Looking into Inherited IRA for American Expats or Non-US connected? Being an American expat brings more challenges when looking for ways to invest for your retirement and plan for your future. In this article, we will review your options regarding the need to open an inherited IRA as an expat. If you are in a situation where a loved one passed away and you urgently need to open an inherited IRA, you will find answers to your questions. We will also review the options available if you are not US-connected and inherit an IRA.
American Expat Vs US-Connected
One important factor about the need for opening an Inherited IRA is if you have a Social Security Number or a Tax Identification Number. If you have lived in the US you should have a SSN and some US brokers will allow you to open an Inherited IRA as a non-US resident. If you are the beneficiary of an IRA and are not US citizen and have not lived in the US before then you might not have a SSN. You should be able to request a TIN from the IRS. That will allow you to open an Inherited IRA with only a few brokers. If you do not want to get a TIN your options are going to be limited to one or two brokers that will have a minimum amount requirement of 1 million.
It is important to remember that non-US connected individuals have a 30% mandatory Federal Withholding on all distributions. There are tax treaties with some countries that could reduce the rate to 15% and it is important to talk to a tax professional that understands your specific situation.
Tax implications of using a US address
Another important point is to make sure that you understand the implications of using a US address on your Inherited IRA. If you opened an Inherited IRA using a US address you might be liable for State Income tax on the distributions. Some States have mandatory withholding tax so it would be a good idea to use your current foreign address so you avoid any tax issues in the future. It is possible to accomplish that by using the right brokerage firm that welcomes American expats.
Required Minimum Distribution
There have been changes to the RMD rules since 2020 after the SECURE ACT was passed during COVID time. The start age to take the RMD was changed to 73 in 2023 with the SECURE 2.0 Act of 2022.
Beneficiaries who inherit IRAs are required to take out all RMDs within the 10 years following the death of the owner. That means that the entire account will be taxed and withdrawn within 10 years. There are no minimum withdrawal per year but it would be wise to not wait until the last year in order to avoid a large tax event. A spouse or minor is excluded form this rule. The spouse can actually treat the IRA as its own and transfer the assets into an IRA in his or her name.
Benefits of using a cross-border financial advisor
- Finding the right Brokerage firm for your specific situation
- Building a team of professionals that can answer your questions (tax and estate planning)
- Looking at the best tax-efficient ways to invest and draw down the Inherited IRA
- Providing holistic advice including all of your investment accounts in the US and abroad
Next Steps – Looking into Inherited IRA for American Expats or Non-US connected
If you are in a situation where you need assistance with opening a new Inherited IRA or you opened one with a US address and want to have peace of mind and transfer the funds to an Inheried IRA with your current foreign address, don’t hesitate to reach out. I would be happy to assist you and provide you with different options.
