Retirement Accounts across Borders: IRAs, 401(k) Plans and Foreign Pensions
Distributions from US retirement accounts to payees abroad, the treaty articles that decide where they are taxed, inherited accounts with foreign beneficiaries, and the account in the estate of a nonresident.
Law stated as of October 2026
In brief.
- A distribution from a US plan or IRA to a nonresident alien is taxed at a flat 30 percent of the includible amount, withheld by the custodian, unless a convention reduces the rate.
- The reduced rate requires Part II of Form W-8BEN, naming the article and paragraph. A tax identification number issued by a treaty country is accepted in place of an ITIN.
- Under many conventions only the country of residence may tax a periodic pension; the convention with Switzerland assigns pensions and annuities to the State of residence.
- A designated beneficiary who is not an eligible designated beneficiary must empty an inherited account by the end of the tenth year after the year of death, with annual distributions in years one to nine where the owner died after the required beginning date.
- An inherited account takes no basis step-up. It is income in respect of a decedent, and the section 691(c) deduction does not reduce the amount on which tax is withheld for a nonresident.
Part I. Withholding on distributions to a payee abroad
For a nonresident alien, a distribution from a qualified plan or an IRA is fixed or determinable annual or periodical income, taxed at 30 percent of the gross includible amount without deductions. The plan administrator or custodian withholds the tax as withholding agent and is liable for it. A payee documented as foreign falls under section 1441 rather than the withholding rules for US payees, and the distribution is reported on Form 1042-S. Tax withheld beyond the treaty rate can be recovered only by a return filed with the IRS within the limitation period.
Part II. The pension articles of the conventions
Which country may tax a pension depends on the income tax convention between the United States and the payee’s country of residence. The table shows the general rule for a periodic pension from a US plan; lump sums and inherited accounts can follow different rules.
| Residence of the payee | Article | Periodic pension from a US plan |
|---|---|---|
| Switzerland | Art. 18 | Taxable only in Switzerland |
| United Kingdom | Art. 17 | Taxable only in the United Kingdom; a lump sum only in the United States |
| Canada | Art. XVIII | Taxable in Canada; US tax limited to 15 percent |
| Italy and the Netherlands | Art. 18; Art. 19 | Residence country, with source-country exceptions tied to earlier US residence |
| Germany GermanyUSAlawtaxfinance.com | Art. 18 | Residence country |
| France FranceUSAlawtaxfinance.com | Art. 18 | The country where the pension arises |
Part III. Inherited accounts with foreign beneficiaries
Every distribution to a foreign beneficiary goes through the same withholding and treaty analysis; the timing follows section 401(a)(9). Ten equal annual distributions are periodic payments under the conventions reviewed, while small minimums followed by the balance in the tenth year may produce a lump sum that only the source country may tax. Where the account is payable to the estate, the proceeds are income in respect of a decedent collected by the estate and keep their character when distributed, so that the pension article governs the rate for the heir abroad.
Part IV. The account in the estate of a nonresident
No statute or regulation decides whether a US retirement account of a nonresident decedent is property situated in the United States; the prevailing analysis treats it as a claim against a US person and therefore as US-situs. Under a domicile-type convention, only the country of the decedent’s domicile may as a rule tax it. The custodian re-titles or pays out the account to a foreign estate or beneficiary only once it holds a transfer certificate, and that procedure has to be fitted into the ten-year schedule.
For the custodian and the beneficiary
- Document the payee
Form W-8BEN with Part II completed: country of residence, article and paragraph, rate, and the foreign tax identification number.
- Establish the beneficiary category
Spouse, minor child, disabled or chronically ill, not more than ten years younger, or another designated beneficiary.
- Plan the schedule against the treaty article
Annual distributions within ten years, timed so that the payments remain periodic where that matters.
- Clear the estate tax
For a nonresident decedent, the transfer certificate before the account is re-titled.
- Report
Form 1042-S for each payment, and the beneficiary’s return where tax was over-withheld.
The firm is led by attorney Caroline Esche Ashford, PhD, JD. A graduate of Columbia University Law School, her practice focuses on international estate planning and the cross-border taxation and administration of estates and trusts, including US retirement accounts held by and for persons abroad. Dr. Ashford is also licensed to practice law in Germany. She advises in French and German as well as English.
This page is general information as of the date stated and is not legal or tax advice. The application of the rules and conventions described depends on the facts of each case.