kelvinfrog wrote:Hey, I know the contribution by your employer and interest earned in the CPF will be taxed.
And the general consensus, per the latest word (from long ago) direct from the IRS, is that the
employer's CPF contributions are sadly not excludable via the Foreign Earned Income Exclusion/Foreign Housing Exclusion (IRS Form 2555 or 2555-EZ). Your contributions are, up to FEIE/FHE limits of course. The employer's contributions are "constructively received" when made, so they're taxable income in each/every year made.
Be sure to adjust your estimated tax payments if necessary to account for this new stream of income.
Is the tax rate for the gain from CPF same as the usual federal income tax?
Yes, assuming you keep all your CPF funds in "traditional" CPF, which I strongly recommend. Then CPF is basically like a bank paying 4+% interest for U.S. tax purposes, and you declare the interest as income each year, on IRS Form 1040 (or 1040A) Schedule B. Of course this interest is not earned income, so it cannot be subject to the Self-Employment Tax nor can it be excluded (FEIE/FHE). It is subject to the Net Investment Income Tax (IRS Form 8960) if you have relatively high (or higher) income.
CPF allows you to allocate some of your funds to local investments. I don't recommend doing that since those Singaporean investment products are most probably classified as PFICs for U.S. tax purposes. That means you would need to make mark-to-market elections on them (IRS Form 8621), which is at least complicated. I'd stick with traditional CPF, especially in today's low inflation/low interest rate world, and allocate as much as you can into traditional CPF SA.
Also, do you pay tax when you withdraw your money (like coming back to the U.S) or you need to pay tax every year?
According to general consensus, every year. The income is "constructively received" when the interest is credited to your CPF account, so that's when it's taxable. That's probably not a bad thing, though, especially if the interest income slides under your U.S. tax return's exemptions, deductions, and credits (i.e. taxed at 0%). That approach also arguably helps reduce some exchange rate risk.
One last question, can you withdraw all the CPF money when you leave your job and go back to US?
Yes, but only if you first terminate your Singapore Permanent Residence status or renounce your Singaporean citizenship, as applicable. If you don't do that, you must wait until you can make qualified/permitted withdrawals (retirement age). However, in my view you should ponder
very carefully whether you should prematurely withdraw funds from a AAA-rated government account paying a minimum of over 4% (CPF SA) on funds that can be withdrawn on demand, at any time. That's a very high yielding savings account! Unless you need the funds for a kidney transplant to survive (literally or figuratively), I would let them ride straight into retirement and then withdraw the funds at least relatively slowly in equal or near-equal Singapore dollar increments (for foreign exchange reasons). That said, I'd probably start tapping CPF funds if I needed them before tapping U.S. Social Security (which you can delay up to age 70 for a higher monthly benefit, a very wise delay if you can and if you're healthy) and before tapping U.S. tax-advantaged retirement savings, particularly before tapping Roth IRAs and Roth 401(k)s.
You didn't ask, but it's an interesting question whether your CPF account is reportable on FinCEN Form 114 and IRS Form 8938. (Most U.S. persons living overseas -- and many U.S. persons living in the U.S. -- meet the threshold to file FinCEN Form 114. IRS Form 8938 is less common since the filing threshold is higher, but it is possible, especially with a decent sized CPF account.) It's best to err on the side of caution and report your CPF account, in my view. The general consensus seems to be it's reportable on these forms.
