IRA and non-USA beneficiaries.
I have read two editions of Ed Slott’s excellent book “Parlay Your IRA into a Family Fortune” and now have a good understanding of how to do that.
Two financial advisors in the USA trained by Ed have given me good advice.
I am a New Zealand and British citizen. I have a Permanent Residency ‘Green’ Card and a Social Security number. I own both a Traditional and Roth IRA, inherited from my deceased wife, a USA citizen.
However:
My present beneficiaries are my two adult children (Australian citizens), who do not have Social Security numbers.
1. What potential problems may arise for them when I die?
2. What steps can I take to facilitate a smooth transition to them?
3. If I should split my IRAs and include my Australian grandchildren also, how do I make sure there is a smooth transition to stretch IRAs.
Would appreciate any guidance members might have from their own experience as non-USA citizens, or point me to resources that can answer the above questions. Thanks,
Ron
Permalink Submitted by mk foss on Mon, 2013-11-25 23:17
U.S. tax is withheld from IRA distributions sent outside the U.S. The rate is 30% or the treaty rate between the U.S. and the country of residence. If the beneficiary is a U.S. citizen or green card holder, they must file a U.S. tax return and claim credit for the withholding on the return. There may be special rules depending upon the treaty with the foreign country. If the beneficiary is not a U.S. citizen, resident or green card holder – the withholding generally covers the income tax obligation and no return is required unless there is other income connected to the U.S.
Permalink Submitted by Ron Wilson on Tue, 2013-11-26 08:31
Thanks for that answer. Does the withholding tax apply to a Roth IRA?
Permalink Submitted by Alan - IRA critic on Tue, 2013-11-26 16:43
While it does not make any sense that withholding would apply to Roth distributions, awhile back I searched for an exception for Roth IRAs and did not find one. An inherited Roth is fully tax free 5 years from the year the owner first contributed to it.
Permalink Submitted by Ron Wilson on Thu, 2021-03-25 04:59
I have discovered that a QCD gift of RMD is taxable because my address is out of USA. Is there any way legitimate around this?
Permalink Submitted by David Mertz on Thu, 2021-03-25 12:42
I think you meant to say that the distribution is subject to tax *withholding*, not that the QCD is taxable on your US tax return. If that’s what you meant, you can make your distribution large enough to cover both the intended QCD and the tax withholding. Whatever portion of that total gross distribution is in excess of your RMD can be rolled over using other funds, but be careful that doing so does not violate the one per 12 months limitation on rollovers. If you do this annually, substantial care will be needed to avoid violating this limitation.
If rolling over the amount in of the excess of the RMD would be a violation of the one per 12 months rollover limitation, the amount can be converted to Roth instead, taxably moving this portion to an account that will grow tax free once the requirement for qualified distributions has been met and reducing the amount of future RMDs from the traditional IRA.