Withdrawal of foreign pension - taxable portion

[akarpilow]

I lived in Switzerland for 7 years until I moved back to the U.S. in November 2024. I withdrew my Swiss 2nd pillar as a lump sum. I've found a lot of references explaining that the taxable portion of this withdrawal = total withdrawal - tax basis. Some advice suggests that the tax basis includes contributions to the 2nd pillar that I've already paid U.S. taxes on.  I knew my annual contributions to the 2nd pillar were not deductible so I included them when I declared my full income for U.S. taxes in previous years. However, this was always below the threshold for the Foreign Earned Income Exclusion FEIE so I didn't actually pay any U.S. taxes on them. Can I use my contributions to my 2nd pillar as part of my tax basis, reducing the taxable amount of my 2nd pillar withdrawal? Or do I declare the whole amount withdrawn as taxable and just try to offset the taxes I already paid with the Foreign Tax Credit? Please help! I have 50 tabs open telling me different things.

[DaveF1006]

No. You won't be able to claim the contributions as a tax basis unless there is a treaty provision that permits it. I checked the US/Switzerland tax treaty and there is no treaty provision that permits this. The IRS states,  "there are relatively few U.S. treaties which provide benefits for cross border pension contributions (typically found under the Pension Schemes articles). Benefits may allow a U.S. citizen that is a resident in a foreign country to obtain favorable tax treatment in the foreign country for contributions made to a U.S. pension plan or may allow a U.S. citizen that is a resident in a foreign country to obtain favorable tax treatment in the U.S. for a contribution made to a foreign pension plan". In this case, there are no benefits between US/Switzerland for cross-border pension contributions.

Declare the full amount of the withdrawal and then claim a foreign tax credit against the gross lump sum distribution you received.

The taxation of foreign pension and annuity distributions  

[akarpilow]

Ok...I'm sorry to press, I was just confused by this post where it says:

"taxable amount  ( this should be total distribution LESS any contribution that you had made  over the participating years )" 

https://ttlc.intuit.com/community/taxes/discussion/re-us-switzerland-tax-treaty-and-timing-of-immigr...

and this post where it says:

"Unfortunately, contributions to Pillar 2 and Pillar 3 plans cannot be deducted and must be reported as income on a U.S. tax return. Some good news: because contributions to Pillar 2 and 3 plans are taxed, you won’t pay taxes later on when you withdraw money from these funds. Typically, once withdrawn, this money would be considered passive income and would not be included in the Foreign Earned Income Exclusion, so that you would owe tax on withdrawals. However, because the contributions are taxed when made, you will only owe tax on growth, and Switzerland’s Foreign Tax Credit will offset this tax." 

https://help.taxesforexpats.com/en/articles/6573243-how-should-pillar-2-and-pillar-3-plans-be-report...

Which makes it sound like, since I declared the contributions already, I shouldn't be taxed on them again...

[RobertB4444]

Unfortunately, Pillar 2 and Pillar 3 are not "qualified plans" for US tax purposes.  So the rules that would benefit you for withdrawals and contributions don't do you a lot of good here.

Here is a whole thing on Swiss retirement plans and US citizens.

@akarpilow