TAXMAN wrote:

- quote -

I'll assume we are dealing with a US pension. The foreign
earned income exclusion does not affect the taxability of
the pension. If the employer contributions are excluded
from gross income, then the pension is all taxable. If the
employer contributions are included in gross income then the
individual would use the simplified method to determine how
much of the pension payments are taxable.

--
Alan
http://taxtopics.net

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TAXMAN wrote:

- quote -

This may be more complex that at first appears. If the
contributions to the retirement plan are vested, we have
always taken the position that they are currently taxable.
Since the employer is not a US taxpayer, the plan cannot be
a qualified plan, thus there is no basis for deferring the
tax. We also take the position that earnings within the
retirement plan, when allocated to the taxpayers account,
are taxable. Same reasoning. This means that the retirement
account is treated like any other savings and any money
withdrawn in the future is just like taking money from a
bank account -- no tax consequences.

However, if taxpayer does not treat contributions this way,
the payments would not be subject to the exclusion. Only
payments for current service, paid within two years, are
eligible. Since payments from the retirement fund are not
for current service, they are not "earned income" and cannot
be excluded. Taking a lump sum does not change this.

Lanny Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

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I have a client who is working out of the country, and his
income is all subject to the foreign income exclusion. He
is contributing to a Roth. His employer is making
contributions to a retirement plan on his behalf. When he
leaves this employ, will the pension that he receives be
taxable ? If he takes it as a lump sum BEFORE leaving his
foreign domicile, would it be taxable ?

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