IRA Rules

Posts Tagged ‘irs rules on ira distributions’

Question: How do I resolve UK tax payment on a US IRA cash distribution?

I am a UK national residing in UK. I lived in the US for 8 years some years ago and worked as full US tax payer under standard tax payer conditions. During that time I commenced and paid into an IRA.

In December 2009 I needed some money to pay for some legal fees related to child support and visitation in befenit of issues relating to my son who resides in the US with his Mother. The dispursement was paid into my US bank account and I was sent a 1099-R by the Trust managing the IRA. The amount shown in Box 1 “Gross distribution” is the total amount received, 2a is empty and 2b is checked “taxable amount not determined.”

Two questions: Is the full amount probably fully taxable under US/UK treaty rules and how should it be declared on income assessment? Given I am in UK and therefore not subject to US tax, is there anyway the US IRS 10% penalty for early distribution can apply?

Thanks and regards.

Answer: IRA money is considered US-connected income.

The money needs to be reported on a 1040-NR on page 1, on line 16a and 16b.

Unless you made post-tax contributions, the entire amount is taxable as income. You will be allowed a $3650 exemption. If you are younger than 59.5 years of age, you will also be charged a 10% penalty.

The taxes you pay to the US can possibly be deducted on your UK return.

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