The U.S. Government Accountability Office (GAO) recommended that policymakers address tax issues affecting the transfer of retirement assets between retirement plans within the same foreign country.
The GAO found that U.S. workers who participate in foreign workplace retirement plans face challenges reporting their retirement savings for tax purposes. This is due to complex federal requirements on the taxation of foreign retirement accounts and little guidance on how to report these savings. Without clear guidance, these workers run the risk of filing incorrect returns.
In its report, GAO added that U.S. individuals in foreign retirement plans also face problems transferring retirement savings when they switch jobs. In the United States, transfers of retirement savings from one plan to another are tax exempt. However, such transfers could have tax consequences for U.S. individuals participating in foreign retirement plans.
Thus, these U.S. workers may not be able to consolidate their foreign retirement accounts or if they do, they may have to pay higher U.S. taxes on transfers than those workers who change jobs in the United States. This threatens the ability of American citizens to save for retirement abroad.
To remedy this situation, the GAO made several recommendations. Among them, the GAO said the Department of Labor should issue guidance to help ongoing plan sponsors search for separated participants. Further, it said the IRS issue should issue guidance to clarify how U.S. individuals should report foreign retirement savings to the IRS.