IRA Owner Changes Country of Residency

Submitted by David Mitchell on Thu, 2017-07-13 20:43

I was curious if someone who is a resident of the United States has a 401k, IRA or Roth IRA and moves abroad permanently for work, gives up residency, how that would be treated for tax purposes? The specific country they would be moving to is China.



Submitted by Jose Morales on Thu, 2017-07-13 22:58

It wouldn’t have much of an effect until they take a distribution.  Then the distribution would be subject to federal tax withholding at the treaty rate for the country of residence.  The individual may experience difficulty maintaining the account with a foreign address and residency due to heightened FACTA reporting requirements which have pushed a lot of financial institutions to squeeze out all accounts held by foreign residents.

Submitted by Alan - IRA critic on Thu, 2017-07-13 23:51

urusei, is there any difference in this case from when a foreign beneficiary inherits such an account? If a US IRA owner wants to name a foreign beneficiary, are some custodians declining to do so?

Submitted by Bruce Steiner on Fri, 2017-07-14 16:03

  • If the IRA owner is not a U.S. citizen, then the covered expatriate rules might apply.
  • Even if the IRA owner is a U.S. citizen, you would have to check the applicable treaty, and the other country’s tax law, to see whether the other country would treat the IRA as they would their own retirement plans.
  • A U.S. person can name a foreign beneficiary.  However, it’s best to check with the custodian to see if they’re willing to have an inherited IRA for a foreign beneficiary.  Another possibility is to leave the IRA in a trust that’s treated as domestic for income tax purposes, though the trustee may end up having to withhold on distributions to the foreign beneficiary.
  • Bruce Steiner

Add new comment

Log in or register to post comments

Sign up to receive The Slott Report each week