If you inherit an IRA (Individual Retirement Account), you may be tempted to simply withdraw the funds and put them into your own name. But if you do, you would possibly be making a big mistake. Instead, you should transfer the money into a “beneficiary IRA” account.
Money in an IRA is tax-deferred in America, meaning that any interest, dividends, and capital gains inside the account are not subject to U.S. taxation. Once you withdraw the money or move it overseas, you’ll probably owe money to the IRS. So by asking the brokerage firm to set up a “beneficiary IRA” for you, and moving the assets directly from the deceased’s IRA account into a beneficiary IRA in your name, you can continue to benefit from the tax-deferred status. Make sure to speak with an Israeli accountant to determine what tax obligations you may have in Israel.
Can I open a beneficiary IRA from Israel?
Many Americans living outside the United States find that brokerage firms are not willing to set up an account for them, due to restrictions imposed by strict anti-money laundering legislation. But this does not apply to all companies.
Besides keeping the American tax-deferred status of your inheritance, there are many advantages to having an American brokerage account. For example, U.S. markets are among the most efficient and investor-friendly in the world. You can also diversify easily through the various investment vehicles that a U.S. brokerage account offers, and having this type of account makes U.S. tax reporting a lot easier.
If you are interested in finding out more about opening a beneficiary IRA account to deal with an inheritance (especially if you inherit an IRA) or any other issue concerning American brokerage accounts, read profile-financial.com/ira, or call 02-624-2788 and let’s review your situation.
Douglas Goldstein, CFP®️ is the director of Profile Investment Services, Ltd. www.Profile-Financial.com He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation on how to set up your American assets to meet your financial goals. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates. Neither PRG nor its affiliates give tax or legal advice.
Published November 1, 2016. Updated February 2020