iDeCo for Americans

[Haystack]

I've read a few places that PFICs that are part of an IDECO through your employer do not need to be reported to the U.S.

Are these official sources? I have always heard cash/term deposits are the only option for Americans with iDeCo.

What is the argument for it being exempt?

[RetireJapan]

I've read a few places that PFICs that are part of an IDECO through your employer do not need to be reported to the U.S. I started an IDECO through my university and now am wondering if I need to get out before it reaches the max $25K when I will need to report and (yikes!) be penalized brutally for it. Does anyone know if this employer IDECO exception is a real thing?

(sorry, I meant to reply to this and seem to have edited it by mistake -my apologies)

iDeCo stands for individual defined contribution, and by definition is not through your employer. I have heard something similar about employer DB (defined benefit) plans, but I'm not sure about employer DC (defined contribution) plans.

Anyone know the rules on the US side?

[eslmedley]

OK, so maybe that's where I'm getting confused. My university offers a "DC" plan (which is not an iDeCo?). The financial adviser I talked to (a free service twice a year) showed me information saying these kinds of plans do not need to be reported for Americans living in Canada, so he said it should be the same for Japanese plans. Section 5 here: https://www.irs.gov/irb/2020-12_IRB#REV-PROC-2020-17 seems to show that these plans would not need to be reported. So am I OK to keep investing?

[beanhead]

1) I would not assume that since it is apparently OK for Canada it is OK for Japan
2) I am not sure how much trust I would put in a free financial advisor
3) There are a bunch of Americans on here, and on the Reddit Japan Finance sub, who strongly advise American nationals not to invest in Japanese mutual funds, or even Japanese individual stocks, if they are of the group/conglomerate variety (Itochu, Marubeni, Orix etc)

As RJ says there is apparently one exception, which is DB plans, in which the employer decides what the investments are, not the employee. This may be the only way in which the IRS does not consider the individual to be investing in PFICs. Maybe...

I think tread with extreme caution, consider stopping this DC investment or switching it to cash, unless you get some qualified advice.

[Haystack]

1) I would not assume that since it is apparently OK for Canada it is OK for Japan
2) I am not sure how much trust I would put in a free financial advisor
3) There are a bunch of Americans on here, and on the Reddit Japan Finance sub, who strongly advise American nationals not to invest in Japanese mutual funds, or even Japanese individual stocks, if they are of the group/conglomerate variety (Itochu, Marubeni, Orix etc)

As RJ says there is apparently one exception, which is DB plans, in which the employer decides what the investments are, not the employee. This may be the only way in which the IRS does not consider the individual to be investing in PFICs. Maybe...

I think tread with extreme caution, consider stopping this DC investment or switching it to cash, unless you get some qualified advice.

I would second this. This does not sound like a tax expert.

Americans need to assume everything is a PFIC unless proven otherwise.

Regardless step 1 is getting more information. Clear details and plan explanations. Fine print, etc.