Can foreign dividend taxes count as RMD ?

Submitted by Alan Drake m on Thu, 2019-03-14 01:42

For a number of years I have deducted foreign Govt taxes on dividends on stocks held in my IRAs as foreign taxes paid and deducted $1 for $1 from ny federal taxes. This tax credit survived audit.

In my inherited Roth IRA that I am taking RMDs from, I will soon get a dividend from a Swedish company. The Kingdom of Sweden will take 30% of the dividend. Can I count that 30% as part of the RMD I have to withdraw by 12/31-2019 ?

De facto, the payment to the Kingdom of Sweden is as if I am making a tax payment directly from my inherited Roth IRA.



Submitted by Alan - IRA critic on Thu, 2019-03-14 02:02

  • For any tax deferred account, any foreign taxes paid are not added to your taxable income as they are on a taxable account 1099 DIV.  Can you provide more info on that audit, eg was this deduction specifically audited or perhaps some other aspect of your return, and the IRS just overlooked your deduction?  In many cases an IRA audit or inquiry targets a single issue and ignores other aspects of the return. In other cases, the IRS sees some deduction but does not understand what they are looking at or is not interested in that item. So I do not understand how the IRS could have specifically approved this deduction.
  • But your question involved RMDs.  In determining whether an RMD is completed, the IRS will compare the 1099R Box 1 amount against the RMD requirement. The Roth custodian is only going to report on the 1099R the amount they send you, not various other amounts deducted directly from the account such as these foreign taxes, IRA administration fees, or advisor fees. These deductions are all made before any US taxes, even when they are foreign taxes.
  • Loss of the foreign tax credit or deduction is frequently cited as a disadvantage of holding foreign securities in an IRA account, so there is obvious consensus that they cannot be deducted. Still, the amount is usually not large enough to justify not holding foreign securities in an IRA.

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