5 Things You Need to Know about Malta Pension Plans
A Maltese pension plan is a tax-efficient retirement savings vehicle for high income taxpayers. In this article, we look at how Maltese pension plans work and learn how they could help your retirement savings grow in a more tax-efficient way.
#1: In many ways, a Maltese pension plan is similar to a Roth IRA.
According to statistics published by the Investment Company Institute, by the end of 2016, US citizens had invested $7.9 trillion in individual retirement accounts. Roth IRAs accounted for approximately $660 billion of that total. Maltese pension plans are similar to Roth IRAs, and they have significant benefits from a tax perspective. In many ways, Maltese pension plans are the new, supercharged Roth IRA.
#2: Benefits were established for US retirement savers by the US-Malta Tax Treaty.
The 2008 US-Malta Tax Treaty stipulates that pension funds established in either the US or Malta are treated as “resident” for the purposes of the Treaty. This means that all or part of gains or income accrued from such pensions may be exempt from tax under the laws of that country.
#3: Maltese pension plans permit earlier tax-free distributions than Roth IRAs.
If a Roth IRA investor makes a withdrawal before reaching the age of 59 1/2, that withdrawal will attract a 10 percent early withdrawal penalty. The funds will also be subject to normal tax treatment, with the exception of distributions to a disabled taxpayer, a first-time home buyer, or a distribution to a beneficiary following the taxpayer’s death.
With a Maltese pension plan, however, investors can make withdrawals from the age of 50 without penalty. The legislation enables retirement savers to draw up to 30 percent of the pension fund’s value free of Maltese taxes. Furthermore, distributions that are non-taxable under Maltese law are also non-taxable under US law.
#4: Retirement savers can contribute alternative assets to their Maltese pension plan.
Contributions to a Roth IRA must be made in cash. However, investments in a Maltese pension plan may be made in the form of an asset, or an interest in an asset or entity.
#5: Maltese pension plans are treated as a foreign “grantor trust” under US tax law.
This essentially means that transfers of assets into a Maltese pension plan do not trigger US income tax liabilities. For example, if a US taxpayer sells securities or property worth $10 million that are currently invested in a Maltese pension plan, this is a non-taxable event under US tax law. Conversely, if an investor were to sell personally-held securities or real property for $10 million, this is a taxable event, and the investor would be taxed on their gain accordingly.
Conclusion
Maltese pension plans essentially serve as optimized Roth IRAs, providing significant tax breaks to high-income taxpayers. Assets invested into a Maltese pension plan are non-taxable. In addition, savers can draw on their investment from the age of 50 without attracting US Federal income tax.
