Form 3520 and KiwiSaver: When a US Expat in NZ Has to File the Trust Forms
If your KiwiSaver is treated as a foreign trust with you as its US owner, you may have to file Form 3520 (your transfers into it) and Form 3520-A (the trust’s annual return) every year — with a base penalty of the greater of $10,000 or 35% for missing them. But many KiwiSavers qualify for an exemption under Rev. Proc. 2020-17, and you cannot use the trust forms and the PFIC Form 8621 to fight over the same dollars. Here is exactly when each one applies.
Why the IRS can call your KiwiSaver a “foreign trust”
KiwiSaver is New Zealand’s workplace retirement scheme. To the US Internal Revenue Service, it is not a 401(k) or an IRA — there is no provision in the US–NZ income tax treaty that defers tax on a KiwiSaver the way it does for some other countries’ plans. Instead, the IRS looks at the legal substance: a KiwiSaver scheme is established under a trust deed, run by a licensed trustee, holding assets for your benefit. That is a trust.
Because it is a foreign (non-US) trust, the question becomes who the IRS treats as the owner of its assets. Under the grantor-trust rules in Internal Revenue Code sections 671–679, a US person who transfers property to a foreign trust and is a beneficiary is generally treated as the owner of the trust’s assets — a foreign grantor trust. The widely used practitioner position is that an individual’s KiwiSaver is a foreign grantor trust with the member as the US owner. That single classification is what pulls Forms 3520 and 3520-A onto your return.
You put money into a NZ trust, you can benefit from it, so the IRS treats you as the owner of a foreign grantor trust — and owners of foreign grantor trusts file the 3520 series.
What each form actually does
- Form 3520 — your annual return as a US person. Part I reports transfers to the foreign trust (your contributions, your employer’s match, and the government contribution). Part II reports that you are a US owner of a foreign grantor trust. Part III reports distributions you received. It is filed with (or by the due date of) your Form 1040.
- Form 3520-A — the trust’s annual information return. In theory the foreign trustee files it; in practice an NZ KiwiSaver provider will not, so the US owner files a “substitute” 3520-A. It is due March 15 (the 15th day of the 3rd month after the trust’s year-end), earlier than your 1040, and you attach the Foreign Grantor Trust Owner Statement to your own Form 3520.
Source: IRS, Instructions for Form 3520 and Instructions for Form 3520-A.
Worked example: a $50,000 KiwiSaver year for “Megan”
Megan is a US citizen who has lived in Auckland for eight years. She earns NZ$95,000 in the 2025 tax year and is enrolled in a KiwiSaver scheme. We’ll convert at an illustrative rate of NZ$1 = US$0.61 (you must use the actual year-end rate — see the relief section below). Suppose her account activity for the year, converted to USD, looks like this.
| Trust transfer (USD equiv.) | Amount | Counts as a transfer on Form 3520? |
|---|---|---|
| Megan’s own contributions (employee) | $3,500 | Yes — Part I transfer |
| Employer matching contributions | $3,500 | Yes — treated as a transfer she made |
| NZ Government contribution | $320 | Yes — counts toward the trust’s funding |
| Investment growth inside the fund | $2,200 | No — growth, not a transfer (but is taxable to her as owner) |
| Total transfers into the trust | $7,320 | The 3520 reporting base |
The headline. Megan’s total account value at year end is US$50,000, but only US$7,320 of that is current-year transfers. People panic at the “35% of $50,000 = $17,500” figure, but the 35% transfer penalty is keyed to the transfers, not the whole balance — here that base is $7,320.
Step 1 — the 3520 transfer-penalty exposure. If Megan never files Form 3520, the section 6677 penalty for failing to report transfers to a foreign trust is the greater of $10,000 or 35% of the gross value transferred. 35% × $7,320 = $2,562, which is below $10,000, so the floor controls: $10,000.
Step 2 — the 3520-A ownership-penalty exposure. If she also never files the substitute Form 3520-A, the separate penalty for a US owner failing to file is the greater of $10,000 or 5% of the gross value of the trust assets treated as owned. 5% × $50,000 = $2,500, again below the floor, so: $10,000.
Step 3 — combined first-year exposure. $10,000 (3520) + $10,000 (3520-A) = $20,000 for a single year — on an account holding $50,000. The penalty can exceed 40% of the entire account in year one, before any continuation penalties.
The relief twist. Megan’s total contributions of US$7,320 are far below the US$50,000 annual contribution ceiling in Rev. Proc. 2020-17 (Step 5 below). If her KiwiSaver meets the other conditions, she is exempt from filing both forms — and the $20,000 exposure evaporates.
