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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 13340
Experience:  15years with H & R Block. Divisional leader, Instructor
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I have a question on the possible taxes owed on a lump sum

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I have a question on the possible taxes owed on a lump sum distribution from an inherited IRA. I am a non resident alien (Mexican Citizen) and last year I inherited an IRA worth $29,000 which I had transferred to my account in Mexico. I was told by Fidelity investments that they were required to withold the applicable taxes before transferring these funds to Mexico however they did not withhold anything? I did file tax form W8-BEN at the time my question is do I need to file a U.S. tax return, and if so what form should I use, any idea how much tax (if any) would be applicable ? Thanks.

Robin D :

Hello and thank you for using Just Answer,
If you are a non resident of the US you would file form 1040NR. The distribution from the IRA would be taxable to you if the deceased had no basis in the IRA (contributions already taxed) and the IRA was a Traditional IRA and not a ROTH.
Your filing the form W8BEN is most likely the cause of their not withholding any amounts.
I can check and see if the tax treaty between Mexico and the US has a lower rate of tax on the IRA distribution if you would like.

Robin D :

ARTICLE 19
Pensions, Annuities, Alimony, and Child Support
1. Subject to the provisions of Article 20 (Government Service):
a) pensions and other similar remuneration derived and beneficially owned by a resident
of a Contracting State in consideration of past employment by that individual or another
individual resident of the same Contracting State shall be taxable only in that State\

Robin D :

Please respond so I know you were able to view the posted answer.

Customer:

It was a traditional IRA not sure if the contribution was taxed?

Robin D :

The only way you could find out would be to check on the decease's past tax returns. They would have a Form 8606 showing that they made contributions but could not deduct them.

Robin D :

It is not rare but most eople do not make the contribution in the Traditional if they cannot deduct

Robin D :

Did you need more info on this subject?

Customer:

Ok unfortunatley I dont have access to these, would you suggest I file using 1040NR any idea how much tax would be owed?

Robin D :

Yes, I advised you would need to report the payment on 1040NR.

Customer:

Any idea how much tax would be applicable?

Robin D :

Most types of U.S. source income received by a foreign person are subject to U.S. tax of 30%.

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