A reader asks: ‘What tax obligations, and from where, would my client’s American wife incur by cashing in her Roth IRA?’

One of those questions that UK-trained and focused advisers who look after American expat clients only occasionally say they come up against from time to time – and often end up having to consult an American wealth management specialist in order to know how to respond – concerns the tax obligations these Americans would incur when they go to cash in their American savings products. 

Aware that International Investment occasionally puts technical questions such as this to experts to solve in column form, to the benefit of other equally-baffled advisers, one such UK-based adviser passed along to us just such a US product sale query – in this case, involving something called a Roth Individual Retirement Account. 

Below is this adviser’s query in full, followed by a detailed explanation from one of the experts at Maseco Private Wealth, the London-based advisory business which specialises in looking after American expats around the world. The expert in question is Andrea Solana, pictured above, who is head of advanced planning at Maseco PW, and who is also herself an American expatriate.

The question: 

“I work for a UK-based wealth manager, with clients who often come from other countries, and/or who have spouses who do. Thus it is that the wife of one of my British clients is an American, and has what is called a Roth Individual Retirement Account (Roth IRA) – a tax-advantaged US savings scheme. She has been living in the UK for more than 15 years, is married to a UK citizen, and is the mother of children who were born here. She has dual UK – US citizenship.

“Recently she told me that she wants to take all the money out of her Roth IRA, which is about US$15,000, but she is concerned that she might be expected to pay tax on the amount in the US, or the UK, or both.This is a new one for me. What should I tell her?

“(I should mention that she has no plans ever to return to the US, although I would not want to encourage her to do something which might make it awkward or expensive if she were to unexpectedly have to go there one day, and face potential consequences resulting from not paying tax on this encashment.)

“And, while I’m at it, might I also ask what the situation would be if it weren’t a Roth IRA, but a regular IRA? What is a ‘Roth IRA’ anyway?”

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