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I was just wondering if I could have some help on this. I live in Ireland and my uncle passed away 2014. He was a USA Green Card holder. He left myself and my sister between us $240,000 from his retirement account. We were taxed just over $80,000 in total.

One accountant said it was taxed too much and another said we shouldn't have been taxed at all. I'm so confused.

Any help on this would be great. Thanks.

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    Was this money in an IRA or 401(K) type account when he passed away? If so, were you left the account itself, i.e. named as beneficiary, or was the account cashed out and you were handed cash?
    – Joe
    Aug 25, 2016 at 16:10
  • And - taxed by whom (US, Ireland, or both?) If both, what is the breakout?
    – Joe
    Aug 25, 2016 at 16:23
  • thanks so much for coming back to me. They were cashed by the lawyers winding up the estate -took the tax off them and gave us what was left over. It was about 240,000 gross and adding up what was taxed in and around 80,000 in total. It was taxed in the US Aug 25, 2016 at 16:28
  • Who paid the tax? Is this an allocation of the tax the estate owed, or was this $80,000 in taxes withheld on your behalf for your personal taxes?
    – quid
    Aug 25, 2016 at 16:50
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    Sounds like the estate was the beneficiary of the retirement account (and the estate owed US income tax on the money, perhaps at the 33% marginal rate). The executor deducted the income tax and sent the balance to you. Inheritances are free of any US tax to the recipient, but how much of that $240K you receive as your inheritance depends on how much is paid by the estate to the tax man as income tax (and for the truly wealthy deceased, as estate tax). Aug 25, 2016 at 16:50

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In the US, the first $5,000,000 from an estate is tax-free, including gifts given over the lifetime of the recipient beyond around $14,000 per recipient per year (that number changes every year). Assuming your uncle didn't have millions of dollars, then, you likely did not owe estate tax.

However, since this was from a retirement account, the money was likely taxed due to the retirement account being tax-free until distribution. This assumes this was a 'regular' retirement account (a Traditional IRA, a Traditional 401(k) or 403(b), or similar, which is funded with pre-tax funds).

If you and your sister were the designated beneficiaries of the account, you would have had the option to 'stretch' the IRA's funds over your lifetime, essentially giving you a proportion of the funds each year for your life expectancy. If not, or if you chose not to do this and instead take a full payout from the account, you would indeed owe income taxes on that amount; and since you were taking $240,000 out all at once (presumably $120,000 each?) you would owe quite a significant amount. I suspect $80,000 includes some other estate fees, but it's entirely reasonable for it to be in that ballpark, especially given you are a non-US resident.

My suspicion is that your uncle did not designate a beneficiary, and thus the account was liquidated as part of the estate. That's unfortunate - always designate a beneficiary for your IRA, even if you're only 25 and your IRA is low on funds, because it's easy to forget later, and the options for taking money out of the IRA are much wider (and financially better) when you're a beneficiary.

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