Inheriting an IRA or 401(k) from across the border
Canadian residents can be named beneficiaries of U.S. retirement accounts, and often are. Amanda’s case shows the nuances, and how the tax can be deferred for ten more years.
Canada and the U.S. share one of the world’s longest land borders, so it should come as no surprise that people move across it routinely. They often establish roots in one country, and sometimes the next of kin decide to move for employment or family reasons. You may be surprised to know that Canadian residents can be named beneficiaries of U.S. IRAs and retirement accounts; this is very common. There are, however, a few nuances, and the case below shows how a cross-border advisor can help.
The background: a beneficiary designation
Jack is a senior executive who built a successful career in the U.S. Widowed many years ago, Jack chose not to remarry. With no children, he named his niece Amanda as the beneficiary of his retirement accounts. Amanda is a Canadian citizen who had only ever visited the U.S. as a tourist.
The issue: a beneficiary IRA
Jack suddenly and unexpectedly fell ill and passed away. Amanda, while grieving, learned that her uncle had named her as the beneficiary of his IRAs. She was puzzled to discover that, as a non-U.S. resident, her uncle’s financial advisor and institution were unable to work with her in any capacity. Given the size of the IRAs, Amanda was rightly concerned about the tax she would pay if she had to liquidate and close the accounts.
The solution: cross-border financial advisors
Financial advisors licensed in both the U.S. and Canada can help. Amanda was surprised to learn that even though she is not an American citizen, she can be named the beneficiary of a U.S. retirement account and spread the withdrawals, and the tax on them, over up to ten years after the year of death under the SECURE Act’s ten-year rule. If the account owner had already reached the age for required minimum distributions, the beneficiary must also take annual withdrawals during those ten years under IRS rules that took effect in 2025. Amanda can now rest easy knowing that her advisors can create a disciplined investment strategy and comprehensive financial plan that considers her cross-border assets and the tax complications of inheriting U.S.-based assets.
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Chris is a cross-border financial advisor licensed in both Canada and the United States. He helps Americans moving to Canada and Canadians moving to the U.S. keep their retirement accounts intact and build one plan that covers both sides of the border. He writes for Cross Border Wealth in his personal capacity.
Disclosure: Chris writes in his personal capacity; his views do not represent any firm he is associated with. Cross Border Wealth does not provide advisory services. If you need advice, use the Get connected form and we will introduce you to a licensed professional.