IRC 402(b) Global and Mobile International Retirement Plan
International enforcement of Tax Compliance by the U.S. Foreign Account Tax Compliance Act (FATCA) took effect on 1 July 2014 and for the OECD it begins in 2017.
This reporting of foreign financial accounts dramatically effects the way employers establish, administer and financially report international retirement plans for not only their U.S.expatriates but also third country nationals and any globally mobile workers.This means that there is a need for compliance to the automatic exchange of financial account information (AEoI), at both the individual and institutional level on citizens of more than 130 countries.
Offering this style International Retirement Plan is the only, by government regulated, tax credential status globally that addresses the needs of domestic and international employees for a mobile and globally recognized retirement plan.
This delivers an occupational retirement plan that delivers tax and regulatory compliance that is recognized in the USA, OECD, including Canada, Mexico, the E.U. and throughout Asia.
We can provide red carpet access to international retirement plan experts that outsource global retirement plan needs without staffing requirements.
Overview of Sec. IRC 402(b)
Sec. 402(b) provides that amounts held in a 402(b) trust are not taxed until they are distributed or made available to the individual and taxed under Sec. 72, with the exception that distributions of income before the annuity starting date (as defined in Sec. 72(c)(4)) are included in the individual’s gross income without regard to Sec. 72(e)(5) (relating to special rules for amounts not received as annuities). This means that the amounts are taxed as an annuity; i.e., a portion of the amounts is treated as nontaxable basis recovery, and the remainder is treated as taxable income.
Taxation under Sec. 402(b) depends on whether the nonexempt trust is discriminatory. A 402(b) trust is considered discriminatory if one of the reasons it is not an exempt trust under Sec. 501(a) is the plan’s failure to satisfy the requirements of either Sec. 401(a)(26) (participation requirements for qualified defined benefit plans) or Sec. 410(b) (coverage requirements for qualified defined contribution and defined benefit plans). If the 402(b) trust is not discriminatory, employees who participate in the underlying plan are taxed under Secs. 402(b)(1) and (2).
By contrast, if the trust is discriminatory, highly compensated employees (as described in Sec. 414(q)) are taxed under Sec. 402(b)(4), which provides that they are taxed each year on the employee’s vested accrued benefit as of the close of the trust’s tax year, less the employee’s investment in the contract. Also, if the sole reason a trust is not exempt under Sec. 501(a) is a failure of the underlying plan to comply with Sec. 401(a)(26) or 410(b), then non–highly compensated employees will not be subject to taxation under Sec. 402(b), but they will be taxed as if the plan were a qualified plan (i.e., benefits are subject to income taxes upon distribution). The IRS provided some insight in Rev. Rul. 2007-48 into how Sec. 402(b)(4) applies to a funded trust.
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