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I'm a US citizen living outside the US (in the UK). I

I'm a US citizen living...
I'm a US citizen living outside the US (in the UK). I inherited a Vanguard IRA account about four months ago. Vanguard has now written to me stating that because I have a foreign address, it requires me to complete a Form W-9 to certify my US tax status. This is not a problem and I will do so. Vanguard goes on to state that the IRS is required to withhold 10% federal income tax on all IRA distributions delivered outside the US to US citizens and will do so on all future distributions.
(1) If I have checking account in the US and have the IRA distributions sent to that account, would the 10% federal income tax still be withheld? (i.e. the distribution would be delivered to an account inside the US, not outside.)
(2) Assuming that 10% federal income tax IS withheld, could I potentially recover that money when filing my US tax return (or some other form), or have I lost that 10% to Uncle Sam for good?
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1/2/2017
Barbara
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 6,671
Experience: 20+ years of experience in tax preparation; 30+ years of experience as a real estate/corporate paralegal.
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Distributions from inherited IRAs are usually taxable regardless of whether you live in the U.S. or not.

You will report the distribution and taxes withheld on your U.S. tax return. Vanguard will provide you with a 1099-R detailing this information.

The following links contain excellent information you will find helpful:

https://www.fidelity.com/viewpoints/retirement/non-spouse-IRA

https://www.irs.gov/publications/p590b/ch01.html

Please let me know if I can assist you further.

Thank you and best regards,

Barb

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Customer reply replied 1 year ago
Thanks for your reply. Let me see if i understand this correctly. Firstly, because I am a US citizen and my home address is outside the US, I cannot choose exemption from withholding on distributions (as per your second link), so I am stuck paying 10% withholding. Correct? Secondly, I will receive a 1099-R from Vanguard in respect to any distributions/tax. I would then report distribution and tax withheld on my US tax return, which for a 1040 (2016) would be line 15a (distribution) and line 64 (tax withheld). Correct?

The withholding has nothing to do with your address being outside of the U.S. Distributions from IRAs, inherited or otherwise, are subject to taxation.

As to the entries on your 1040, you are correct. When you file your tax return for 2016, you may find that you are entitled to a refund when all of your income and taxes withheld are included.

Make sense?

Barbara
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 6,671
Experience: 20+ years of experience in tax preparation; 30+ years of experience as a real estate/corporate paralegal.
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Thank you for the positive rating of my answer. It is very much appreciated.

Best wishes to you and your family for a Happy, Healthy, and Prosperous New Year!

Barb

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