Can a Non-US Spouse Inherit a 401(k) or IRA?

A non-US spouse can potentially inherit a 401(k), IRA, Roth IRA or other US retirement account, but the planning position should be reviewed carefully.

A review should usually consider:

• whether the account is a 401(k), IRA, Roth IRA, TSP, 403(b), 457(b) or employer retirement plan
• whether the spouse is the sole beneficiary
• whether the spouse is a US citizen
• whether the spouse is a green card holder
• whether the spouse is a US tax resident
• whether the spouse is a nonresident alien
• whether the spouse has a US tax identification number
• whether the spouse lives outside the United States
• whether the provider can service a foreign address
• whether the account is inherited directly or through a trust or estate
• whether a spousal rollover is available or appropriate
• whether an inherited IRA can be established
• whether RMD rules apply
• whether the 10-year rule applies
• whether US withholding applies
• whether Form W-8BEN or W-9 is needed
• whether treaty treatment is available
• whether local tax applies
• whether the account currency matches the spouse’s future spending
• whether the beneficiary form matches the wider estate plan

IRS Publication 590-B says that if you are the surviving spouse of an IRA owner and the sole designated beneficiary, you can elect to treat the inherited IRA as your own.

However, the planning can be more complicated where the surviving spouse is not a US person, lives abroad or cannot easily access a US custodian.

The practical point is simple.

A non-US spouse beneficiary plan should be reviewed before death, not after the surviving spouse is forced to deal with US retirement account paperwork at a difficult time.

Most retirement account beneficiary forms are simple to complete.

The complexity appears later.

A non-US spouse may inherit the account, but then face questions such as:

• can the custodian open or maintain the inherited account?
• will a foreign address be accepted?
• does the spouse need a US tax identification number?
• should the spouse complete Form W-8BEN or Form W-9?
• what withholding applies to distributions?
• can treaty benefits reduce withholding?
• does local tax also apply?
• can the spouse roll over the account?
• should the spouse keep it as an inherited account?
• do RMDs apply?
• does the 10-year rule apply?
• should distributions be taken gradually or as a lump sum?
• what currency should withdrawals be converted into?
• how should the account be invested?
• does the will say the same thing as the beneficiary form?
• does the spouse have enough liquidity before the account is accessible?

This is where poor planning can create pressure.

The surviving spouse may be dealing with grief, probate, tax forms, foreign address documentation, currency transfers and unfamiliar US retirement account rules at the same time.

The goal is to make the account inheritance as clear and manageable as possible before it is needed.

That usually means checking beneficiary forms, estate planning documents, provider rules, withholding, local tax and survivor cash flow in advance.

This page is for general information only and does not constitute personalised financial, tax, legal, estate planning, retirement, pension, beneficiary, inheritance, withholding, investment, US tax, local tax, treaty or currency advice.

401(k), IRA, Roth IRA, TSP, 403(b), 457(b), inherited accounts, spouse beneficiaries, non-US spouses, nonresident aliens, RMDs, rollovers, withholding, Form W-8BEN, Form W-9, Form 1099-R, treaty treatment, account access, custodian rules, foreign addresses, estate planning, local tax, wills, trusts, currency and future residence depend on personal circumstances and may change.

US tax advice should be taken from a suitably qualified US tax adviser or CPA. Estate planning, legal, probate, trust and local tax advice should also be taken from appropriately qualified advisers in each relevant jurisdiction.

Financial planning should be coordinated with legal, tax, trust, estate, pension, investment and insurance advice where appropriate.

Do not rely on general information when choosing retirement account beneficiaries, completing tax forms, preparing estate documents or making inherited account decisions.

Investing involves risk. Pension, retirement account and investment values can fall as well as rise, and you may get back less than you invest.

Currency movements can affect the value of inherited accounts, withdrawals, tax liabilities, estate values and future spending.