Retirement
Retirement - Living in the US, Returnees to Japan, International tax, Tax planning
What Happens to U.S. Pensions, Bank Accounts, and Investment Accounts?
This section explains in simple terms when and how U.S. pensions, bank accounts, and investment accounts may be subject to tax.
About U.S. Pensions
U.S. pensions (such as Social Security, IRA, 401(k), etc.) are generally taxed only in the country where you reside, as per the Japan-U.S. Tax Treaty. However, U.S. citizens and green card holders have a U.S. tax filing obligation for their pensions even if they reside in Japan. In such cases, taxes paid in Japan can be deducted on their U.S. tax return. The tax treatment for each type of pension is as follows:
Social Security
In Japan, it is reported as “Miscellaneous Income (Public Pension, etc.).”
Other pensions (IRA, 401(k), etc.)
When withdrawing pension funds, only the portion representing investment gains (i.e., the amount that exceeds the total contributions made by you and your employer) is subject to taxation in Japan.
If you withdraw gradually
It is reported as “Miscellaneous Income (Other).”
If you withdraw the full amount in a lump sum
It is reported as “Temporary Income.” Generally, lump-sum withdrawals often result in lower tax liabilities.
Point
To report IRA or 401(k) withdrawals favorably in Japan, it’s essential to document your original contributions accurately. We recommend obtaining and organizing your past contribution records before returning to Japan. Furthermore, while Roth IRA withdrawals are generally tax-free in the U.S., the investment gains are subject to taxation in Japan. Therefore, from a tax perspective, it is often advantageous to liquidate your Roth IRA before returning to Japan.
About U.S. bank accounts and investment accounts
Even after returning to Japan, if you still have U.S. bank accounts, stocks, or mutual funds, income from these accounts may be subject to tax in Japan.
Interest from U.S. Bank Deposits
Convert the received interest into Japanese Yen using the TTM (Telegraphic Transfer Middle Rate) on the interest payment date, and report it as “Interest Income” (subject to comprehensive taxation).
Dividends from U.S. Stocks and ETFs
Convert the received dividends into Japanese Yen using the TTM on the dividend date, and report them as either “Dividend Income” (subject to comprehensive taxation) or “Dividends from Listed Shares” (subject to separate taxation), choosing the more advantageous option.
Capital gains
Convert the sale proceeds into Japanese Yen using the TTB (Telegraphic Transfer Buying Rate) on the sale date, and the acquisition cost using the TTS (Telegraphic Transfer Selling Rate) on the purchase date. The difference is reported as “Capital Gains on Securities” (subject to separate taxation). If you incur a loss (capital loss), it can only be offset against capital gains realized in the same year. It cannot be carried forward to subsequent years or offset against dividend income.
Point
When reporting capital gains in Japan, it’s essential to include foreign exchange fluctuations (i.e., foreign exchange gains or losses) between the purchase and sale dates in the calculation. Therefore, documentation of your original acquisition details (acquisition date and cost) is crucial. Please note that U.S. brokerage statements at the time of sale often do not include this original acquisition information, so it’s important to obtain and keep these records on your own.
Contact
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