Hi, I hope someone can advise.
I was a UK citizen up to 2005, when I emigrated to the United States. I am now a U.S citizen.
Back in the UK, I had a defined benefit pension through my employer. When I left my job to come to the States, the pension was frozen. At that time, the annual pension from the scheme would have been GBP 4,804 – since then, it has increased slightly each year in line with prices.
It's rather late in the day for this, I know, but should I have been including this pension on my tax return? It hasn't ever occurred to me... to be honest, I had forgotten the pension even existed.
If I am supposed to be including it on my tax return, what should I do to rectify the error, and is it likely I will get in serious trouble with the IRS? I'm in rather a panic about that.
The reason I've thought about the pension at all is because I'm considering taking early retirement from the scheme in the next year or so, to supplement my U.S. salary. If I were to do this, would the distributions be taxed here in the States, or in the UK? I'm also wondering about the status of a lump-sum payment – this would be tax-free in the UK, but would I need to pay tax on it here in the States?
I would be so incredibly grateful for any advice...
Have you been taking distributions from the retirement plan in any of the prior years ? Or has this been simply sitting gaining worth as time went by ? If so are you taking the first distribution in 2020 ? Will you be taking a lump sum or monthly/annual payments ?
Hello, thanks so much for following up.
It has been just sitting there, going up very slightly in line with the retail price index in the UK.
I have not taken any distributions from it... if I did, I would probably start in 2022 and take monthly distributions.
There is an option to take a "tax-free" lump sum but I'm not sure what the tax implications of that would be here?
For US taxes ... you will report the distributions taken (just like you would any US pension) in the year they are taken. They will be taxable in the US even if they are not in the UK.
Oh thank you... so that means I don't need to do anything about informing the IRS I have this pension lurking in the background until I actually start using it?
I just want to make absolutely sure!
Thank you: that is interesting and I will save the links.
I'm not entirely sure if it fully applies given that this isn't a government pension.
I guess I'm wondering if I'm supposed to be reporting the fact that the plan actually exists now (I googled and found out something about a FBAR form?) even though I am not yet using it?
I don't want to be out of compliance with reporting requirements.