The penalty structure — why this form scares expats most
The dread around the 3520 series is not exaggeration; it comes from the way IRC §6677 stacks penalties. Per the IRS Form 3520 instructions:
| Failure | Initial penalty | If it continues |
|---|---|---|
| Failure to report a transfer to a foreign trust (Form 3520, Part I) | Greater of $10,000 or 35% of gross value transferred | Additional penalties accrue after IRS notice |
| Failure to report a distribution from a foreign trust (Form 3520, Part III) | Greater of $10,000 or 35% of gross value distributed | Additional penalties accrue after IRS notice |
| US owner’s failure to file / ensure Form 3520-A is filed | Greater of $10,000 or 5% of gross value of trust assets owned | Additional $10,000 per 30 days after 90 days’ notice |
The continuation rule is the part that turns a missed form into a crisis: once the IRS mails a notice of the failure, an additional $10,000 penalty applies for each 30-day period (or fraction) the failure continues beyond 90 days. There is a cap — the total additional penalties cannot exceed the gross reportable amount — but on a healthy retirement balance, that ceiling is high. The total penalty also cannot exceed the gross reportable amount overall.
Two saving graces worth knowing: penalties can be abated for reasonable cause (the IRS instructions say a failure is not due to reasonable cause if it is because a foreign jurisdiction would impose a penalty for disclosing — so “my NZ provider wouldn’t give me the data” is, on its own, a weak excuse); and the relief procedure below removes the requirement entirely for many KiwiSavers.
The IRS has historically auto-assessed the $10,000 penalty on late-filed Forms 3520/3520-A before reviewing reasonable cause. The IRS announced it would stop auto-assessing certain late foreign-gift penalties and review reasonable-cause statements first — but file on time anyway. Do not rely on getting a penalty reversed.
Rev. Proc. 2020-17 relief — does KiwiSaver qualify?
This is the most important section for KiwiSaver members. In Rev. Proc. 2020-17 (effective for tax years beginning after 14 March 2019, and applicable to open prior years), the IRS exempted eligible individuals from the Form 3520 and 3520-A reporting requirements for transfers to, ownership of, and distributions from certain tax-favored foreign retirement trusts. Note the exemption is from the information reporting — it does not by itself change how the income is taxed.
You must be an eligible individual: a US citizen or resident who is (or comes into) compliance with all US income-tax-return filing requirements for the relevant years. Then the KiwiSaver scheme must meet all of the section 5.03 conditions for a tax-favored foreign retirement trust:
| # | Rev. Proc. 2020-17 §5.03 condition | How KiwiSaver typically lines up |
|---|---|---|
| 1 | The trust is exempt from income tax or otherwise tax-favored under local law | KiwiSaver receives tax-favoured treatment (PIE regime, capped tax rates) — generally met |
| 2 | Annual information reporting on the trust is provided / available to local tax authorities | KiwiSaver providers report to Inland Revenue — generally met |
| 3 | Only contributions from personal-services income are permitted | KiwiSaver contributions come from salary/wages — generally met |
| 4 | Contributions are limited by % of earned income, OR ≤$50,000/yr, OR ≤$1,000,000 lifetime (converted at the Treasury year-end FX rate) | The crux. KiwiSaver has no statutory cap, so you rely on the $50,000 annual test — met only if your total contributions stay under it |
| 5 | Withdrawals conditioned on retirement age, disability or death (hardship / first-home / education carve-outs are OK) | KiwiSaver locks funds until age 65 with first-home and hardship exceptions — generally met |
The contribution test (condition 4) is the one to watch. The dollar limits are measured using the US Treasury Bureau of the Fiscal Service exchange rate on the last day of the tax year. For most KiwiSaver members — whose employee + employer + government contributions total a few thousand dollars — the US$50,000 annual ceiling is comfortably met, so they qualify and can stop filing the 3520 series. A high earner running large voluntary lump sums into KiwiSaver, or someone with currency swings, should test the figure each year. There is no contribution-from-rollover concern in the rule for retirement trusts, but verify your own facts.
The Rev. Proc. uses an annual $50,000 contribution limit, not a $50,000 account-balance limit. Megan’s $50,000 balance does not disqualify her; her $7,320 of contributions is what is tested against the cap. Don’t confuse the two — it’s the single most common mistake we see.
Form 3520 vs. Form 8621 (PFIC) — you can’t double up
Here is where two scary forms collide. Inside your KiwiSaver are pooled investment funds. To the IRS, a foreign pooled fund is usually a Passive Foreign Investment Company (PFIC), reportable on Form 8621 with its punitive default (§1291) tax. So is your KiwiSaver a foreign trust (3520) or a basket of PFICs (8621)?
