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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
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Experience:  10 years experience
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I am an expat living in England. I belong to a university

Customer Question

I am an ex***** *****ving in England. I belong to a university pension plan. Can I deduct the contributions to the pension plan as would happen for a 401k or equivalent employer plan in the US
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

Unfortunately - such deduction is not allowed on the US tax return.
Foreign retirement plan is NOT created under the US law - and is not a qualified retirement plan for tax deduction purposes.

What you may do - if you are bona fide resident in England - you are eligible for a foreign earned income exclusion

The maximum amount of exclusion is $100,800 for 2015.

Customer: replied 1 year ago.
Lev. yes, I am aware of the EIC. Unfortunately, you aren't aware of this:
In addition, certain treaties also explicitly exclude contributions to a foreign employer’s pension plan from the expatriate’s gross income, in both the US and the foreign country, if the foreign employer’s pension plan is generally exempt from income taxation in its jurisdiction and is operated principally to administer or provide pension or retirement benefits. For example, the US-UK tax treaty provides that if an US expatriate works in the UK, and he or she participates in an exempt pension plan established in the UK, then contributions by or on behalf of that expat are deductible or excludable from his or her US taxable income. The same would be true for a UK foreign national working in the US. Among the countries with which the US has tax treaties containing these favorable pension provisions are Germany, the Netherlands, and Belgium.This is from Forbes (http://www.forbes.com/sites/janetnovack/2014/03/06/pensions-create-yet-another-tax-trap-for-u-s-expatriates/#1e6538007566)
So, unless this is wrong and you can show me where this is wrong in the US tax code, I won't be paying.
Expert:  Lev replied 1 year ago.

The provision you pointed in not based on the US tax code.

But it is based on the tax treaty that effectively overrides the tax law of either country.

So if you will look into the US statute - you will NOT find such provision that allows deduction or exclusion.

The tax treaty does allow to claim some benefits under certain conditions.

Here is the tax treaty document
https://www.treasury.gov/resource-center/tax-policy/treaties/Documents/uktreaty.pdf

specifically - page 20 - ARTICLE 18 Pension Schemes

2. Where an individual who is a member or beneficiary of, or participant in, a pension scheme established in a Contracting State exercises an employment or self-employment in the other Contracting State:
a) contributions paid by or on behalf of that individual to the pension scheme during the period that he exercises an employment or self-employment in the other State shall be deductible (or excludable) in computing his taxable income in that other State; and
b) any benefits accrued under the pension scheme, or contributions made to the pension scheme by or on behalf of the individual’s employer, during that period shall not be treated as part of the employee’s taxable income and any such contributions shall be allowed as a deduction in computing the business profits of his employer in that other State.

So if for some reason you would not claim FEIE that is allowed by the US law - but choose to claim some tax treaty benefits - that provision may be used.

.

But that is not based on the US tax code which doesn't allow neither deduction or exclusion for contributions into foreign retirement funds.

Customer: replied 1 year ago.
In other words, I can do so if I don't take the earned income exclusion - which is the key point. Which you didn't answer at the beginning.
Customer: replied 1 year ago.
ok, we're done.
Expert:  Lev replied 1 year ago.

Correct - that is an option if you choose to claim the tax treaty benefits.