Superannuation for US Citizens in Australia
Published on December 03, 2024
by Seth Hertz
Seth Hertz, a tax professional with 34 years of experience, specializes in US tax preparation, tax planning, and tax advice for US citizens and Green Card holders living and working in Australia.
Table of Contents
How does superannuation affect US citizens in Australia?
Superannuation, often referred to simply as “super,” can be a tricky area for US citizens living in Australia, particularly when it comes to US taxes.
If you’re a US expat, you probably already know the IRS taxes US citizens on their worldwide income.
However, things get a bit complicated because the IRS does not treat superannuation the same way as the Australian tax system.
Why is rolling over a super account a problem for US taxes?
Rolling over one super account into another—something many people do when they switch jobs or get financial advice—can cause unexpected tax issues for US citizens.
The reason?
The US doesn’t recognize Australian superannuation as a “qualified retirement plan” like it does with certain other foreign pension plans. This means the IRS doesn’t automatically give you the same tax benefits on super contributions, growth, or rollovers.
The IRS looks at two things when you roll over a super account:
- How much of the rollover has already been taxed in the US?
- What happens to the new superannuation fund you’re moving into?
If your super contributions have already been taxed on your US tax return, then rolling over the account may not result in more taxes. However, if those contributions weren’t reported, the IRS may consider the untaxed portion of the rollover as taxable income in the year it occurs.
Does it become a tax issue for US citizens?
Technically, yes.
Because Australian super funds aren’t considered “qualified plans” by the IRS, a rollover isn’t just a transfer. Instead, it’s treated as a two-step process: first, as a distribution, and second, as a new contribution to the new super account.
This creates the potential for some or all of the rolled-over amount to be taxable in the US.
Seth Hertz
Tax Director
34 years of Expat Tax Experience
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✔ Seth is an ex IRS Enrolled Agent
✔ Seth is a registered tax agent with the Australia Taxation Office
Seth has specialized in tax planning for Americans living in Australia as well as Australians planning to live in the US to ensure his clients are aware of potential opportunities and pitfalls relevant to their situations.
What happens if my super contributions aren’t reported?
If you haven’t been reporting your super contributions to the IRS, the IRS could tax a portion of the funds when you roll them over into a new account.
The amount that wasn’t previously taxed could be treated as taxable income, leading to an unexpected tax bill. If you’ve been consistently reporting the contributions, however, the IRS won’t double-tax the amount that’s already been accounted for.
Why isn’t super treated like a 401(k) in the US?
Unlike retirement accounts like 401(k)s in the US, superannuation doesn’t get special tax treatment from the IRS because it’s not considered a “qualified” retirement plan.
While Australia and the US have discussed the idea of treating super as a qualified plan, no formal agreement has been reached yet. This means that, unlike qualified retirement accounts, superannuation contributions and growth can be taxable for US expats, even though they’re tax-deferred or tax-free under Australian law.
How can I avoid tax issues with superannuation?
The best way to avoid tax issues with your superannuation is to ensure you’re reporting everything correctly from the start.
If you haven’t been doing this, or if you’re unsure about your reporting, it’s a good idea to get professional tax help—especially if you’re thinking of rolling over your super account. The last thing you want is an unexpected tax bill from the IRS just because you moved funds between accounts.
What happens if not all the funds were previously taxed?
The main point is whether or not the IRS has already been informed about the funds that were originally contributed to the super account.
If the money has been previously taxed in the US (meaning the contributions were reported and taxed as income), you likely won’t face additional US tax on the rollover.
However, if contributions weren’t properly reported, the portion of the rollover that hasn’t been taxed could be counted as taxable income.
In short: if your super contributions haven’t been taxed by the US yet, rolling them over can create taxable income when you do it.
How can you avoid the tax hit?
If you know about the tax implications ahead of time, there are ways to mitigate the damage. One approach might be to leave your existing super fund alone and open a new one without rolling over the balance.
But the most important thing is this: get advice before making any moves. US citizens in Australia should always consult a tax advisor familiar with both Australian and US tax laws before rolling over their superannuation.
What can I do if I’ve already done a rollover?
If the rollover has already taken place and wasn’t reported properly, there are still options. One possibility is filing amended tax returns in the US to report the contributions and any related income.
Depending on how long you’ve had your superannuation, it might be possible to clean up the issue.
