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Offshore Pensions for US Expatriates

US Expatriates

For US citizens working and living abroad the annual tax reporting requirements of the IRS are an unavoidable fact of life.

US expatriates face a challenge when it comes to considering how best to build up a decent retirement fund whilst working overseas. The ideal solution must not only be flexible enough for their investments to grow tax efficiently but also offer complete peace of mind that it is compliant with US tax laws.

Neither of the two traditional US retirement plans, the Individual Retirement Account (IRA) and the 401 (K) employee plan, is able to fully meet the potential needs of the typically well-paid expat pension saver. Although the IRA accepts contributions worldwide, these are capped at low limits and both schemes have restrictions on access and withdrawals.

Once you have maximized your annual IRA funding, where can you turn to, and stay within the IRS rules?


One potential solution is what is known as an ‘International Pension’. This arrangement allows US non-residents to make the most of their offshore earnings, by investing for growth in a wider range of assets than they can in an IRA, then being able to take benefits tax efficiently, wherever they are living at the time they decide to do so – including retiring as a US resident.

As well as greater investment choice, an International Pension allows earlier access to capital and growth than is available from traditional IRA/401(K) savings.

Pension Jurisdiction

The tax position of an International Pension for a US non-resident will depend on the jurisdiction the arrangement has been established in.

In choosing a jurisdiction and plan, investors will primarily need the reassurance that they:

  • Incur no annual US Federal income tax liability on dividends and interest.
  • Are fully Internal Revenue Service (IRS) compliant and can pay out lump sum benefits, regular income or even death benefits to named beneficiaries.
  • Offer tax deferral, and access to an almost unconstrained range of investments.

A good example of an appropriate jurisdiction with providers that can offer such reassurance is Malta – a full European Union and Commonwealth member and an internationally recognized financial service centre.

The double taxation agreement that exists between Malta and the US allows retirement savings to be ‘rolled up’ with no immediate tax liability, and US tax to be deferred until retirement. This means that dividends and interest can be reinvested in the meantime, making a real difference to the potential final value.

How does it work?

An International Pension registered with the Malta Financial Services Authority (MFSA) and designed for non-resident US citizens would give US expatriates the following benefits:

No tax on growth, US or Maltese.

No limit on contributions.

Almost no limit on investment fund choice and no PFIC charges on non-US mutual funds.

Pension benefits can be taken from age 50 with 30% of your fund available as a tax-free lump sum.

The balance of your fund can be taken as income drawdown and taxed as a simplified annuity for US tax purposes whereby the income is split between return of capital (tax-free) and investment income (taxable).

What happens to my International Pension when I die?

The value of your pension will form part of your estate for US estate tax purposes.

The federal estate, gift and generation skipping transfer tax-exemption was increased to USD 11,180,000 for individuals and USD 22,360,000 for married couples (where both individuals are US persons) from 1st January 2018.

Benefits to your spouse or other beneficiaries can be paid as a one off lump sum or used to provide them with pension benefits.

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If you need more information, please contact us. A pension specialist from our team will be happy to help with whatever pensions-related question you have.