to ~81k, credits ~21k including the 17.5k (from ~28k paid in the other country) of the foreign credit with 54.k already paid in the US so 5.5k left.

[DianeW777]

It depends. The foreign tax credit will not be more than what the US tax would be on that same income. 

• Foreign Tax Credit limit: Your foreign tax credit cannot be more than your total U.S. tax liability multiplied by a fraction. The numerator of the fraction is your taxable income from sources outside the United States. The denominator is your total taxable income from U.S. and foreign sources
  • IRS Foreign Tax Credit-How to Figure the Credit
  • IRS Publication 514 (check the possible carryover or carryback)
• @rony-lemberg 

[Lembo]

@DianeW777 so that means that with the other income + the foreign tax credit  the result should be even? as in what I owe to IRS would be the same with these 2 and without as they cancel themselves?

though the amount I owe grows by 5k with the 2