The UK currently has a pension (SIPP) contribution limit of up to 40,000 GBP per year (approx 60,000 USD at current exchange rates). 100% of this amount can be self-funded, in which case your contribution is treated as non-taxable income. But I'm a US citizen and have to file a US federal tax return, so I'm wondering how this size of contribution would need to be treated on a US tax return?
From my initial reading of the 2003 double-taxation tax treaty between the US/UK, a non-taxable income pension contribution in either country is treated by the other as the same non-taxable classification. (See http://www.hmrc.gov.uk/manuals/dtmanual/dt19939h.htm) Which means I'd be able to treat that 60k USD as non-taxable income on my US return too.
However, a co-worker (also in the same boat with respect to UK resident/US citizen) has asked his tax advisor about this situation, and been told that the US will limit the non-taxable portion to the 401k annual contribution limit. However, I'm aware that even professionals can make mistakes.
Given the large difference in tax involved, I'd like to be a bit more confident in how I handle this. Does anyone have any personal experience here, or perhaps have a recommendation on how to definitively find an answer?
