Background:
An individual was a US Citizen, died and left their IRA to their surviving spouse who is not a US Citizen.
Question:
What happens to the assets in the IRA? Will the non-citizen beneficiary maintain an IRA (or beneficiary IRA depending on their need) and simply pay US taxes according to the treaties with their native country?
The issue here may be whether the spouse can both do a rollover and qualify for the marital deduction under the QDOT rules.
Treas. Reg. § 20.2056A-4(c) allows the surviving spouse to agree to contribute to a QDOT the principal portion of each annuity payment under a non-assignable annuity. The regulation provides that the spouse’s interest as beneficiary of an IRA is eligible for this procedure, and that the Service will prescribe by administrative guidance the extent, if any, to which these procedures apply to a rollover from a qualified plan to an IRA. However, the Service has not yet issued such guidance. But in PLR 9746049, the IRS allowed the surviving spouse to agree to contribute the principal portion of each IRA distribution to a QDOT.
Bruce Steiner, attorney
NYC
also admitted in NJ and FL
Permalink Submitted by Anonymous (not verified) on Wed, 2010-03-31 22:41
I commented on something similar already and will post the link below.
Usually, the custodian will allow the Inherited IRA to be created, even though they may have stricter policies for foreign accounts. Worst case scenerio, they will liquidate the account upon change of ownership – usually countries on the infamous watch list for terrorism, money laundering, etc.
Taxwise, it is going to be tricky due to the withholding requirements. The beneficiary will need to apply for a TIN and submit a W8-BEN to opt out of the mandatory withholding of 30%. With a valid W-8BEN, the treaty rate will apply – this could be 0-30% depending on the country. What country is it?
I have found that getting the forms in good order can be a nightmare, caused by both the IRS and the internal compliance requirements at the custodian.
http://www.irahelp.com/forum/viewtopic.php?f=1&t=4943
[u]Last point I forgot:[/u]
It is unclear from the post, if the wife’s tax status is resident alien or non-resident alien. I assumed the later based on the reference to “treaty”. If the former, then it is obviously less complicated and is very different from the posted link
pko