L1: capital gains I started sepp withdrawls from my IRA through Vanguard in 2007. This year I owned some stock in a overseas company and have since sold the stock to lock in some gains. Vanguard has withheld taxes on the gains. My question is, will this create any problems with the IRS? Any red flags? Much thanks to anybody that can shed some light on this matter.2010-12-18 00:12, By: chuck, IP: [184.108.40.206]
L2: capital gainsNo, the foreign tax withholding will NOT impact your SEPP in any way as the amountwill not be includedon your 1099R as a distribution. The bad news is that you cannot claim a foreign tax credit on your return for withholding from an IRA account. In certain cases, if the withholding was in violation of the tax treaty between the subject country and the US, you might be able to recover the amount directly by filing a claim with the tax authority of that country. This has happened in the past with Canada.
Are you sure that gains and not dividends are the reason for the withholding? Usually it is taxes on the dividends that trigger such withholding, and usually the withholding is not enough to trigger advice against holding foreign issues in your IRA. What is the % of withholding vrs the value of the issue?
But this will causeno problem with your SEPP.2010-12-18 01:05, By: Alan S., IP: [220.127.116.11]
L3: capital gains Alan, it is both gains and dividends that triggered the withholding. The amount is not that big, around 4.5% withholding rate. I do own a couple of mlp’s and I will have more than $1000 in dividends from those. Will the taxes from those be withheld in the same manner as the foreign stock? Thanks, Chuck.2010-12-18 19:23, By: chuck, IP: [18.104.22.168]
L4: capital gainsNo, MLPs present a different challenge than withholding. Certain MLPs may kick out more than 1,000 of “UBTI” (Unrelated Business Taxable Income). If so, it requires your IRA to file Form 990 and the IRA must pay the tax this generates, and it is a higher tax rate than your marginal rate, more like the rate trusts pay.
Again, that tax is paid out of your IRA, not by your other funds. Again, this does not affect your SEPP because it is not a 1099R distribution, but does shrink the value of your IRA. Your IRA custodian may or may not handle the 990 tax filing, but would likely charge the IRA for that service if they offer it.2010-12-18 20:42, By: Alan S., IP: [22.214.171.124]