Is a US-Based IRA with Foreign Accounts included on FBAR?

Is a US-Based IRA with Foreign Account included on FBAR?

US-Based IRA with Foreign Account included on FBAR

Is a US-Based IRA with Foreign Account included on the FBAR: One common misconception many US Taxpayers have when it comes to the IRS requirements for reporting foreign bank and financial accounts on the FBAR — is what to do about foreign accounts held within a US-based IRA. In other words, since the IRA is based in the United States, but may contain accounts that are foreign within the IRS — does the owner of IRA have to report foreign accounts held within the IRA annually each year on the FBAR? Luckily, the answer is (usually) — No.

What is an IRA Plan

An IRA is an Individual Retirement Arrangement which is funded in anticipation of continued growth during the employment years — and then to be drawn-down during retirement.

As provided by the IRS:

• • • “An individual retirement arrangement (IRA) is a tax-favored personal savings arrangement, which allows you to set aside money for retirement. There are several different types of IRAs, including traditional IRAs and Roth IRAs.

    • You can set up an IRA with a bank, insurance company, or other financial institution.”

Depending on the type of IRA and if the taxpayer qualifies (based on their total income) certain contributions to the IRA may be deducted from the Tax Return

Control Over the Investments

Under most circumstances, the US Taxpayer does not have control over the underlying investments within the IRA. In addition, the Taxpayer would generally not have access to all the underlying information necessary to complete FBAR filing.

The Internal Revenue manual provides a good summary of the IRA Exception: 

IRM 4.26.16.4.3 FBAR Filing Exceptions

• • • • “Individual Retirement Account (IRA) owners and beneficiaries, and participants in and beneficiaries of U.S. tax-qualified retirement plans, are not required to report a foreign financial account held by or on behalf of the IRA or retirement plan.

    • Caution

      • This exception is for U.S. plans only. Foreign plans (e.g., a Canadian Registered Retirement Savings Plan (RRSP) and accounts managed by Mexico’s Administrators of Retirement Funds (AFORES) are normally reportable on an FBAR.

      • A trust beneficiary with a financial interest is not required to report the trust’s foreign financial accounts on an FBAR if the trust, trustee of the trust, or agent of the trust:

        • Is a U.S. person, and

        • Files an FBAR disclosing the trust’s foreign financial accounts.”

Foreign vs US Retirement Reporting

It is important to note that the FBAR reporting rules differ as to what type of accounts need to be reported when it involves pension and retirement — depending on whether it is a US or foreign based pension. While a US pension that has foreign accounts does not generally need to be reported — the same rules do not apply to foreign pension and retirement plans.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure. 

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