MoneySense is an award-winning magazine, helping Canadians navigate money matters since 1999. Our editorial team of trained journalists works closely with leading personal finance experts in Canada. To help you find the best financial products, we compare the offerings from over 12 major institutions, including banks, credit unions and card issuers. Learn more about our advertising and trusted partners.
Learn how inheriting a US IRA or 401(k) works for spouses and non-spouses, including taxes, withdrawal rules, and opportunities for tax deferral. The post What Learn how inheriting a US IRA or 401(k) works for spouses and non-spouses, including taxes, withdrawal rules, and opportunities for tax deferral. The post What
What happens when you inherit an IRA or 401(k)?
A US traditional individual retirement account (IRA) is a bit like a Canadian registered retirement savings plan (RRSP). A 401(k) is like a defined contribution (DC) pension plan. In both cases, tax-deductible contributions can be made by a retirement saver with future withdrawals generally subject to tax.
Spousal beneficiary
When a spouse inherits an IRA or 401(k), they can take over the account as an inherited account or transfer the account into their own IRA or 401(k) on a tax-deferred basis.
IRA and 401(k) accounts generally have required minimum distributions (RMDs) beginning at age 73. These are subject to US withholding tax for a Canadian resident, and Canada taxes the withdrawal with a credit for the US tax already withheld.
A US citizen living in Canada must report their worldwide income on both a Canadian and US tax return.
Featured RRSP Accounts
featured
EQ Bank
Build your retirement savings with 1.50% interest, tax-deferred contributions and zero fees.
go to site
featured
Registered GIC rate
Earn a guaranteed 2.75% in your RRSP when you lock in for 1 year.
go to site
Best RRSP rates
See our ranking of the best RRSP accounts and rates available in Canada.
read now
Non-spouse beneficiary
When a non-spouse beneficiary inherits, the account value is not subject to immediate tax. This differs from the taxation of an RRSP, DC pension, or other Canadian retirement accounts for non-spouse beneficiaries. These Canadian retirement accounts are generally fully taxable to the estate of the deceased.
Instead, taxes are payable on subsequent withdrawals from the inherited IRA or 401(k). This can provide an opportunity for tax deferral, as well as a potential decrease in the tax rate payable. A deceased Canadian taxpayer with a high income in the year of death may pay over 50% tax on their tax deferred retirement accounts. A non-spouse beneficiary with a low or moderate income may pay a significantly lower rate of tax.
There is a 10-year rule that allows withdrawals to be taken over up to 10 years following the account holder’s death. In the meantime, the account remains tax deferred in the US and Canada.
US withholding tax
Withholding tax on US retirement account distributions to non-residents is typically 30%; however, a Canadian beneficiary can submit Form W-8BEN – Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding to the financial institution. This will allow them to withhold the lower 15% rate.
This is important because Canada will only allow a foreign tax credit for the 15% treaty rate. If a higher rate is withheld, a beneficiary may need to file a US tax return to get a refund from the Internal Revenue Service.
Inherited Roth IRAs
A Roth IRA is like a Canadian tax-free savings account (TFSA). A spouse beneficiary can take over the account or transfer it to their own Roth IRA.
Roth IRAs are generally tax-free in the US and can also have tax-free status in Canada; however, an account holder must file an election with the Canada Revenue Agency (CRA) to maintain the tax-free Canadian status and ensure no new contributions are made.
A non-spouse inheriting has the same CRA election requirement, but has a different tax-free status opportunity. There is a 10-year rule for non-spouse beneficiaries, allowing only a limited tax-free growth period.
Roth IRA withdrawals are tax-free in the US and Canada.
Exceptions
Disabled or chronically ill non-spouse beneficiaries may be exempt from the 10-year rule.
The 10-year clock does not start ticking for minor beneficiaries until they attain the age of majority.
Summary
IRA and 401(k) accounts work a little differently from Canadian RRSP, DC pension, and TFSA accounts on death. These US counterparts offer more favourable tax reduction opportunities.
If you expect to leave a US account as an inheritance, or you are inheriting one of these accounts, it is important to understand the rules. They may impact how you draw down your assets in retirement and how you structure your estate.
Ask a Planner
Leave your question for Jason Heath
email now
Read more from Ask a Planner:
- How to unwind a spousal loan
- Preparing taxes for someone who died
- Can I still use my FHSA after my spouse bought a condo?
- How does rent from a family member or common-law partner get taxed?
The post What happens when you inherit an IRA or 401(k)? appeared first on MoneySense.
Disclaimer: The articles reposted on this site are sourced from public platforms and are provided for informational purposes only. They do not necessarily reflect the views of MEXC. All rights remain with the original authors. If you believe any content infringes on third-party rights, please contact service@support.mexc.com for removal. MEXC makes no guarantees regarding the accuracy, completeness, or timeliness of the content and is not responsible for any actions taken based on the information provided. The content does not constitute financial, legal, or other professional advice, nor should it be considered a recommendation or endorsement by MEXC.
