IRA Death

Submitted by Norman Warner on Wed, 2014-09-24 17:45

Our client died recently with an IRA account which named a foreign individual as the beneficiary.
Since the beneficiary is not a US citizen can this be changed to an inheritated IRA Account?

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Submitted by Jose Morales on Wed, 2014-09-24 23:47

If the person obtains a US TIN and you allow non-US clients to have IRAs, yes they can open an inherited IRA.

Submitted by Dorothy Zaharako on Fri, 2018-09-21 18:09

Our client is executor on an estate that named the Estate as beneficiary of the IRA.  The assets of the Estate include an IRA.  Beneficiaries of theEstate include non-US citizens as beneficiaries.  The assets of the IRA were liquidated and transferred to the Estate.  When the cash is distributed to the beneficiaries the Estate, the Estate should include the transfer as income with offsetting deduction for the distribution and passing on the tax burden to the beneficiaries, correct?  But what happens when there are non-US citizens that are named beneficiaries but do not pay US income tax?

Submitted by Alan - IRA critic on Fri, 2018-09-21 19:18

There would be a 30% withholding requirement from the estate distribution per Sec 1441. 

Submitted by Dorothy Zaharako on Fri, 2018-09-28 21:11

Our client is an estate that received a lump sum from distribution of decedent’s IRA.  When the Estate distributes the proceeds and passes thru the tax liability to the beneficiaries via Form K-1, is the trustee required to withhold taxes from the payments to beneficiaries?  How are the tax withholdings transmitted to IRS since this is via Form K-1 and not Form 1099R?

Submitted by Bruce Steiner on Sun, 2018-09-30 02:06

  • What does a trustee have to do with this?  Is the estate payable to a trust?  Is the trust domestic or foreign?
  • Yes, an executor or trustee would withhold on distributions of income to a nonresident alien beneficiary at 30% (or the treaty rate, if lower).  Check the applicable treaty.  Note that most interest is exempt.
  • To avoid the nuisance of withholding, the executor or trustee could accumulate the income, pay tax on it in the U.S., and distribute in a subsequent year in which the estate or trust doesn’t have any income other than interest income.  
  • Why would an executor take a lump sum distribution of an IRA?  The beneficiaries might want to consult with counsel as to whether they might have a claim against the executor for giving up the stretch.
  • Bruce Steiner

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