Needess to say, the examples given by the late Robert Smith are correct and has been clarified by John Northcut from CAFICS. The exchange of e-mails between him and the US IRS are as follows:
Your Question Was:
I have a question related to filling out Worksheet A of Publication 575.
Taxpayer is a non-resident alien who took a partial lump sum settlement
(from a US qualified pension plan but the non-resident alien always worked
abroad, not in the USA) upon retirement but prior to becoming US resident.
The partial lump sum settlement was NOT transferred to another retirement
account but was taken in payment directly to her by the pension fund. I
assume that part of the partial lump sum settlement (the part that
represents a return of contributions that would be calculated as per Pub
575) should be included on line 6 of the first Worksheet A filed with a tax
return upon becoming a US resident as being an amount previously recovered
tax free after 1986. The effect of this will be to reduce the time on
future tax returns that enjoy tax-free recovery of contributions, since a
good portion of the amount to be recovered will has already been recovered
in the partial lump sum taken at the time of retirement. Is this correct?
The Answer To Your Question Is:
Thank you for using our service. We apologize for the delay in responding to
your inquiry. I am assuming that you received part of your pension as a non
resident alien and in a following year you start receiving your pension as a
resident alien. The portion of the pension that you recovered after 1986 tax
free would as you correctly stated reduce your contributions and thus reduce
the time on future tax returns to receive a partial tax free benefit. I hope
this answers your tax inquiry. Reference: Publication 575 - Pension and
Annuity Income.
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