You May Also Like
PCE Data Sparks Tensions: A Key Day for Bitcoin
Bitcoin is hovering at $67,000 as the financial world awaits the latest release of the Personal Consumption Expenditures (PCE) data, considered the Federal Reserve
Share
Coinstats2026/02/20 21:45
Crucial Fed Rate Cut: October Probability Surges to 94%
BitcoinWorld Crucial Fed Rate Cut: October Probability Surges to 94% The financial world is buzzing with a significant development: the probability of a Fed rate cut in October has just seen a dramatic increase. This isn’t just a minor shift; it’s a monumental change that could ripple through global markets, including the dynamic cryptocurrency space. For anyone tracking economic indicators and their impact on investments, this update from the U.S. interest rate futures market is absolutely crucial. What Just Happened? Unpacking the FOMC Statement’s Impact Following the latest Federal Open Market Committee (FOMC) statement, market sentiment has decisively shifted. Before the announcement, the U.S. interest rate futures market had priced in a 71.6% chance of an October rate cut. However, after the statement, this figure surged to an astounding 94%. This jump indicates that traders and analysts are now overwhelmingly confident that the Federal Reserve will lower interest rates next month. Such a high probability suggests a strong consensus emerging from the Fed’s latest communications and economic outlook. A Fed rate cut typically means cheaper borrowing costs for businesses and consumers, which can stimulate economic activity. But what does this really signify for investors, especially those in the digital asset realm? Why is a Fed Rate Cut So Significant for Markets? When the Federal Reserve adjusts interest rates, it sends powerful signals across the entire financial ecosystem. A rate cut generally implies a more accommodative monetary policy, often enacted to boost economic growth or combat deflationary pressures. Impact on Traditional Markets: Stocks: Lower interest rates can make borrowing cheaper for companies, potentially boosting earnings and making stocks more attractive compared to bonds. Bonds: Existing bonds with higher yields might become more valuable, but new bonds will likely offer lower returns. Dollar Strength: A rate cut can weaken the U.S. dollar, making exports cheaper and potentially benefiting multinational corporations. Potential for Cryptocurrency Markets: The cryptocurrency market, while often seen as uncorrelated, can still react significantly to macro-economic shifts. A Fed rate cut could be interpreted as: Increased Risk Appetite: With traditional investments offering lower returns, investors might seek higher-yielding or more volatile assets like cryptocurrencies. Inflation Hedge Narrative: If rate cuts are perceived as a precursor to inflation, assets like Bitcoin, often dubbed “digital gold,” could gain traction as an inflation hedge. Liquidity Influx: A more accommodative monetary environment generally means more liquidity in the financial system, some of which could flow into digital assets. Looking Ahead: What Could This Mean for Your Portfolio? While the 94% probability for a Fed rate cut in October is compelling, it’s essential to consider the nuances. Market probabilities can shift, and the Fed’s ultimate decision will depend on incoming economic data. Actionable Insights: Stay Informed: Continue to monitor economic reports, inflation data, and future Fed statements. Diversify: A diversified portfolio can help mitigate risks associated with sudden market shifts. Assess Risk Tolerance: Understand how a potential rate cut might affect your specific investments and adjust your strategy accordingly. This increased likelihood of a Fed rate cut presents both opportunities and challenges. It underscores the interconnectedness of traditional finance and the emerging digital asset space. Investors should remain vigilant and prepared for potential volatility. The financial landscape is always evolving, and the significant surge in the probability of an October Fed rate cut is a clear signal of impending change. From stimulating economic growth to potentially fueling interest in digital assets, the implications are vast. Staying informed and strategically positioned will be key as we approach this crucial decision point. The market is now almost certain of a rate cut, and understanding its potential ripple effects is paramount for every investor. Frequently Asked Questions (FAQs) Q1: What is the Federal Open Market Committee (FOMC)? A1: The FOMC is the monetary policymaking body of the Federal Reserve System. It sets the federal funds rate, which influences other interest rates and economic conditions. Q2: How does a Fed rate cut impact the U.S. dollar? A2: A rate cut typically makes the U.S. dollar less attractive to foreign investors seeking higher returns, potentially leading to a weakening of the dollar against other currencies. Q3: Why might a Fed rate cut be good for cryptocurrency? A3: Lower interest rates can reduce the appeal of traditional investments, encouraging investors to seek higher returns in alternative assets like cryptocurrencies. It can also be seen as a sign of increased liquidity or potential inflation, benefiting assets like Bitcoin. Q4: Is a 94% probability a guarantee of a rate cut? A4: While a 94% probability is very high, it is not a guarantee. Market probabilities reflect current sentiment and data, but the Federal Reserve’s final decision will depend on all available economic information leading up to their meeting. Q5: What should investors do in response to this news? A5: Investors should stay informed about economic developments, review their portfolio diversification, and assess their risk tolerance. Consider how potential changes in interest rates might affect different asset classes and adjust strategies as needed. Did you find this analysis helpful? Share this article with your network to keep others informed about the potential impact of the upcoming Fed rate cut and its implications for the financial markets! To learn more about the latest crypto market trends, explore our article on key developments shaping Bitcoin price action. This post Crucial Fed Rate Cut: October Probability Surges to 94% first appeared on BitcoinWorld.
Share
Coinstats2025/09/18 02:25
US inflation in December exceeded expectations, causing US stocks to open lower.
PANews reported on February 20th that at the opening of US stock markets, the Dow Jones Industrial Average fell 0.23%, the S&P 500 fell 0.28%, and the Nasdaq Composite
Share
PANews2026/02/20 22:30