The ERISA consultants at the Columbia Management Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. A recent call with an advisor in Minnesota is representative of a common inquiry related to the Foreign Account Tax Compliance Act (FATCA or HR 2847). The advisor asked:
"Some of my investment clients are asking about the details of FATCA (HR 2847). My clients want to know that if their IRAs and/or qualified retirement plans hold foreign financial accounts or offshore assets are they subject to FATCA reporting requirements and Form 8938, Statement of Foreign Financial Assets?”
Highlights of Discussion
• First off, investors should always seek guidance from their own tax professionals or attorneys for any potential affect a tax-related issue may have on their personal situations.
• On a separate, but related item, please note that administrators of IRAs and qualified retirement plans who make payments to foreign individuals from theses financial accounts may need to comply with FATCA withholding and reporting requirements.
• Generally speaking, however, IRA holders and qualified plan participants are not subject to FATCA reporting requirements, including the filing of Form 8938.
• FATCA affects three primary entities: (1) U.S. taxpayers with foreign financial accounts or offshore assets; (2) foreign financial institutions; and (3) U.S. financial institutions and U.S. withholding agents if they make U.S. sourced-payments to foreign entities.
• Based on guidance from the IRS, Basic Questions and Answers on Form 8938, U.S. taxpayers need not report “financial accounts” maintained by U.S. financial institutions or their holdings (or those maintained by U.S. branches of foreign financial institutions). Examples of such accounts include:
— U.S. mutual fund accounts
— IRAs (traditional or Roth)
— 401(k) retirement plans
— Qualified U.S. retirement plans
— Brokerage accounts maintained by U.S. financial institutions
• On a separate, but related item, please note that administrators of IRAs and qualified retirement plans who make payments to foreign individuals from theses financial accounts may need to comply with FATCA withholding and reporting requirements.
Conclusion
FATCA reporting and withholding rules resulted from the IRS’ intent to crack down on non-compliance by U.S. taxpayers who hold foreign accounts and offshore assets. In general, U.S. taxpayers with IRAs and/or qualified retirement plans are exempt from FATCA reporting rules.
The Columbia Management Retirement Learning Center Resource Desk is staffed by the Retirement Learning Center, LLC, a third-party industry consultant that is not affiliated with Columbia Management. For informational purposes only. Please consult a tax advisor or attorney for specific tax or legal needs. © 2014 Columbia Management Investment Advisers, LLC. Used with permission.
