Should I Be Contributing to Super While Living in the US as an Aussie Expat?

For Australians living and working in the United States, the question of whether to keep contributing to their Australian superannuation fund is complex. While super is a cornerstone of long-term retirement planning in Australia, US tax laws treat foreign retirement accounts quite differently, and often less favourably.

If you’re an Australian expat residing in the US, and you're a US tax resident, there are significant tax and compliance considerations you need to understand before deciding to continue contributing to your super. In this blog, we’ll explore how the US treats Australian super funds, what classifications might apply, and how these affect your tax obligations.

How Does the US View Australian Superannuation?

The US Internal Revenue Code doesn’t have a direct equivalent to the Australian super system, which leads to confusion and inconsistent treatment of superannuation accounts. Generally, the IRS doesn’t recognise superannuation as a tax-deferred retirement vehicle, like a 401(k) or IRA.

Instead, US tax professionals often classify Australian super funds under two main designations:

1. Employee Benefits Trust (EBT)

This is the more favourable classification. An employee benefits trust is defined as a trust established by an employer to provide retirement or other benefits to employees. If your super fund qualifies as an EBT, then:

• Contributions by your employer may be exempt from US income tax until distribution.

• Earnings inside the fund might not be taxed annually in the US.

• You may benefit from some deferral similar to what US residents receive with domestic retirement accounts.

  
  

However, for this classification to apply, the super fund must meet specific criteria, such as the employee having limited control over the contributions and investments, and being structured primarily by an employer for the exclusive benefit of its employees. Many retail or self-managed super funds (SMSFs) don’t meet this test.

2. Foreign Grantor Trust (FGT)

If your super doesn’t qualify as an EBT, the IRS may treat it as a Foreign Grantor Trust, a far less favourable outcome.

• As the grantor, you are considered the owner of the trust assets for US tax purposes.

• All income and gains within the super fund are generally taxable annually on your US return, even if the earnings are not distributed.

• Contributions to the super fund may be seen as additional funding to a foreign trust, increasing your compliance burden and tax exposure.

In most instances, Australian Self-managed super funds (SMSFs) are considered a foreign grantor trust for US tax purposes due to the high level of control held by the members of the fund.

Warning: If you are contributing to super while living in the US, and your personal contributions exceed more than half your super balance, this can further solidify the fund classification as a Foreign Grantor Trust in the US.

Super Funds and Highly Compensated Employees (HCEs)

Another layer of complexity arises if you are considered a Highly Compensated Employee (HCE) under US tax law.

Who is an HCE?

For 2025, an individual is classified as an HCE if they:

• Earn more than USD $160,000 in the prior year from a single employer, or

• Own more than 5% of a company, either directly or indirectly.

If you are an HCE and your super is not considered a FGT, the IRS may still require you to report and potentially pay tax on income and gains within your super, even if the fund is normally considered a deferred vehicle (such as under an EBT classification). This can eliminate the deferral benefits you might otherwise expect.

PFIC Rules and Form 8621

If your Australian superannuation fund is treated as a Foreign Grantor Trust, and it holds Passive Foreign Investment Companies (PFICs), which include most Australian mutual funds (managed funds) and ETFs, you also face punitive US tax treatment under PFIC rules.

Most investments inside super, especially managed funds fall under this definition.

Form 8621: A Compliance Nightmare

If your super holds PFICs and is classified as a Foreign Grantor Trust, you’re required to file Form 8621 for each PFIC annually. This involves:

• Extremely detailed reporting,

• High compliance costs, and

• Potentially punitive taxation on “excess distributions,” including retroactive interest charges.

This can create a scenario where your Australian retirement savings are heavily taxed and complicated to manage while you live in the US.

Conclusion: Should You Contribute to Super While Living in the US?

The decision to keep contributing to super while living in the US should not be taken lightly. You need to weigh up your super fund’s classification under US law, your income level and whether you’re an HCE, the types of investments held within your super, and your long-term residency plans.

Avoid contributing unless you’ve received professional US tax advice tailored to your situation. If you’re already contributing, review your super structure and investment holdings with a cross-border expert.

Contributing to super while living in the US is not a one-size-fits-all decision. But armed with the right advice, you can make informed choices that protect your retirement savings.

Runway Wealth Management is the trusted Financial Adviser to the Australian Expat community. Our tailored advice is backed by expertise, education and experience, which allows us to be at the forefront of Australian Expat Financial Planning.

If you would like to speak to one of our Expat Financial Advisers about this blog or if you have other queries, we would be more than happy to speak with you. Feel free to send us an enquiry through the ‘Contact Us’ tab provided in the below link:

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General Advice Disclaimer: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional financial advice specific to your circumstances.