Dealing with Foreign Persons and Retirement Accounts in Global Economy

By Beverly DeVeny, IRA Technical Expert
Follow Me on Twitter: @BevIRAEdSlott

Can you name someone who lives in a foreign country as a beneficiary of your IRA? What happens when a non-citizen owns or inherits an IRA?  

We frequently get asked these types of questions. If you have clients that reside in states along the Canadian border, you have probably come across the Canadian RRSP or a similar plan. With the world’s economies becoming more global, we are seeing more and more individuals who are non-U.S. citizens with U.S. plans and individuals whose beneficiaries reside in other countries.

To answer the first question above, yes, you can name someone who lives in a foreign country as the beneficiary of an IRA or other retirement plan.

To answer the second question, foreign beneficiaries have the same options as any other beneficiary. They can stretch distributions or take a distribution in full. Spouse beneficiaries can move inherited funds into an IRA in their own name.

What account owners and beneficiaries cannot do is move foreign retirement accounts to U.S. retirement accounts and vice versa. The U.S. Tax Code specifies that retirement accounts organized under specific sections of the Code can be moved to other retirement accounts governed by the Code.

One other difference between foreign account owners or beneficiaries is in the tax withholding on distributions. Generally, there is mandatory withholding of 30% on distributions unless the payee is a U.S. person or is a foreign person entitled to a lower rate of withholding. That usually happens when there is an income tax treaty between the U.S. and the country where the foreign person resides.

For more information go to the IRS website for an article in their Retirement News for Employers at the following link: http://www.irs.gov/pub/irs-tege/rne_0415.pdf.
 

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