CPF Payout & US Taxes for Former PR

[expatx]

My wife was a Singapore Permanent Resident until she gave it up in 2021 upon receiving a US Green Card. Then two years ago Singapore adopted a policy of paying out CPFs in full to people who’ve given up PR status or citizenship. So in 2024, my wife received a sizable payment amounting to approximately $150,000 US. The money is still in her Singapore bank account.

Hoping to find former Singapore PRs (or citizens) on US green cards who’ve dealt with this specific situation. Or anybody with enough knowledge to give advice.

My question is about how this needs to be reported to the IRS (we’re aware that there is no tax treaty between the US and Singapore).

Can she treat it is as a previously unreported account/asset (since it is technically money earned before she acquired green card status) and make a delinquent FBAR submission? Or just add the amount to her annual FBAR form without reporting it as delinquent?

Or does she need to report it as new income and pay taxes on it?

Any information or experience appreciated.

[PNGMK]

Malcontent would have some good input.

It's not income in my opinion.

It 's really savings with some capital gains that have been crystallised.

IF you can calculate the total contributions made and the interest component then declare the interest component as a capital gain.

She would need to do a FBAR for sure but that's separate to the CGT.

[malcontent]

Over the years, the IRS has issued official memorandums with regard to how CPF is taxed for U.S. persons, so there is zero doubt that CPF is deemed as an employees’ trust under section 402(b)(2) of the tax code.

Unlike other sections, like the well-known 401(k), it is non-qualified (non-deferred), so both employee and employer contributions are taxable in the year made, and growth in the employees’ trust (usually interest earned) is also taxable in the year earned. This means, by the time it comes to withdrawal, everything has been taxable in the past, so it’s just like a withdrawal from an ordinary bank account — a non-taxable event.

Because it falls under 402(b)(2) it also is exempt from foreign trust reporting. The only thing that is required: FBAR reporting and possibly any interest earned in the year your spouse became U.S. taxable. I’m assuming they don’t have anything like CPFIS, as that could complicate things, but not horribly. Because it is a “social security” type of account, it should be exempt from FATCA as well. However, many experts recommend reporting it on FATCA anyway, out of an abundance of caution.

On a side note, had your spouse waited until CPF LIFE annuity kicked in, income from that annuity would then be taxed under a different section of the code, and every payment would have been fully taxable like an RMD. So, withdrawing now tax-free is a much more favorable outcome (maybe the CPFB is doing you a favor).

One other side note, if your spouse really wanted to buy an annuity with cash proceeds, the annuities sold in the US are often as competitive or even more so than CPF LIFE. There’s a website immediateannuities dot com that is a good place to compare without signing up for anything. Alternatively, if they prefer to lock in around 4% returns (like what CPF pays), in longer-term treasuries, which are tax free at the state level.

[expatx]

Thank you PNGMK and malcontent. That helps a lot.

Question for malcontent: If we've already been filing yearly FBARs for our Singapore bank account, do we need to file a Delinquent FBAR or just add the CPF payout amount to our regular FBAR (the payout was deposited in our SG account)?

[malcontent]

Thank you PNGMK and malcontent. That helps a lot.

Question for malcontent: If we've already been filing yearly FBARs for our Singapore bank account, do we need to file a Delinquent FBAR or just add the CPF payout amount to our regular FBAR (the payout was deposited in our SG account)?

These types of things are a very tough call that only you can make after some soul searching.

Amending an FBAR can trigger penalties. Not amending can result in even greater penalties… if the omission is ever discovered. To my knowledge, CPFB does not collect the SSN of members who have US indicia, which makes it unlikely that the CPF account would have ever gotten reported via the IGA.

Assuming you and your spouse are already residing in the US, the account balance will certainly trigger the need to file FATCA. I would definitely do that for this existing account, along with continuing FBAR reporting.

There are a lot of fear mongers on the internet who will try to scare you into following an expensive path to fix this because of their own profit motive. You should make a decision based on what you believe is best considering your situation and actual risks you face. You might amend and hear nothing more about it. You might not amend and also hear nothing about. Doing voluntary disclosure might also end up not amounting to anything too, but would probably get you the most notice… if you really want to wave the flag and say, hey, look at me!

The reality is, the number of people not in 100% compliance are in the millions. If they really wanted to, they could find some issue with just about every person who has spent any time abroad. Even a foreign “stored value card” can be considered a financial account that needs reporting, with steep penalties for noncompliance!

I honestly do not believe that you are the kind of fish they are trying to net, and the amounts you are dealing with really aren’t significant. There is also a 6 year statute of limitations on this reporting, so it’s good you have been filing and started that clock ticking.

Remember what the disclosure is really for — to make sure US persons are not earning millions of unreported, untaxed dollars overseas — genuine tax cheats, not a “gotcha” for the little guy who is doing their best to comply and have no intention of evading tax.

[expatx]

Got it. Thank you! This has been extremely helpful. Very much appreciated.

[sundaymorningstaple]

Over the years, the IRS has issued official memorandums with regard to how CPF is taxed for U.S. persons, so there is zero doubt that CPF is deemed as an employees’ trust under section 402(b)(2) of the tax code.

Unlike other sections, like the well-known 401(k), it is non-qualified (non-deferred), so both employee and employer contributions are taxable in the year made, and growth in the employees’ trust (usually interest earned) is also taxable in the year earned. This means, by the time it comes to withdrawal, everything has been taxable in the past, so it’s just like a withdrawal from an ordinary bank account — a non-taxable event.

