Tax status of American IRA accounts

[bonnie21]

I'm wondering if anyone has any experience with IRA distributions while living in Japan.

I would assume that since profits from NISA accounts held by American citizens and Green Card holders in Japan are taxable by IRS standards, that any sort of income from IRA retirement accounts in America held by permanent residents in Japan are taxable as well.

To get to the point, is it true that America does not recognize the tax-free status of NISA accounts and Japan does not recognize the tax-free status of IRA accounts?

If so, are Americans the only ones that are totally screwed in finding tax free investment vehicles?

[RetireJapan]

No experience but I think that is true. The US insistence on taxing non-resident citizens is a real pain. You might consider joining these guys in lobbying for more practical tax laws: https://www.americansabroad.org/

[StockBeard]

If so, are Americans the only ones that are totally screwed in finding tax free investment vehicles?

Nope, IMO everyone who is an expat kind of goes through the pain. The only difference for US citizens is that on top of that you have to file in both countries, but other than that, the fundamental problem is the same:
Japan has tax agreements with most countries to avoid double taxation, but it doesn't mean that they won't tax you on things the other country says you shouldn't be taxed on.

A personal example: my parents have decided to send me a significant money gift this year. They have worked with an advisor over there in France to ensure they can give me the maximum amount that would be tax free in France. Turns out it doesn't matter because I'll have to pay the difference here in Japan.
So, in a scenario where Japan thinks I owe 10'000 yen in tax for a gift I receive, the "avoid double taxation" agreements says that whatever taxes I pay in France for that gift will be subtracted from the taxes I owe to Japan. Since France says I owe 0, Japan says I owe them 10'000 - 0 = 10'000.
If France said I owed them the equivalent of, say 3'000 yen in taxes, Japan would say I owe them 10'000 - 3'000 = 7'000. Notice how I end up paying 10'000 yen no matter what, despite my parents' efforts to optimize the tax on the French side.

To me, the NISA/IRA situation is similar. It just means that as expats, in general, we are probably taxed a bit more in some situation, and I think the only way is to take that into account in your financial plans

[RetireJapan]

Nope, IMO everyone who is an expat kind of goes through the pain.

The one difference for Americans is that they are the only ones where their country of nationality is trying to tax their assets in the country of residence.

So they can't even use NISA accounts freely.

That's fairly unique.

[StockBeard]

Good point. It means in their case the possibility to get overtaxed (not "double" taxed) is bidirectional. For other expats, it's only Japan that might want more.