Inherited IRA Rules for Expats Explained: RMDs, Penalties, and Deadlines
If you’re an American living abroad who inherited an IRA, you face annual required minimum distribution (RMD) obligations that now carry a 25% penalty for noncompliance. After waiving penalties from 2021 through 2024, the IRS began enforcing the rules in 2025, and many expats are still unaware of what they owe or when they owe it.
According to a December 2024 report from Cerulli Associates, more than $84 trillion is expected to be transferred to heirs through 2045, and inherited IRAs are among the most common vehicles. The IRS finalized regulations in July 2024 (published in the Federal Register at 89 FR 58886) confirming that most non-spouse beneficiaries must take annual distributions during the 10-year drawdown window. Key rules to know:
- 10-year rule: Most non-spouse beneficiaries who inherited an IRA from someone who died in 2020 or later must empty the account within 10 years
- Annual RMDs required: If the original owner had already reached RMD age (currently 73) before death, you must take annual distributions in years 1 through 9 and empty the account by year 10
- 25% penalty for missed RMDs: Reducible to 10% if corrected within two years by filing Form 5329
Inherited an IRA While Living Abroad? Know the Rules First
Here’s how inherited IRA rules work, what’s different for expats, and how to build a tax-efficient distribution strategy from abroad.
What Is an RMD and Why Does It Matter for Inherited IRAs?
A required minimum distribution (RMD) is the minimum amount you must withdraw from certain retirement accounts each year. For your own retirement accounts, RMDs typically start at age 73 (or 75 if you were born in 1960 or later). When you inherit an IRA, different rules apply because the IRS wants to ensure inherited retirement money doesn’t stay tax-sheltered indefinitely.
Your RMD amount is calculated by dividing the prior year’s December 31 account balance by a life expectancy factor from IRS Publication 590-B. Your IRA custodian may calculate this for you, but you are ultimately responsible for taking the withdrawal. Miss it, and you face a 25% excise tax on the shortfall.
For expats, RMDs create an extra layer of planning because these withdrawals are taxable in the U.S. and may be taxable in your country of residence. The interaction between U.S. and foreign tax obligations on the same distribution requires careful coordination.
How Does the 10-Year Rule Work?
The SECURE Act of 2019 eliminated the old “stretch IRA” strategy, which allowed non-spouse beneficiaries to take distributions over their lifetimes. It replaced it with the 10-year rule: most non-spouse beneficiaries who inherited an IRA from someone who died on or after January 1, 2020, must fully deplete the account by December 31 of the tenth year following the owner’s death.
The critical question that caused years of confusion was whether beneficiaries had to take annual distributions during those 10 years or could simply wait until year 10 to withdraw everything. The IRS settled this in its final regulations:
| Scenario | Annual RMDs Required? | 10-Year Depletion? |
|---|---|---|
| Original owner died after reaching RMD age | Yes, in years 1-9 | Yes, full balance by year 10 |
| Original owner died before reaching RMD age | No annual RMDs required | Yes, full balance by year 10 (withdraw on your own schedule) |
Example: Your mother passed away in 2022 at age 76 (she had already started taking her own RMDs). You inherited her traditional IRA. You must take annual RMDs for years 2023 through 2031 and empty the account completely by December 31, 2032. The IRS waived penalties for missed RMDs in 2023 and 2024, but those years still count toward your 10-year window. Your remaining RMD years are 2025 through 2031, plus the final depletion in 2032.
The 10-year clock is not extended because of the IRS penalty waivers. If the original owner died in 2021, your deadline is still December 31, 2031, regardless of whether you took distributions in the waiver years.
Who Is Exempt from the 10-Year Rule?
The IRS designates certain beneficiaries as “Eligible Designated Beneficiaries” (EDBs) who can still use the older, more favorable lifetime stretch rules:
| Eligible Designated Beneficiary | Distribution Method |
|---|---|
| Surviving spouse | Can roll into own IRA, treat as own, or use life expectancy method |
| Minor children of the deceased (under 21) | Life expectancy until reaching majority, then 10-year rule begins |
| Disabled individuals (as defined by the IRS) | Life expectancy method |
| Chronically ill individuals | Life expectancy method |
| Individuals not more than 10 years younger than the deceased | Life expectancy method |
Everyone else, including adult children, siblings, friends, and most trust beneficiaries, falls under the 10-year rule as a Non-Eligible Designated Beneficiary (NEDB).
