UK Pension Contributions

From what I understand I can opt whether or not to pay US taxes on contributions to pension plans. 

If I decide to pay the US tax now it makes minimal impact on my US tax as I will include it in my salary which attracts enough UK tax so as to give full Foreign Tax Credit with or without the salary put into my pension.

Question 1:  Am I doing this right?  Should contributions to pensions be treated outside normal salary (on Form 1116, General Limitation Income)

Question 2:  I have also include my employer's matching contribution as salary (general limitation income), is this OK?

Question 3:  I am doing this even though it will increase my taxes by about $134 as it means these contributions will be tax free when I receive them later in life.  I will only have to pay tax on the capital gains.  Is this correct?

1. Under IRC code section 402(b) contributions to a pension plan that is not US-qualified (eg a UK pension plan) are taxable to you when vested.  There is no choice about this.  The law is quite clear.
2. However, the US/UK double-tax treaty permits in certain circumstances that contributions can be deducted on a US tax return up to certain limits, providing that a treaty-claim is filed with the US tax return.
3. As a consequence of (2) the amount of gross income reportable on a US tax return may be lower if a valid treaty claim is filed.
4. The actual US tax payable currently for most people is identical whether option 1 or option 2 is chosen because most people can offset the section 402(b) charge with excess foreign tax credits.
5. On taking benefits the rules for figuring basis are much more complex than you describe.  One part of the maths involves the section 402(b) charges, but you also need to factor in life expectancy and IRS mortality tables in calculating basis.  This is itself a complex exercise.

In terms of your specifics:
Question 1
Yes, but note this income is not foreign earned income for figuring the foreign earned income exclusion

Question 2
Yes

Question 3
As described above, it is rare that current year taxes are increased and figuring basis on future rollovers or withdrawals is a complex exercise.

In terms of your specifics:
Question 1
Yes, but note this income is not foreign earned income for figuring the foreign earned income exclusion

Sorry, I don't understand. If the pension contribution is a per cent of salary, wouldn't it be part of foreign earned income (e.g. foreign earned  income = gross salary before pension contributions deducted.)

I'm referring to an occupational pension of course. And employer matching contributions would be unearned.

You are correct.  Foreign employer matching pension contributions are foreign earned income for US tax purposes (so fall in the general limitation basket when figuring foreign tax credits).

However, they are not the kind of foreign earned income that can be excluded using the $80,000 foreign earned income exclusion. 

The reason why they can't be excluded is because US law says so.  Unfortunately although this may make little difference to US tax payable, it does make preparing US tax returns just that bit more of a complicated project!

Your own contributions to a foreign pension plan are not deductible when filing a US tax return (because you will not be contributing to a US qualified plan) but may be deductible in some circumstances under the US/UK tax treaty.  If you do not deduct the contributions then you have foreign earned income that does qualify for the foreign earned income exclusion, because the law only disqualifies employer contributions in figuring the foreign earned income exclusion.

Thanks for the confirmation and extra info Guya.  These tax forms are a nightmare already and the new rules coming in next year will make it even worse.

For fun I added up all the IRS estimated times to figure out and file my taxes, it totalled 106 hours and 6 minutes.  In 40 hour workweek figures that's over 2 1/2 weeks to do my taxes.

I'd renounce my citizenship but they still make you pay taxes for years afterwards anyway!