The key rule comes from the Form 8621 instructions and the PFIC indirect-ownership regulations: a shareholder who owns a PFIC through a foreign grantor trust is generally treated as the indirect owner of the PFIC and is the one who must file Form 8621. But the regulations are designed to avoid double-counting — the same economic interest is not reported twice. In practice this produces a fork:
- If your KiwiSaver qualifies under Rev. Proc. 2020-17: you skip Forms 3520 and 3520-A entirely. But the relief is only from the trust forms — it does not exempt the underlying PFICs. You generally still owe Form 8621 for each PFIC fund you can identify inside the wrapper.
- If your KiwiSaver does not qualify (e.g., contributions blew past US$50,000): you file Forms 3520/3520-A as the foreign-grantor-trust owner, and you also look through to the PFICs for Form 8621 — the trust forms and the PFIC form report different things (the trust relationship vs. the underlying fund), so both can apply. What you do not do is report the same fund’s value as a “transfer” on 3520 and again separately in a way that taxes it twice.
The shorthand “you may not file both” is really about the same income/asset not being taxed twice under two regimes. You will rarely literally file 3520 and 8621 on the identical dollars in a way that doubles the tax — the look-through rules assign the reporting to one path. Because the interaction is genuinely technical, this is the single most common reason KiwiSaver members hire a cross-border CA rather than self-file.
- A KiwiSaver is widely treated as a foreign grantor trust with you as US owner — which triggers Form 3520 (your return) and Form 3520-A (the trust’s return, filed as a substitute by you, due March 15).
- The base penalty for missing them is the greater of $10,000 or 35% of transfers (3520) and the greater of $10,000 or 5% of trust assets owned (3520-A), with $10,000 per 30 days continuation penalties after IRS notice.
- Rev. Proc. 2020-17 exempts most KiwiSaver members from both forms — the binding test is usually the US$50,000 annual contribution limit (an annual contribution cap, NOT an account-balance cap).
- The relief is only from the trust forms. The underlying PFIC funds generally still require Form 8621.
- You will not report the same dollars under both the trust and PFIC regimes — the look-through rules pick one path. Get the classification confirmed before you file.
Frequently asked questions
Is my KiwiSaver automatically a foreign trust I have to report?
The dominant practitioner position is yes — an individual KiwiSaver is treated as a foreign grantor trust with the member as US owner, which puts Forms 3520 and 3520-A in play. However, Rev. Proc. 2020-17 exempts the reporting for most members who meet the tax-favored-retirement-trust conditions, including the US$50,000 annual contribution test. See the official revenue procedure.
What is the exact penalty if I forget to file Form 3520?
Under IRC §6677, the initial penalty for failing to report transfers to a foreign trust is the greater of $10,000 or 35% of the gross value transferred. A separate failure to file Form 3520-A as the US owner carries the greater of $10,000 or 5% of the trust assets you are treated as owning. After IRS notice, an additional $10,000 applies per 30-day period beyond 90 days, capped at the gross reportable amount. Source: IRS Form 3520 instructions.
Does the $50,000 limit in Rev. Proc. 2020-17 mean my balance must be under $50,000?
No. The $50,000 figure is an annual contribution limit, not a balance limit. It is one of three ways condition 4 can be met (the others are a percentage-of-earned-income cap or a $1,000,000 lifetime cap). You convert your year’s contributions using the US Treasury year-end exchange rate and compare to $50,000. A $400,000 KiwiSaver balance can still qualify if the year’s contributions are under the cap.
If I qualify for Rev. Proc. 2020-17, am I done with all KiwiSaver reporting?
Not quite. The relief removes the Form 3520 and 3520-A obligation, but it does not exempt the PFIC funds inside the scheme. You generally still file Form 8621 for the underlying funds, and the account value still counts toward FBAR (FinCEN 114) and Form 8938 thresholds. The relief is narrow — it is about the trust forms only.
Can I file both Form 3520 and Form 8621 for the same KiwiSaver?
You generally won’t report the same dollars under both regimes in a way that taxes them twice. If the trust forms apply, the PFIC look-through rules assign the underlying-fund reporting to the owner via Form 8621 for the funds themselves, while the 3520 series reports the trust relationship and transfers. Because the assignment is technical, confirm the classification with a cross-border adviser before filing. See the Form 8621 instructions.
I’ve never filed these — how do I fix it?
Rev. Proc. 2020-17 itself lets eligible individuals request abatement of previously assessed §6677 penalties for the now-exempt trusts. If you also have unfiled returns or other forms, the IRS Streamlined Filing Compliance Procedures are the usual path for non-willful expats. Both are time-sensitive and fact-specific — get advice before contacting the IRS.
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