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That time of year again where I am adding to my IRA. I remember there being some special rules for IRAs in regards to foreign stocks? I think it was something like if it's a dividend payer those dividends are taxable? If I buy a ADR without a dividend there will be no issues?
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First, the standard disclaimer: I'm not a tax expert, so you'll want to check with your tax advisor.

That said, if you hold a foreign dividend payer in a taxable account and the foreign country requires the company to withhold taxes on the dividend (e.g., Canada does this at a 15% rate, but not all countries require the withholding), then (in most cases, depending on the country) you're able to claim a foreign tax credit for the withheld taxes when you file your US tax return, which keeps you from being taxed twice on the same income (i.e., by both the foreign jurisdiction and the US).

If you hold the same dividend payer in your IRA, the company still withholds the taxes on the dividend, but you can't claim the credit for the withheld taxes (because US taxes on the dividend are deferred until you take a distribution), which effectively lowers your dividend yield.

Huk
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If you hold the same dividend payer in your IRA, the company still withholds the taxes on the dividend, but you can't claim the credit for the withheld taxes (because US taxes on the dividend are deferred until you take a distribution), which effectively lowers your dividend yield.

Does the provider of the IRA take care of this automatically? Or do I have to fill out extra paper work?

What about non-dividend ADRs? Thanks.
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You have no extra paperwork with stocks in an IRA. If its a foreign stock, you pay taxes on the dividends with no tax credit back. If its an American stock, the dividends are tax free. It is simply better tax-wise to have the American dividend payers in your IRA and the foreign dividend payers in your regular stock account.

-John T
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Does the provider of the IRA take care of this automatically? Or do I have to fill out extra paper work?

Your broker takes care of it. The dividend shows up as a credit to your account, and the withholding tax shows up as a debit from your account.

What about non-dividend ADRs?

I'm not sure I understand the question that you're asking. Non-dividend ADRs can certainly be held in IRAs, and there are no complications that I'm aware of.

Huk
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I'm not sure I understand the question that you're asking. Non-dividend ADRs can certainly be held in IRAs, and there are no complications that I'm aware of.

Yea, you answered it. Just a simple question because I couldn't remember what was different with the foreign stocks in the IRA and searching online provided mixed results.
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