Because it falls under 402(b)(2) it also is exempt from foreign trust reporting. The only thing that is required: FBAR reporting and possibly any interest earned in the year your spouse became U.S. taxable. I’m assuming they don’t have anything like CPFIS, as that could complicate things, but not horribly. Because it is a “social security” type of account, it should be exempt from FATCA as well. However, many experts recommend reporting it on FATCA anyway, out of an abundance of caution.

On a side note, had your spouse waited until CPF LIFE annuity kicked in, income from that annuity would then be taxed under a different section of the code, and every payment would have been fully taxable like an RMD. So, withdrawing now tax-free is a much more favorable outcome (maybe the CPFB is doing you a favor).

One other side note, if your spouse really wanted to buy an annuity with cash proceeds, the annuities sold in the US are often as competitive or even more so than CPF LIFE. There’s a website immediateannuities dot com that is a good place to compare without signing up for anything. Alternatively, if they prefer to lock in around 4% returns (like what CPF pays), in longer-term treasuries, which are tax free at the state level.

Mal, If you will think back to our numerous discussion both on and offline the IRS is actually following the exact outline I espoused way back 20 years ago. I've been following that method for the past 30 years. Best of all, I fall into the 10 year gap (first decade Boomers) that is not able to get CPF LIFE. So I don't even have that one to worry about as I'll have full retirement fund payout within the next 6 years although I've been just paying the retirement accounts payments back into my ordinary account as it pays a sufficient return for my purposes.

[malcontent]

Mal, If you will think back to our numerous discussion both on and offline the IRS is actually following the exact outline I espoused way back 20 years ago. I've been following that method for the past 30 years. Best of all, I fall into the 10 year gap (first decade Boomers) that is not able to get CPF LIFE. So I don't even have that one to worry about as I'll have full retirement fund payout within the next 6 years although I've been just paying the retirement accounts payments back into my ordinary account as it pays a sufficient return for my purposes.

You’ve got so much experience SMS, you can just go with your gut and get it right. LOL

At the end of the day, the IRS works almost exclusively on the honor system, so unless they have something reported to them that doesn’t jibe with what you report, the likelihood of anything coming of it is almost nil. This is why almost all cases of people getting caught are due to a whistle blower or some other information that they get from some other source. Heck, sometimes they even have damning evidence and fail to act on it. I expect that this will change in the future, especially as they start to harness AI.

[YukiYuki]

Over the years, the IRS has issued official memorandums with regard to how CPF is taxed for U.S. persons, so there is zero doubt that CPF is deemed as an employees’ trust under section 402(b)(2) of the tax code.

Unlike other sections, like the well-known 401(k), it is non-qualified (non-deferred), so both employee and employer contributions are taxable in the year made, and growth in the employees’ trust (usually interest earned) is also taxable in the year earned. This means, by the time it comes to withdrawal, everything has been taxable in the past, so it’s just like a withdrawal from an ordinary bank account — a non-taxable event.

Because it falls under 402(b)(2) it also is exempt from foreign trust reporting. The only thing that is required: FBAR reporting and possibly any interest earned in the year your spouse became U.S. taxable. I’m assuming they don’t have anything like CPFIS, as that could complicate things, but not horribly. Because it is a “social security” type of account, it should be exempt from FATCA as well. However, many experts recommend reporting it on FATCA anyway, out of an abundance of caution.

On a side note, had your spouse waited until CPF LIFE annuity kicked in, income from that annuity would then be taxed under a different section of the code, and every payment would have been fully taxable like an RMD. So, withdrawing now tax-free is a much more favorable outcome (maybe the CPFB is doing you a favor).

One other side note, if your spouse really wanted to buy an annuity with cash proceeds, the annuities sold in the US are often as competitive or even more so than CPF LIFE. There’s a website immediateannuities dot com that is a good place to compare without signing up for anything. Alternatively, if they prefer to lock in around 4% returns (like what CPF pays), in longer-term treasuries, which are tax free at the state level.

Thanks for the explaination! I really hope to get your response here. I have active CPF account, and received CPF interest in 2024. In 2024 I am US RA for tax purpose, do I need to pay the tax for CPF interest annually, because in the memorandums, it said, interest is taxable when distributed or available. But I see tons of different opinions online, if I pay them annually, if in the future when I need to cashout CPF, does that mean I don't have to pay any tax for that? Thank you so much!

[malcontent]

Thanks for the explaination! I really hope to get your response here. I have active CPF account, and received CPF interest in 2024. In 2024 I am US RA for tax purpose, do I need to pay the tax for CPF interest annually, because in the memorandums, it said, interest is taxable when distributed or available. But I see tons of different opinions online, if I pay them annually, if in the future when I need to cashout CPF, does that mean I don't have to pay any tax for that? Thank you so much!

Yes, the entire amount of interest earned in the year is US taxable for that year.

Yes, as long as you cash it out before CPF LIFE kicks in (for most younger CPF members, this will automatically occur at age 70), then the entire withdrawal will be 100% US tax free.

CPF LIFE is horrible from a U.S. tax perspective: an annuity purchased with previously untaxed dollars (including untaxed by foreign governments - doesn’t matter that you were not U.S. taxable at the time), each payment will be fully taxable.