1040NR and Traditional IRA

I have searched the forum for similar circumstances but cannot find anything.

I am a UK citizen resident in the United Kingdom.

Many years ago (2000 - 2006) I lived in the US and contributed to a Traditional IRA.

I am of an age that I now wish to take a distribution from the IRA as a lump sum in this tax year. The IRA is held with Vanguard and my understanding is that Vanguard will withhold 30% of the funds.

Questions:

1. Am I entitled to reclaim any or all of the 30% withholding from the IRS?
2. My understanding is I am required to complete a 1040NR. As this distribution (other than my monthly Social Security payments, taxed in UK) will be my sole income from the US what line numbers (using the 2022 1040NR form as an example) will I have to complete to fulfill this requirement? As best as I can make out it is 4b and 25b.

I would appreciate any advice.

Thank you.

We do not know the US visa status, but assuming you are a non-resident alien and you take a complete distribution, the payment will be bifurcated by you between the segment that is taxed as ECI and the segment that is reported as NEC on Schedule NEC when the US tax return is prepared. Only part of the distribution is reported on page 1 of Form 1040-NR.  Any tax withheld is never the final liability.

Thank you for your prompt response. I figured it couldn’t be that easy!

I am a non resident alien.

If by ECI you mean Effectively Connected Income my understanding is that only relates to business activities? How does that relate to IRA disbursement.

Regardless, how do I determine what these figures are.I.E. ECI and NEC?

You state “Any tax withheld is never the final liability.” Could it be the case I will owe in excess of the 30%?

Thank you once again for your assistance.


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Thank you for your prompt response. I figured it couldn’t be that easy!

I am a non resident alien.

If by ECI you mean Effectively Connected Income my understanding is that only relates to business activities? How does that relate to IRA disbursement.

Regardless, how do I determine what these figures are.I.E. ECI and NEC?

You state “Any tax withheld is never the final liability.” Could it be the case I will owe in excess of the 30%?

Thank you once again for your assistance.


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I am guessing that guya is referring to Non Employment Compensation (NEC)  although I don’t know how it applies in your case, I would expect Vanguard to send you a 1099-R when you withdraw funds from your IRA.

https://www.irs.gov/pub/irs-pdf/f1099nec.pdf

and  ECI is as you say, connected to trade or business  conducted by a foreign person in the USA and you haven’t said what you were doing in the USA during the period you contributed to your IRA. (Were you working a regular job with pay reported on a W2 or something else to earn income to qualify you to be able to make contributions to an IRA)


I have no idea what tax you will owe withdrawing a lump sum from your IRA but I expect it will be a lot less than 30%.

Many thanks for your response. Yes, I was in regular employment receiving a W2.


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Many thanks for your response. Yes, I was in regular employment receiving a W2.


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I am NOT a tax expert and am a USC living in the UK so my circumstances are different, but I would expect that your suggestion that you file a 1040NR is correct and you would complete line 4a and 4b, as the 1099R hopefully will show how much is taxable, probably 100% (i. e. 4a=4b) unless it was a non-deductible IRA in which case there will be a non-taxable basis. You would also complete line 25 showing how much tax was withheld.

Thanks. I tend to agree but will investigate further.


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I think this recent discussion on Reddit might be helpful.



The Reddit situation deals with a 401(k), but an IRA should be similar.

You will likely receive a 1042-S, rather than a 1099-R.  Only US persons are supposed to receive 1099s.