Foreign pension

[Arminius]

I worked until 1985 in Switzerland and had a "second pillar" pension. (The employer and employee contributed to this pension tax-deferred.  When I moved to the USA the employer deposited this money to a locked account until my 65th birthday.

Now the bank where this account was held wired me the money in one lumpsum. The Swiss tax authority withheld tax because I do not live in Switzerland and file there a tax return. 

Question:  Because I payed already tax in Switzerland for my pension do I still owe additional taxes in the US? 

How do I declare (if needed) this in Turbo-Tax?

Can I roll over this pension into a IRA in the USA?

[pk]

@Arminius , assuming that you are US  person ( citizen / Green Card holder),  and pointing out that I am not familiar with the US-Switzerland tax treaty ( but am familiar with many others ), the general answer would be  -- yes, US would tax this foreign income and No, you probably not pay additional tax to the USA.  I will read through any relevant treaties and come back but in the mean time , what generally happens is  that  (a) you enter all your US incomes for 2021 ; (b) tell TurboTax that you have foreign income and tax; (c) declare the lump some pre-tax amount from abroad; (d) then choose that you want to take foreign tax credit; (e) TurboTax will help fill out the form 1116 ( you have to make sure that the total foreign income is reported  -- it is general category).  This should result in almost all of your foreign tax ameliorated i.e. give to you as tax credit against US tax laibility.

If you need more detailed help, please let me know either here or as PM and I will walk you through with an example ( what I would need is  your approx US sourced income for 2021, and foreign income for 2021 - pre-tax portion, and foreign taxes paid on this amount ).

pk

[Arminius]

@pk 

Hello pk,

Yes, I am a US citizen now. The US and Switzerland have a double tax treaty. 

My taxable income for 2020 was 92k.  Mostly pension and social security benefits from me and my wife. My pension from Switzerland was  $110k and Switzerland kept $ 4k.

Thank you  for your help. 

[pk]

@Arminius 

 (a)         Let me assume   that of the US$110K  foreign income ( from Swiss lump sum pension )  you contributed US$40K, thus the employer's contribution plus growth is US$70K.  In such a case  the taxable amount ( for US purposes ) is US$ 70 K.  Note that  you need to be able to establish ( if challenged ) the  your actual contribution over the years of employment  at the then exchanged rate between Swiss Franc and US$.   You will need  these figures  so you can essentially fill out a dummy  1099-R--- using total amount received,  in Box-1; Taxable amount in Box-2a, click  Total Distribution; Box 4 , federal Taxes withheld  as 0  and distribution code of 7 ( normal distribution ).  It may help to hand fill this on a form 1099-R ( downloaded from www. irs.gov  ) for reference.

(b)   Now go to TurboTax and enter all your pension and Social  Security incomes as usual;   also enter this foreign  income as if this was on a 1099-R  ( you can tell TurboTax that  this is pension and that you did not get a 1099-R -- see (a) above.

(c) Then under  deduction/ credits  go through  lists of  deductions/credits till you find  foreign tax credit .  Herein  choose that you want to take  foreign tax credit.  This will  allow TurboTax to guide you in preparing a form 1116 -- where you have to enter the foreign income ( for purposes of this form only ) the total foreign income i.e. your figure of $110 K  ( i.e. the amount before Switzerland took the US$ 4K tax out ).  and of course the amount of foreign Taxes paid.

 What this will result in is US taxing your world income of  US$202 K and at that marginal rate   ( so most of Social Security income will be taxable, some credits would go away etc. etc. ). Then  TurboTax will calculate  the  US tax on the world  income and thereafter  allow a credit to you based on a ratio ( indirectly) of Foreign income to World income -- thus in your case because your US and foreign incomes are substantially equal, you should get most of your foreign taxes credited/ allowed  ( implying  that you may not have any  tax on the foreign income ).

Is there more I can do for you ?  

pk

[Arminius]

@pk

Thank you for your help. 

I included your suggestions into turbo tax 2020 as a test.

It will be painful paying roughly 30 k in taxes for money I have earned 40 years ago and that has nothing to do with the US and already payed taxes in the country of origin.

In a way it does not make sense but you are correct. I blame myself for bad planning and ignorance. The bankers in Switzerland might know the regulation but keep quiet and don't give out any information because it is not in there interest....