What About Inherited Roth IRAs?
Inherited Roth IRAs follow the same 10-year depletion timeline, but with one major advantage: because original Roth IRA owners are never required to take RMDs during their lifetime, the IRS treats all inherited Roth IRAs as if the owner died before reaching RMD age. This means:
- You must still empty the account within 10 years
- You do not need to take annual RMDs during those 10 years
- You can let the balance grow tax-free for the full decade before withdrawing
- Qualified distributions from inherited Roth IRAs are tax-free, provided the original Roth IRA satisfied the 5-year aging rule
If you inherited both a traditional IRA and a Roth IRA, prioritize distributions from the traditional IRA first (since those are required annually) and let the Roth IRA grow tax-free as long as possible within the 10-year window.
Why Does Living Abroad Make Inherited IRAs More Complicated?
Expats face several challenges that Americans in the U.S. don’t encounter when managing inherited IRAs:
Currency exchange and timing
RMD withdrawals arrive in USD and must be converted to your local currency. Exchange rate fluctuations can significantly affect what you receive. While you cannot time your RMD based solely on exchange rates (you must still meet the December 31 deadline), you can take your distribution earlier in the year when rates are favorable, as long as you withdraw at least the minimum required amount.
Time zone risks
The December 31 deadline does not adjust for international time zones. If you live in Asia, Australia, or the Middle East, what’s still December 31 in New York may already be January 1 where you are. Process your RMD by mid-December to avoid complications with custodian processing times and international wire transfers.
U.S. bank account access
Many U.S. financial institutions have become reluctant to serve expats, sometimes freezing accounts or forcing closures due to compliance concerns. Verify that your IRA custodian will continue to serve you while you live abroad. Fidelity, Vanguard, and Schwab are generally more expat-friendly, but confirm directly. If your current custodian creates access issues, consider transferring the inherited IRA to a more accommodating institution.
Double taxation risk
RMD withdrawals are taxed as ordinary income in the U.S. Your country of residence may also tax this income. You can use the Foreign Tax Credit to offset U.S. taxes with foreign taxes paid on the same income, but this requires careful coordination between your U.S. and foreign tax returns. Some countries treat inherited retirement distributions differently from regular income, so country-specific tax treaty provisions may apply.
FBAR and FATCA reporting
While U.S.-based IRAs are not foreign accounts and don’t trigger FBAR filing, any foreign bank accounts where you deposit your RMD withdrawals do count toward the $10,000 FBAR threshold. Similarly, foreign financial accounts holding your distributed funds may create FATCA (Form 8938) obligations if they exceed the reporting thresholds.
What Are the Penalties for Missing an RMD?
| Situation | Penalty | How to Reduce |
|---|---|---|
| Missed RMD (not corrected) | 25% excise tax on the shortfall amount | File Form 5329 with reasonable cause explanation |
| Missed RMD, corrected within 2 years | 10% excise tax on the shortfall amount | Take the missed distribution + file Form 5329 |
| Missed RMD during 2021-2024 waiver period | No penalty (IRS waived enforcement) | No action needed for those years |
If you missed your RMD for the current year or any prior year since enforcement began, take these steps immediately:
- Take the missed distribution as soon as possible
- Calculate the shortfall if you took some but not enough
- File Form 5329 with your tax return
- Attach a letter explaining reasonable cause (living abroad, unaware of the rule change, custodian miscommunication, etc.)
The IRS has historically shown a willingness to waive penalties for inherited IRA beneficiaries who demonstrate reasonable cause and take prompt corrective action.
How Should I Plan My Distribution Strategy?
Even with required annual RMDs, you have flexibility in how much you withdraw each year beyond the minimum. Smart planning can save you thousands in taxes over the 10-year window.
