US IRA distribution on death - to US and UK beneficiaries
Jun 30th 2015, 7:41 pm
#1
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Joined: Feb 2012
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US IRA distribution on death - to US and UK beneficiaries
Would very much welcome any advice/insight on this question. I learnt an enormous amount from this Forum when planning my return to the UK, but have not seen this particular question addressed.
Have been back retired in UK now 2 years after 35+ years around the world, much of which was based in the USA, with US salary while I was working, Social Security and an IRA. Get my Social Security paid into UK bank account (wonderful service), and take an annual distribution from my IRA, all declared and tax paid in the UK as per regs. I was green card holder, which I have officially relinquished; my wife is joint US/UK citizen.
With the IRA, my wife is designated as the primary beneficiary, and my two sons (one lives in USA, the other in the UK) as 50/50 beneficiaries if she predeceases me. I understand that an IRA distribution on death does not count in any US estate for tax purposes - and the current value alas is less than the current US estate tax threshold anyway. I believe however that income tax would be payable by the estate on the IRA distribution before it is split between my beneficiaries. (The IRA is my only remaining asset in the USA). I understand (hope?) that there would be a relatively easy path to my US son receiving his 50%, but am not sure what complications there might be in getting the other 50% to my UK son. On a basic level the investment company cannot pay my annual distribution directly into my UK account - it goes into joint US bank account we left open. Assuming the payment route question can be resolved, are there other complications I should be aware of, and try to plan around, especially related to to the IRS ? Are there any advantages in adjusting the beneficiary designations ?
Apologies in advance for my rather simplistic knowledge of the regulations surrounding this question, and thanks in advance for any advice anyone can give me. (My fingers, toes, arms, legs and other appendages (nameless) are crossed in the hope that Nun for one will see this posting).
Have been back retired in UK now 2 years after 35+ years around the world, much of which was based in the USA, with US salary while I was working, Social Security and an IRA. Get my Social Security paid into UK bank account (wonderful service), and take an annual distribution from my IRA, all declared and tax paid in the UK as per regs. I was green card holder, which I have officially relinquished; my wife is joint US/UK citizen.
With the IRA, my wife is designated as the primary beneficiary, and my two sons (one lives in USA, the other in the UK) as 50/50 beneficiaries if she predeceases me. I understand that an IRA distribution on death does not count in any US estate for tax purposes - and the current value alas is less than the current US estate tax threshold anyway. I believe however that income tax would be payable by the estate on the IRA distribution before it is split between my beneficiaries. (The IRA is my only remaining asset in the USA). I understand (hope?) that there would be a relatively easy path to my US son receiving his 50%, but am not sure what complications there might be in getting the other 50% to my UK son. On a basic level the investment company cannot pay my annual distribution directly into my UK account - it goes into joint US bank account we left open. Assuming the payment route question can be resolved, are there other complications I should be aware of, and try to plan around, especially related to to the IRS ? Are there any advantages in adjusting the beneficiary designations ?
Apologies in advance for my rather simplistic knowledge of the regulations surrounding this question, and thanks in advance for any advice anyone can give me. (My fingers, toes, arms, legs and other appendages (nameless) are crossed in the hope that Nun for one will see this posting).
Jul 1st 2015, 4:35 am
#2
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Joined: Jun 2008
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Posts: 10,678
Re: US IRA distribution on death - to US and UK beneficiaries
Prior to distribution of a traditional IRA, the beneficiary has a choice to rollover the IRA into an inherited IRA or to pay taxes on the distribution as normal income. If your UK son is not a USC or LPR, then it is likely that the taxes have to be paid on distribution. Your wife and US residing son should be able to roll it over into an inherited IRA.
How to rollover an inherited IRA - CBS News
How to rollover an inherited IRA - CBS News
