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The IRA income will be classified as "ordinary" income which is just like employment income, taxed at the same tax rates.
But it won't be eligible for offset by the Foreign tax credit.
The foreign tax credit is based off of your "foreign" income. The IRA income is U.S. sourced (not foreign) therefore it will not provide for a higher foreign income tax credit.
Something happened to our chat.
but the key question is whether I can reduce my tax liability by using the Foreign Tax Credit, or can I only use it to offset foreign source income? - The foreign tax credit will only be provided on foreign income. You will not get a credit on the IRA income. Basically you are stuck with the 10% early withdrawal penalty on the IRA as well as federal taxes. But at least there will not be state taxes.
Glad I could help. I don't think the accept has gone through yet,
Have a great weekend. :)
Oh yes it has - thanks!