Inheriting a US IRA as a Non-Resident Alien
When a non-resident alien (NRA) inherits a US Individual Retirement Account, the tax treatment differs significantly from domestic beneficiaries. Instead of US income tax brackets, NRA beneficiaries face a flat withholding tax — typically 30% of each distribution — unless a tax treaty provides a lower rate or full exemption.
The SECURE Act 10-year rule applies equally to NRA non-spouse beneficiaries: the inherited IRA must be fully distributed by December 31 of the 10th year after the original owner's death. The difference is purely in how the distributions are taxed.
How Tax Treaty Withholding Works
The United States has income tax treaties with over 60 countries. Many of these treaties include provisions for pension and IRA distributions that reduce or eliminate the default 30% withholding rate for NRAs. The treaty rate varies by country:
- 0%, lump sums included: Germany, Japan, China, Netherlands, Switzerland, Spain, Ireland, Portugal, Sweden, and Italy (not settled for heirs; see the treaty note)
- 0% on yearly withdrawals, 30% on a single lump sum: United Kingdom, India, Australia, South Korea, Israel, Norway. These treaties cover periodic payments, so taking the whole balance at once loses the exemption.
- 15% on yearly withdrawals, 30% on a lump sum: Canada
- Mexico: 0% only if the person who left you the IRA lived in Mexico; if they lived in the US, 30%
- No reduction (30%): France, whose treaty leaves US pension distributions to US tax
- 30% (no treaty): Countries without a US income tax treaty — for example Brazil, which has a Social Security totalization agreement with the US but no income tax treaty
The ITIN Requirement
To claim treaty benefits, an NRA beneficiary must have an Individual Taxpayer Identification Number (ITIN), or give the tax ID from your country of residence, on IRS Form W-8BEN filed with the IRA custodian. Without either, the custodian withholds the default 30% rate, regardless of any applicable treaty.
Applying for an ITIN requires IRS Form W-7, along with proof of identity and foreign status. The application process can take 7 to 11 weeks. Planning ahead is critical — apply for the ITIN before requesting distributions to avoid unnecessary overwithholding.
Inherited Roth IRAs for Non-Resident Aliens
Inherited Roth IRAs offer the same tax-free treatment to NRA beneficiaries as they do to US residents. Qualified distributions from an inherited Roth IRA are not subject to US withholding tax, regardless of the beneficiary's country of residence or NRA status. The 10-year distribution rule still applies — the account must be emptied by the deadline — but every dollar withdrawn is free of US tax.
Common Mistakes for NRA Beneficiaries
- Not filing Form W-8BEN with a taxpayer ID before distributions. Without your home-country tax ID or a US ITIN on the form, the custodian withholds 30% even if a treaty provides 0%. Recovering the overwithholding requires filing a US tax return (Form 1040-NR), which is slow and costly.
- Assuming treaty rates apply automatically. Treaty benefits are not automatic. You must file Form W-8BEN with the custodian and certify your treaty country of residence.
- Ignoring home-country taxes. The US withheld amount may be creditable against taxes in your home country, but not always fully. Consult a tax advisor in both countries.
- Missing the 10-year deadline. The 25% excise tax for missed distributions applies to NRAs just as it does to US residents. Track the deadline.
Frequently Asked Questions
Do non-resident aliens pay taxes on inherited IRAs?
Yes. NRA beneficiaries of US traditional IRAs are subject to withholding tax on distributions — 30% by default, or a reduced treaty rate. Roth IRA distributions are generally tax-free regardless of NRA status.
Does the 10-year rule apply to non-resident alien beneficiaries?
Yes. The SECURE Act 10-year rule applies to NRA non-spouse beneficiaries. The inherited IRA must be fully distributed by December 31 of the 10th year after the owner's death.
What is the withholding rate on inherited IRA distributions for non-residents?
The default rate is 30%. Tax treaties may reduce this — for example, UK and Germany residents may qualify for 0% on yearly withdrawals, while Canadian residents pay 15%. Some treaties, the UK's and Canada's among them, do not cover a single lump sum, which is withheld at 30%. Form W-8BEN with your home-country tax ID or a US ITIN is required to claim treaty rates.
Do I need an ITIN to inherit a US IRA?
You do not need an ITIN to inherit the account, and you can claim a treaty rate with the tax ID from your country of residence instead. Without either on Form W-8BEN, the custodian withholds at 30% regardless of treaty eligibility.