US Retirement Plans & Foreign Beneficiaries

Many US expats have qualified retirement plans such as a 401(k) or IRA. One question I heard quite often is: “Can I name someone who lives in a foreign country as the beneficiary of my IRA?” In other words, what happens if my spouse or my beneficiary is not a US-citizen? Can my non-citizen spouse own or inherit an IRA? This is a great question.

Foreign Beneficiaries of IRA Plans

With the world economy becoming more global, more and more Americans move to a foreign country to live or work. Correspondingly, there are more and more non-US citizen working in the US with qualified retirement plans, and many of these individuals have beneficiaries residing in foreign countries.

“Can I name someone who lives in a foreign country as my IRA beneficiary?”

The answer is yes, you can. You can designate anyone that lives in any country as the beneficiary of your IRA.

“What happens if my spouse, or the beneficiary of my IRA, is not a US-citizen?”

Non-US citizen spouses and beneficiaries can inherit and own an IRA just like a US-spouse or US-beneficiary. They have the same options as US beneficiaries. They can take the inherited IRA in a lump-sum distribution, or they can roll it over to a stretch IRA to lengthen the IRA distribution payment. Spouse beneficiaries also have the option to roll over inherited funds into an IRA in their own name, and the additional option not to distribute the funds.

Beneficiary Conversions & Distributions

The account owners cannot move US retirement accounts to foreign retirement accounts in foreign countries they reside, or vice versa. The reason being is that foreign retirement accounts are not recognized under the US tax code as qualified retirement plans. Only the retirement accounts governed by the specified sections of the code can be moved to other retirement accounts also organized by the code.

With regards of taxation on the retirement fund distribution for foreign beneficiaries, in general there will be a mandatory tax withholding of 30% at the time of distribution. There is an exception to that 30% withholding requirement: the beneficiaries are able to provide valid documentation that the recipient is a US person or a foreign person entitled to a rate of withholding lower than 30%.

If you need any assistance with tax planning, preparation, or resolving existing issues, contact us. We can help. Call us at 888-727-8796 or email info@irsmedic.com.