I am a covered expatriate. How will my pension be taxed after expatriation?

U.S. pensions are eligible for deferred compensation. They are not subject to taxes under the deemed sale rules.

  • For eligible deferred compensation items, the plan administrator or trustee is required to withhold U.S. tax at the rate of 30% on the taxable portion of a distribution. This practice of withholding tax at the time of distribution is done in lieu of the application of deemed sale rules on the day before the date of expatriation.
  • Ineligible deferred compensation items (non-U.S. tax-deferred accounts) will be treated as having been distributed on the day before the date expatriation. The deemed distribution will be subject to income tax at ordinary income tax rates, but the penalties that normally apply to early withdrawals from such accounts will not apply to a deemed distribution under the expatriation rules. A basis adjustment will be made to reflect the taxes incurred as a result of the deemed distribution under the expatriation rules.
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