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Expat Problems: Picking a beneficiary for your IRA

Today, a post for our American friends.

Much like crossing the street, picking a beneficiary for an IRA (Individual Retirement Arrangement) can be more complex when you are living abroad.

Making your spouse the beneficiary is straightforward for two US citizens. But should a foreign spouse be an IRA beneficiary?

First of all, make your decision in conjunction with an expert. Feel free to get in touch. You need your individual situation considered rather than relying on general advice.

Two US Spouses is Straight-forward.

In most situations making your US spouse your IRA beneficiary is the best approach.

This is because the spouse can delay required minimum distributions (RMDs) in several different ways. An inherited IRA can be rolled into an existing IRA and distributions can be delayed until their age requires.

Alternatively, If the spouse is employed they can roll the IRA into a Qualified Retirement Plan (QRP) which in practical terms might be a 401K. This could then delay distributions until their retirement.

Making your estate the beneficiary is rarely a good idea.

This has the disadvantage that without someone nominated, distributions must be paid within 5 years and the estate pays income tax at the highest rate of 35%. Some of those disadvantages can be mitigated by a see-through trust being the beneficiary, although that’s a more costly and paperwork filled approach than simply declaring your spouse the beneficiary. Is that worth it? That depends and it's "talk to your advisor" time.

A Non-Resident Alien Spouse = Choices.

The choice to make a non-resident spouse your IRA beneficiary is less straight-forward.

Yes, a non-resident alien spouse can open an inherited IRA account.

But do they have or are they willing to obtain a:

  • A Social Security Number (SSN)?.

  • Would they get an ID Number (TIN) from the IRS.

Some might not wish to obtain either. Both have implications.

Yet you'll need one of these numbers to find a broker who’ll be willing to open an inherited IRA account. Plan ahead to consider what to do here.

A non-resident alien spouse causes issues.

When we get to distributions, then be aware that non-US connected individuals have a 30% withholding tax. Some countries, however, have negotiated tax treaties to reduce that burden to 15%. But best talk to a tax professional to get a reading for your specific situation.

At this point you might be thinking "I've still got more homework," and although true, you don't have to do it alone.

If your situation doesn't fit, then it is best to start building a team of advisors.

Expert Advice: Advisory teams for a cross border life

To manage your life overseas the best prepared families build a team of professionals.

This team will be experienced with clients living abroad. This can provide holistic advice of both US based investments and your family’s financial situation around the world.

Talk to us about getting your family's wealth plans in place.

About Caterer Goodman Partners

Caterer Goodman Partners is a US registered investment advisor specializing in expatriates based in Asia.

This information is purely general and does not constitute professional advice. This article should not be seen as an endorsement of a particular approach, strategy or plan. Investors, both private and corporate, should consider all advice and disclosure documents before making any business or investment decisions.

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