Tax bracket management
If you’re in a low-income year, perhaps because you’re using the Foreign Earned Income Exclusion to exclude up to $130,000 (2025) or $132,900 (2026) of earned income, consider taking more than the minimum RMD. Spreading out larger distributions across lower-income years prevents a massive taxable hit in year 10 that could push you into a much higher bracket.
Example: You inherited a $500,000 traditional IRA. If you take only the minimum RMDs for 9 years and leave $350,000 for year 10, that final-year distribution could push your taxable income into the 32% or 35% bracket. If instead you take $50,000 per year over 10 years, you may keep each year’s distribution within the 22% or 24% bracket, saving thousands overall.
Front-loading withdrawals
Taking larger distributions in the early years, when your income is lower, or exchange rates are favorable, leaves less to withdraw later and reduces the risk of a higher tax bracket in the final year. This strategy works especially well for expats with variable income or who expect their earnings to increase.
Coordinating with retirement
If you’re approaching retirement abroad, coordinate inherited IRA withdrawals with your personal retirement planning. Taking larger distributions while you’re still working (and can use the FEIE or FTC to offset your earned income) may be smarter than waiting until retirement, when the inherited IRA distributions will be your primary taxable income.
Qualified Charitable Distributions (QCDs)
If you’re 70 1/2 or older, you can direct up to $108,000 (for the 2025 tax year) from an inherited IRA directly to a qualified charity through a QCD. This satisfies your RMD requirement without increasing your taxable income. For expats in higher-tax countries, this can be an effective way to meet your RMD obligation while supporting causes you care about and reducing your overall tax burden.
How Can I Work with U.S. Custodians from Abroad?
- Maintain a U.S. mailing address. Many expats use a family member’s address or a mail forwarding service as their address on file with financial institutions.
- Request electronic communications. Ensure your email and phone number are up to date. Mail notifications may not reach you abroad.
- Verify international transfer capabilities. Confirm your custodian can wire funds internationally or maintain a U.S. bank account as an intermediary for receiving distributions.
- Test early in the year. Don’t wait until December for your first RMD. Process a withdrawal early to identify and resolve any access, transfer, or documentation issues before the deadline.
- Keep records meticulously. Document every distribution, the exchange rate used, and how the funds were deposited abroad. You’ll need this for both your U.S. and foreign tax returns.
What Should I Do Right Now?
If you’ve inherited an IRA and live abroad:
- Determine if annual RMDs apply based on when the original owner died and whether they had reached RMD age
- Contact your IRA custodian to verify your RMD amount for the current year
- Process your withdrawal by mid-December to account for time zone differences and wire transfer delays
- Plan for currency conversion to your foreign bank account
- Consider taking more than the minimum to spread out the tax impact across the 10-year window
- Review your FBAR and FATCA requirements if distributions affect your foreign account balances
- Coordinate with your tax preparer to optimize the interaction between your inherited IRA distributions, FEIE/FTC elections, and foreign tax obligations
How Can Greenback Help?
Managing an inherited IRA from abroad involves complex interactions between U.S. tax law, foreign tax rules, and international money movement. Our CPAs and Enrolled Agents have extensive experience calculating inherited IRA RMDs for expats, coordinating U.S. and foreign tax obligations on distributions, and planning multi-year strategies to minimize taxes across the entire 10-year window.
Contact us, and one of our Customer Champions will be happy to help. If you’re ready to be matched with a Greenback accountant, get started here.
Stay Compliant With Your Inherited IRA
The information provided in this article is for general guidance only and should not be construed as legal, tax, or financial advice. Inherited IRA rules are complex, and individual situations vary significantly based on when the original owner died, the type of beneficiary, the type of account, and your country of residence. Consult with a qualified tax professional regarding your unique circumstances.
Related Resources
- RMD Calculations for Expats
- IRAs for Expats
- Foreign Tax Credit
- Foreign Earned Income Exclusion (FEIE)
- FBAR Explained: Filing Requirements, Deadlines, and Penalties
- FATCA for U.S. Expats Explained
- Retire Abroad Tax Planning
- Form 5329: Additional Taxes on Qualified Plans (IRS)
- IRS Publication 590-B: Distributions from IRAs
- U.S. Expat Taxes: The Guide for Americans Living Abroad
