Inherited Roth IRA - help!

Hi, I'm a US/UK dual citizen living in the UK who has inherited at Roth IRA from a parent. I now have to do something with it and put it into my name. It has been in some sort of real estate fund. Can anyone suggest how/where to invest this Roth IRA so I will not be crucified by UK taxes? I know a US mutual fund is a bad idea but what else can I do? Thanks for any help!

As far as I'm aware since it is a ROTH IRA you will not owe any taxes in US or UK now or when you make withdrawals.  Also, since it is an IRA you can invest the money in mutual funds if you like, HMRC are not interested in investment funds within IRAs, 401ks etc.

I have IRA's (traditional and ROTH) and intend to leave the money invested in mutual funds when I return to the UK in a couple of years.  I'm in the process of converting my other non-IRA mutual funds to ETF's before I move.

Concur. No UK tax will be due. You should transfer the assets into an "Inherited Roth IRA" held in your name and invest in US-based mutual funds (ideally from Vanguard), which are far better investment products than anything available in the UK.

Also, do some reading and familiarise yourself with the Required Minimum Distribution rules that apply when inheriting a Roth IRA from someone other than a spouse. You need to take the RMDs each year to avoid any issues with the IRS.

+1 on Vanguard, and they will be able to arrange the correct RMD's each year although I would also encourage you read up on the rules ahead of time.  Inherited IRAs have different rules than regular IRAs.


http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics---Required-Minimum-Distributions-(RMDs)

Individual beneficiaries other than a spouse can:
withdraw the entire account balance by the end of the 5th year following the account owner’s death, if the account owner died before the required beginning date, or
calculate RMDs using the distribution period from the Single Life Table based on:
If the owner died after RMDs began, the longer of the:
beneficiary’s remaining life expectancy determined in the year following the year of the owner’s death reduced by one for each subsequent year or
owner’s remaining life expectancy at death, reduced by one for each subsequent year
If the account owner died before RMDs began, the beneficiary’s age at year-end following the year of the owner’s death, reducing the distribution period by one for each subsequent year.

See Publication 590, Individual Retirement Arrangements (IRAs), for details on calculating required distributions for beneficiaries.

Thank you both. That's great news and I will make sure to take the required distributions each year. Just one more question please. Why do you recommend Vanguard for this? All things being equal I'd like to leave the investment where my parent had it - with TIAA-CREF. Is that a bad idea? Thanks.

I mentioned Vanguard because they offer the best selection of index funds at the lowest cost and because they are one of the easier providers to deal with if you have a foreign address. If you search this board you'll find a lot more discussion about Vanguard specifically for expats, or else try Bogleheads for discussion of Vanguard in general. I don't have any experience with TIAA-CREF firsthand so I can't say if they are better or worse than Vanguard, but if you're happy with them, by all means stay with them. You can always roll the IRA over to another provider if you change your mind later.

I mentioned Vanguard because they offer the best selection of index funds at the lowest cost and because they are one of the easier providers to deal with if you have a foreign address. If you search this board you'll find a lot more discussion about Vanguard specifically for expats, or else try Bogleheads for discussion of Vanguard in general. I don't have any experience with TIAA-CREF firsthand so I can't say if they are better or worse than Vanguard, but if you're happy with them, by all means stay with them. You can always roll the IRA over to another provider if you change your mind later.

I agree entirely, if you are happy with TIAA-CREF and already have a relationship with them then by all means stick with them.  I only have experience with Vanguard, Fidelity and Schwab and they have all been very good, but as mentioned above Vanguard have a big range of very low cost index funds.

Ok, great, thanks. I guess I will check with them to see if they're happy to deal with Americans living abroad and then decide. Thanks again for replying

Ok, great, thanks. I guess I will check with them to see if they're happy to deal with Americans living abroad and then decide. Thanks again for replying

aye, there's the rub....

Establishing a new account without having a US address may be the limiting factor in choosing a firm.

aye, there's the rub....

Establishing a new account without having a US address may be the limiting factor in choosing a firm.

I suspect the OP will need a US address that can be used temporarily to open the account, no matter which firm. It should be fine to use a friend or relative's address (with permission, of course!)

Many firms will allow the address to be changed afterwards. Schwab was the exception in my experience - they insisted on closing my account and opening a new account with their international division. Vanguard was the easiest since I could change my address online immediately after account opening.

I have a new question regarding this inherited Roth IRA. Does anyone know if my UK (non-US) husband would be able to inherit it tax free if I make him my beneficiary? Or would it be safer to name my US/UK dual children as the beneficiaries? Thanks to anyone who might have a clue!!!!

With your inherited ROTH you have to take minimum distributions each year based on your age or withdraw the whole amount within 5 years.

There's nothing to stop your spouse or children inheriting the ROTH tax free, but I don't now about the distribution rules of an inherited-inherited ROTH IRA. Maybe your spouse just has to maintain the distribution schedule you were on and the children would have to take minimum distributions based on their ages.