Tax treaty may impact foreign beneficiary
QI have an IRA with Vanguard worth some $290,000. I designated a foreign national as my beneficiary, and have heard all kinds of advice as to what's needed for him to claim the account when I pass on. Supposedly, a death certificate must be sent to Vanguard. I'm also told he will need to complete and send a tax form to the company. Will he be able to keep the fund intact and continue to earn money under the guidance of my present financial adviser? Vanguard says he has a choice: to continue taking money out if I have a prearranged withdrawal program, or take it out in one lump sum. What are the taxation effects on any withdrawal?
R.O., via e-mail
A"To the extent that there is a tax treaty between the nation where your beneficiary lives and the US, your beneficiary can be subject to taxes up to 30 percent of the total amount in the account," says Gary Schatsky, an attorney and fee-only financial planner in New York.
Ask Vanguard to check on whether such a treaty exists. Your beneficiary will, as Vanguard has apparently told you, have to forward a copy of your death certificate, plus complete and forward tax form W8.
Whether any estate taxes are linked to the inheritance depends on the amount of the estate. For single taxpayers, no taxes are currently assessed on estates valued $675,000 or less, Mr. Schatsky notes.
As for the management of the funds, the beneficiary can continue to use your present financial adviser. Schatsky adds that he can choose to roll over the funds to another adviser.
QI was recently laid off. I worked for the company for a little over one year, so my 401(k) plan isn't substantial. I'd like to roll it over, and I am considering an IRA.
But is it possible to roll it into a 529 college savings plan for my daughters?
C.P., via e-mail
A"You cannot roll over assets from a 401(k) plan or an IRA into a 529 college savings plan," says a broker with investment house Gruntal & Co., in New York. "You would first need to liquidate your 401(k) or IRA, and then make a cash infusion into the 529 plan," he says.
But be warned: If you cash out the 401(k), you're likely to incur taxes and a penalty. "I would not normally recommend such a course of action," the broker says.
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