# Closing IRA and understanding the Tax Treaty help



## BCKMcK (Mar 30, 2014)

Hello,
My spouse is trying to close out her IRA prematurely in the US (where we lived for many years and have recently moved to the UK) but we are having issues in understanding the W-8BEN form and the % withholding we must follow to do so. My spouse is a native to the UK (I am native to the US) and is unsure what % she needs to apply for on line 10. A tax adviser suggested 30% but we are hearing 0% under article 17 of the Tax Treaty as well. We don't want to be "double" taxed (in US and UK) either. Regrettably, we don't understand the legal-ese that is being spoken to know what we must claim minimum. Please help us.

-BCKMcK

I would post a link to the form but I don't have enough posts yet to put the link to the form in here. If you google W-8BEN you'll find it easy enough though.


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## Bevdeforges (Nov 16, 2007)

The main question is whether your wife has US citizenship or not. If she does, then she should be filling out a W9. And closing out the IRA will result in the 10% penalty if your wife is not yet at the minimum age to withdraw funds from the IRA (currently 59 1/2, I believe).

If she is not a US citizen, then the W8 is correct, and she will be liable for 30% withholding (plus, I think the 10% penalty if she has yet to reach age 59 !/2). 

Not sure about the UK, but in other countries, the withdrawal of funds from an IRA is not considered to be "income" but rather a transfer of capital - based on the idea that you paid in the funds when you were resident in the US (and not subject to the local income taxes) and that the subsequent gains in the fund are subject to US taxation only.
Cheers,
Bev


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## BBCWatcher (Dec 28, 2012)

Is there some reason why your spouse is trying to withdraw funds from her IRA prematurely? Does she need the money, now? The 10% penalty is a terrible price to pay if there's no reason to pay it.

If she needs the money now, there are a couple other options worth exploring:

1. If the funds are returned to the IRA within 60 days of withdrawal, the IRS waives the 10% penalty, as long as she follows a couple other rules (such as not doing this too often).

2. IRAs can sometimes be used as collateral to secure a separate personal loan.


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## BCKMcK (Mar 30, 2014)

Bevdeforges said:


> The main question is whether your wife has US citizenship or not. If she does, then she should be filling out a W9. And closing out the IRA will result in the 10% penalty if your wife is not yet at the minimum age to withdraw funds from the IRA (currently 59 1/2, I believe).
> 
> If she is not a US citizen, then the W8 is correct, and she will be liable for 30% withholding (plus, I think the 10% penalty if she has yet to reach age 59 !/2).
> 
> ...


My spouse is a UK citizen and we are both not of age yet. According to my spouse's research the 30% is correct but line 10 is to be left blank. Thanks for the help.


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## BCKMcK (Mar 30, 2014)

BBCWatcher said:


> Is there some reason why your spouse is trying to withdraw funds from her IRA prematurely? Does she need the money, now? The 10% penalty is a terrible price to pay if there's no reason to pay it.
> 
> If she needs the money now, there are a couple other options worth exploring:
> 
> ...


The money won't be going back into the IRA and we will be paying lots of fees.  The money will be needed so it is a decision we had to make. Thanks for the advice though.


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## BBCWatcher (Dec 28, 2012)

If 10% penalty/30% withholding money is the most affordable money available, and if the money is needed, then so be it. Very sorry to hear that, though.


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