Foreign citizen/resident is Roth IRA beneficiary
U.S. Citizen Client/resident named foreign Hong Kong and Australian citizen and Hong Kong resident as beneficiary fo her Roth IRA.held at a custodian in the U.S.
Trying to understand what the beneficiary’s options are. I was told beneficiary must open a regular Inherited IRA (not Roth) and that there is up to 30% automatic withholding on distributions, but it could be less. Would the Hong Kong Citizen/resident have to pay income tax to Hong Kong or ? on the distributions?
Any suggestions on how I find out the amount of withholding since I have been told 20% or 30%. Also was told that it may be possible to get a credit back on withholding. How can I find out if a credit would be available for part of the automatic withholding?
Thank you very much.
Permalink Submitted by Gregory Curry on Tue, -0001-11-30 00:00
2007-09-29 14:51
Permalink Submitted by Alan - IRA critic on Mon, 2013-03-25 04:43
If the Roth has been open at least 5 years, all distributions are US tax free and there should be no US withholding. If the current Roth custodian has held the account 5 years, they should be willing to code any distributions with a Q in Box 7 which verifies US tax free status. The foreign beneficiary will probably have to take a lump sum distribution. With respect to the other countries, their tax treaty with the US must be considered. In no event should a Roth IRA ever be transferred to a traditional IRA, inherited or otherwise. There is no provision for doing that or for transferring Roth basis to an inherited TIRA account. If the Roth is large enough, the beneficiary should retain an expert in foreign tax issues.
Permalink Submitted by Bruce Steiner on Mon, 2013-03-25 20:59
I am not aware of any requirement for the foreign beneficiary to take a lump sum.Some foreign countries recognize Roth IRAs by treaty (or perhaps by their own tax law). In other words, some foreign countries don’t tax distributions from Roth IRAs. The original poster might check the applicable treaty, if any. If there is no exemption under the treaty, he/she should check (or have local counsel check) the tax law of the foreign country.For planning purposes, a possible solution is to have the Roth IRA payable in trust rather than outright, though here, too, he/she (or local counsel) should check the law of the foreign country regarding distributions from the trust to the beneficiary, whether in the same year or in a later year.