Inheriting IRA as Dual Citizen
Moderator: Mark T Serbinski CA CPA
Inheriting IRA as Dual Citizen
I have both US and Canadian Citizenship (came to Canada in the 70s). I own a house in Canada and a mobile in US (rented landed). I stand to inherit a small portion of a brother's IRA (most going to distance relatives). I am in my 70s thus a RRIF not RRSP. What is the best way to handle this re taxes? My brother said he could give me an equal dollar value of his investment account VS his IRA if that was better from a tax perspective. How can I direct his intensions? Apparently, I am identified in the IRA docs and in his will re the IRA. NOTE: I file in US and Canada.
Re: Inheriting IRA as Dual Citizen
First, your brother should probably simplify his IRA beneficiaries to 1 or 2 (if that: he could just leave it to the estate, and make any distributions in his will)
Next, like he seems to realize, he should be giving you non-IRA holdings, excluding you from the IRA pot.
The handling of inherited IRA is not made more complicated because you live in Canada: anything that is taxable on your 1040 during the required 10-year distribution, will be also taxable to the same extent on your Cdn tax return, with credit given on your Cdn rurn for any US tax.
Next, like he seems to realize, he should be giving you non-IRA holdings, excluding you from the IRA pot.
The handling of inherited IRA is not made more complicated because you live in Canada: anything that is taxable on your 1040 during the required 10-year distribution, will be also taxable to the same extent on your Cdn tax return, with credit given on your Cdn rurn for any US tax.
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Re: Inheriting IRA as Dual Citizen
Thank you taking the time to reply. I do have some questions. Why does he need to simplify to 1-2 beneficiaries? Is there a tax benefit to this or ? While I could advise him to leave the IRA to the estate, I doubt I could persuade him if it would cost him (like legal fees) to do this but if there was a reason....maybe. Basically, he dislikes change, dislikes feeling he is not the one that is in control (making the decisions).
Why would it be better for me to get non IRA holdings? He quoted an 10% on his IRA though each year that will diminish with required distribution. As he manages, to my knowledge, is own portfolio all I can assume re: the non IRA investments is that 10% of its current value is equal to the 10% of his current IRA. Whether he is living off of pension income and interests plus the IRA I do not know so 10% of investments could be variable as time goes on but he is very cautious of keeping what he has. He will not share details as you might have guessed by now.
I am unclear on your last statement (10 year distribution). Would I, in my current dual citizenship status with no IRA of my own and only a RRIF plus other investments with RBC, have an option to take the IRA monies over ten years rather than lump sum? Once again your input is greatly appreciated.
Why would it be better for me to get non IRA holdings? He quoted an 10% on his IRA though each year that will diminish with required distribution. As he manages, to my knowledge, is own portfolio all I can assume re: the non IRA investments is that 10% of its current value is equal to the 10% of his current IRA. Whether he is living off of pension income and interests plus the IRA I do not know so 10% of investments could be variable as time goes on but he is very cautious of keeping what he has. He will not share details as you might have guessed by now.
I am unclear on your last statement (10 year distribution). Would I, in my current dual citizenship status with no IRA of my own and only a RRIF plus other investments with RBC, have an option to take the IRA monies over ten years rather than lump sum? Once again your input is greatly appreciated.
Re: Inheriting IRA as Dual Citizen
I did find out the IRA is a Non Roth BTW
Re: Inheriting IRA as Dual Citizen
I find it is best to either leave an IRA to a spouse, or leave it in the estate. Listing a whole bunch of beneficiaries on an IRA will be hard to manage.
As to why you would prefer investments rather than IRA is that you will be taxed in canada on the entire IRA distribution over the following 10 years (it is MORE than simple required distribution), rather that getting essentially cash that you can se however you wish, and not taxable except for any gains YOU might make.. If he's offering you that choice, I'd take it.
As to why you would prefer investments rather than IRA is that you will be taxed in canada on the entire IRA distribution over the following 10 years (it is MORE than simple required distribution), rather that getting essentially cash that you can se however you wish, and not taxable except for any gains YOU might make.. If he's offering you that choice, I'd take it.
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Re: Inheriting IRA as Dual Citizen
Thank you for all your time. Gratly appreciated it.
Re: Inheriting IRA as Dual Citizen
I am still questioning approach. As I understand it, as one of the designated recipients of a portion of my brother's non Roth IRA, I can, as a dual (CDN and USA) Citizen qualify as Eligible Designated Beneficiary as I am within the 10 years younger category (5.5 years) of IRA Owner. We are both in our 70s and he has already started to do required annual withdrawal. As an EDB, I can take distributions over the longer of my life expectancy (not sure what that would be) maybe, according to IRS, less than 10 years but I do not know. Because of this issue, I still question whether it is better to get monies he wishes me to have via that method or better to have the same amount/ % designated in his regular investments. And, if in his regular investment account, is it preferred to have me allotted any cash vs real investments?
Re: Inheriting IRA as Dual Citizen
The fact that you may be an EDB changes little, since you are already old. Besides there are multiple inheritors you said, which goes back to the simplification suggestion.
With the IRA you are inheriting 100% taxable income (at Cdn rates, btw, and which could subject you to clawback). Always better to get money, which is not taxable until you it generates income.
With the IRA you are inheriting 100% taxable income (at Cdn rates, btw, and which could subject you to clawback). Always better to get money, which is not taxable until you it generates income.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Re: Inheriting IRA as Dual Citizen
In regards to CRA taxation of inherited IRA, from previous search on forum I read that the cra treats it as if it was your own ira, taxes you on distributions, claim tax credits on taxes paid to the irs. Seems like no other forms required telling the cra you inherited it. What about inheriting an Roth ira? Does the inheritor need to perform the election of the Roth prior to years tax filing deadline to ensure treaty benefits? Assume the original owner of the Roth who passed on already did that election filing
Re: Inheriting IRA as Dual Citizen
the Roth IRA simply becomes yours, and you follow the same IRS rules for Roth to make it fully non-taxable, as if the original owner was still alive.
I would send an election to CRA the year it becomes yours, assuming you live in Canada.
I would send an election to CRA the year it becomes yours, assuming you live in Canada.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Re: Inheriting IRA as Dual Citizen
Yeah that makes sense, especially for a new Roth account. I’m wondering about the option the brokerage company (and irs from the Cares Act) that allows just a transfer from the deceased spouse into the qualifying widow(er) already existing Roth? It technically new money going into an established account, and he/she will be a Canadian resident at the time. Election possibly needed again ?
Re: Inheriting IRA as Dual Citizen
For a surviving spouse, they can roll it into their own. It is not a contribution.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Re: Inheriting IRA as Dual Citizen
That used to be an important privilege, but I think now all recipients are treated the same.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Re: Inheriting IRA as Dual Citizen
Spouse gets rollover advantage only. Some specific rule changes but generally everyone else has 10 years to withdrawal all funds from ira or Roth. Pretty advantageous now to prolong growth, and minimize tax burden when doing inheritance planning. Btw, the inheritance ira/roth is the only exception account that Vanguard will allow Canadian residents to open. I check and confirmed that with them. You can do it also with Raymond James and other cross border companies but they tend to want a high fee, then manage your account for you for more fees. Vanguard doesn’t charge out of their ordinary fee structure. Thanks again
Re: Inheriting IRA as Dual Citizen
I believe the 10-year rule no longer applies to Rothsm since the secure act 2.0
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