FATCA - Compliant Retirement Plans

Seeing as many countries outside of the US do not offer lucrative pension options, an opportunity to cater for this market has been left wide open. Foreign US-style personal pension plans have been carefully designed to not just comply with FATCA but also provide additional tax benefits for individuals returning to the US.

One of the main characteristics of this type of plan is that it is contract-based as opposed to trust-based. This simplifies tax reporting and brings the asset outside of the US which allows the assets to grow in a tax-friendly environment. Underlying investments within these plans are not classed as PFIC by the IRS which therefore opens a much greater investment choice to investors.

Other benefits include:

  • Can invest into any major currency – GBP/EUR/USD
  • Can access from age 55
  • Withdraw up to 30% Pension Commencement Lump Sum
  • Annual Income capped at 8% GAD rate
  • Benefit from gross roll-up – no tax applicable until you withdraw funds from the policy
  • Funds paid from the plan are often paid gross of tax
  • In the event of the member’s death, there is no requirement for probate
  • No limits on the amount you can contribute to the plan
  • Assets are held outside of the estate from a UK IHT perspective
  • Up to 30% of loans can be taken before age 55
  • Reporting provided to do individual filing to the IRS

These types of plans can be extremely tax favourable and will be treated as foreign general limitation income on an individual’s US tax return. This means the plan can grow without tax being deducted until you withdraw funds from the policy. Upon withdrawal, only the growth element of the plan will be subject to Federal and State taxes at ordinary rates plus 3.8% NIIT in the US.

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