New Zealand and the United States
Is my KiwiSaver taxable in the United States?
Some of this is settled and some of it has never been answered. What is settled: the tax treaty names KiwiSaver as a pension fund, and the treaty's saving clause lets the United States tax its own citizens as though the treaty did not exist, with a short list of exceptions that does not include pensions for past employment. What has never been answered is the part people most need: whether a US person's KiwiSaver is taxed year by year as it grows, and what the account is treated as while it sits there. No published IRS ruling names KiwiSaver outside the treaty definition.
Who this is actually about
Nobody needs this page unless the United States has a claim on them. That means a US citizen or green card holder living in New Zealand with a KiwiSaver account, or someone who built a KiwiSaver here and has since become a US person.
A New Zealander in New Zealand with no American connection can stop reading. Their KiwiSaver is a New Zealand question with a New Zealand answer.
What is settled: the treaty knows what KiwiSaver is
This part is more solid than most people expect.
The 2008 protocol to the tax treaty added a definition of "pension fund" to the Convention, and the Treasury's technical explanation spells out what it covers in New Zealand:
In the case of New Zealand, the term refers to a superannuation scheme registered under the Superannuation Schemes Act 1989, a KiwiSaver Scheme registered under the KiwiSaver Act 2006, the New Zealand Superannuation Fund, or the Government Superannuation Fund.
KiwiSaver is named, in a treaty document, by its own Act. So it is not an unrecognised foreign arrangement. The two governments agreed what it is.
The same explanation lists the American equivalents, which is a useful map in its own right: 401(a) plans, 403(a) annuity plans, 403(b) plans, traditional IRAs under section 408, Roth IRAs under section 408A, SIMPLE accounts, and simplified employee pension plans.
What is also settled, and less welcome: the saving clause
A tax treaty usually decides which of two countries gets to tax something. Article 18(1)(a) of this one does exactly that for employment pensions:
Pensions and other similar remuneration derived and beneficially owned by a resident of a Contracting State in consideration of past employment shall be taxable only in that State.
Read alone, that would mean a resident of New Zealand pays New Zealand tax on their pension and nothing else. But it is not read alone.
Article 1(3) contains what American treaties call the saving clause:
Notwithstanding any provision of the Convention except paragraph 4, a Contracting State may tax its residents (as determined under Article 4 (Residence)), and the United States may tax its citizens and United States companies, as if the Convention had not come into effect.
Then Article 1(4)(a) lists what survives that, and the list is short. For the pensions article, it names "paragraph 1(b) of Article 18" and nothing else.
Paragraph 1(b) is the social security limb. Paragraph 1(a), the one about pensions for past employment, is not protected. So a United States citizen living in New Zealand cannot point at Article 18(1)(a) and tell the IRS that only New Zealand may tax them.
The one piece of good news, and it is a real one
Paragraph 1(b) does survive, and it says:
Pensions and other payments made under the social security legislation of a Contracting State to a resident of the other Contracting State or a citizen of the United States shall be taxable only in the first-mentioned State.
New Zealand Superannuation is paid under New Zealand social security legislation. On the face of Article 18(1)(b), New Zealand Superannuation paid to a United States citizen is taxable only in New Zealand, and the saving clause does not take that away because Article 1(4)(a) protects it.
The same sentence runs the other way for a United States Social Security payment to someone living in New Zealand: on its face, taxable only in the United States.
Note that this is about the government pension, not about KiwiSaver. KiwiSaver is not paid under social security legislation, so it does not get this protection.
What has never been answered
Here is the gap, and it is the part people most want filled.
The treaty allocates taxing rights. It does not tell the United States how to characterise a KiwiSaver account under its own law, and that characterisation is what decides the questions that come up every single year rather than only at the end:
- Are your employer's contributions income to you in the year they are made?
- Is the government contribution income to you?
- Are the fund's earnings taxable to you as they accrue, before you can touch a cent of it?
- Is the account a foreign grantor trust, and does it need the trust reporting that goes with that?
- Are the underlying investments passive foreign investment companies, with the punitive regime that attaches to those?
No published figure or ruling was found for any of these. No IRS guidance names KiwiSaver outside the treaty documents quoted above. The IRS's own page on foreign pensions says only that income from them "may be fully or partly taxable, even if you do not receive a Form 1099 or other similar document reporting the amount of the income", and it does not deal with earnings accumulating inside a foreign plan at all.
That silence is the answer to give you, because the alternative is to invent one. A great deal of confident writing exists on this question, and none of it is the IRS.
What is not in doubt is the reporting
Whatever the tax treatment turns out to be, the disclosure obligations attach to the balance rather than to the analysis.
A US person must file an FBAR if their foreign financial accounts together "exceeded $10,000 at any time during the calendar year reported". A KiwiSaver balance of any size will take most people over that on its own.
Form 8938 has much higher thresholds for people living abroad: "more than $200,000 on the last day of the tax year or more than $300,000 at any time during the year" for someone unmarried, doubled for a joint return. Specified foreign financial assets include "foreign financial accounts and foreign non-account assets held for investment".
Reporting an account is not the same as paying tax on it, and doing the first does not settle the second. More on the filing obligations themselves.
What this guide does not tell you
It does not tell you whether your KiwiSaver is taxable to you this year, because nothing published says so.
It does not cover what happens on withdrawal at 65, which runs into the same unresolved characterisation.
It does not deal with the reverse case, a 401(k) or IRA in the hands of a New Zealand tax resident, which New Zealand has answered much more clearly than the United States has answered this one.
This is a question where the published material genuinely runs out, and where a person with both a KiwiSaver and a US filing obligation is better served by someone who takes professional responsibility for the position than by anything written for a general audience, this page included.
Sources
- Double Taxation Relief (United States of America) Order 1983, Schedule 1, Articles 1 and 18
- Technical Explanation of the Protocol signed at Washington on 1 December 2008 amending the Convention between the United States and New Zealand
- The taxation of foreign pension and annuity distributions
- Report of Foreign Bank and Financial Accounts (FBAR)
- Summary of FATCA reporting for U.S. taxpayers
What no source publishes
Looked for and not found, so this guide gives no figure for it.
- How the IRS treats a KiwiSaver account while it grows: the contributions, the earnings, and what kind of account it is under US tax law