IRA Distribution Overseas
I just accepted a position overseas. My family are moving with me (including my parents). My parents (both 70+ years of age) are collecting annual distributions from their IRA and Roth IRA accounts. I was wondering, once overseas, will that distribution (at least the first $91K of it) be US tax free? Since IRA distrubtions are considered earn income during the year distribtuion occur and expats have a $91K earn income exclusion, does that mean my parents can now take up to 91K out of their IRA and Roth IRA tax free (well except for the local tax).
Best regards,
Gregg
Permalink Submitted by mk foss on Thu, 2011-01-06 19:30
Although current earned income can be excluded from U.S. tax if you’re living abroad, retirement income cannot. IRA distributions are taxable and in addition, IRS requires that U.S. tax be withheld from distributions going to addresses outside the U.S. No current RMDs are due from the owner of a Roth IRA – the usual rules apply if distibutions are taken from the Roth. No tax on removing contribution or conversion amounts but earnings could be taxable in the first 5 years the Roth is in place.
Permalink Submitted by Gregory Soloman on Sun, 2011-01-09 04:12
Thank you for your response. Since retirement income is not being counted toward the current earn income exclusion, does that mean the federal income tax % applied to the overseas IRA withdrawal will start from the very bottom tax bracket. For example,
if my parents earns $60,000 overseas and takes $40,000 out of their traditional IRA, when overseas
– The current earn income of $60,000 will be taxed at the foreign locality rate and not subject to US tax (since $60K is within the $91K earn income exclusion).
– The retirement income of $40K will be taxed as follow:
– The first $16,750 will be taxed at 10%
– The remaining $23,250 will be taxed at 15%
– Naturally, there will not be any state tax since they will not be residing in any state.
Are my assumption correct, if so, it is still a pretty good deal. Thinking that in the US, a good chunk of their $100K income will be taxed at 25% and they have to pay state tax. I look forward to hear from you.
Permalink Submitted by mk foss on Sun, 2011-01-09 23:50
The exclusion for earned income is subtracted on the front page of Form 1040 – thus all of the income tax brackets will be available.Many people are no longer performing personal services that could be excluded when they’re taking IRA distributions.
Permalink Submitted by Peter Karakondis on Fri, 2015-05-22 17:02
I understand that the distributions won’t be taxed in the US, but would you happen to know if the Roth Ira distributions will be taxed by France? We would like to do some Roth Ira conversions before we move to France and before we start receiving Social Security, but don’t want to be taxed again later by France when we start the Roth Ira distributions. It is difficult to understand thUS-France tax treaty. Any information would be appreciated. Thank You.