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. They recently received a call from an advisor in Illinois about a British pension arrangement called a QROPS. The advisor asked:
One of my clients worked in London for a number of years and accumulated pension plan assets overseas that he eventually moved to a plan he called a ‘QROPS.’ What is a QROPS, and is it eligible for rollover to an IRA in the U.S.?
Highlights of Discussion
- QROPS stands for Qualified Recognized Overseas Pensions Scheme, which is a pension arrangement sanctioned by Her Majesty’s Revenue and Customs (HMRC) but set up outside the UK. QROPS may receive asset transfers from UK pension plans. They are often used by expatriates to simplify the management of their retirement assets by consolidating disparate foreign pension plan assets in one account. A list of pension schemes that have notified HMRC they meet the conditions necessary to be considered a QROPS is available here.
- Regarding whether QROPS are eligible for rollover to a U.S.-based IRA, the answer is no. IRA rollovers may only come from a “qualified trust” as defined under Internal Revenue Code Section 402(c)(4). Though we may not cite it as precedent, an IRS memorandum affirms the IRS’ rollover denial in the case of a QROPS.
- Taxation of amounts distributed from a QROPS depends upon the country of jurisdiction for the QROPS and the tax treaty of the country in which the distribution recipent resides. QROPS vary by jurisdiction, and some QROPS are incompatible with U.S. tax law, which results in greater tax liability.
Conclusion
Owners of QROPS may not roll the assets to a U.S.-based IRA or qualified retirement plan. Since there are extreme variations in the tax treatment of QROPS depending on the QROPS jurisdiction and the owner’s country of residency, taxpayers with QROPS should seek out tax advisors who specialize in this space.
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. © 2015 Columbia Management Investment Advisers, LLC. Used with permission.
