When love crosses borders, life gets beautifully complicated—and so does finance. This is especially true for foreign spouses married to U.S. citizens, particularly many Latin American women who choose not to integrate into the U.S. tax system, often to avoid becoming U.S. taxpayers. While that decision may protect them from the burdens of U.S. tax filings during their marriage, it can create unintended complications when their U.S. spouse passes away—especially if U.S. assets like IRAs (Individual Retirement Accounts) are involved.
So the question many families eventually face is:
Can foreign spouses inherit U.S. IRAs without penalty?
The answer is yes, but it’s not simple—and the penalties for getting it wrong can be significant.
The Tax-Free Romance Dilemma
Let’s consider the real-world example of María, a Colombian woman married to an American, John, for 22 years. María lived in Bogotá while John split his time between Colombia and the U.S. They were a loving couple, but from a financial standpoint, they made one very deliberate decision: María would never become part of the U.S. tax system. She never applied for a Social Security number (SSN) or even an ITIN (Individual Taxpayer Identification Number), and they kept all joint accounts abroad.
Why? Like many non-U.S. spouses, María and John didn’t want to trigger unnecessary tax complications, including FATCA reporting requirements, U.S. income tax filings, or estate tax issues.
But when John passed away suddenly, María was left with a major problem—one that thousands of foreign spouses face every year. John had accumulated a large IRA and María was the primary beneficiary. Now she was faced with the question: What can I legally inherit—and what will it cost me?
The Tax-Free Romance Dilemma
Let’s consider the real-world example of María, a Colombian woman married to an American, John, for 22 years. María lived in Bogotá while John split his time between Colombia and the U.S. They were a loving couple, but from a financial standpoint, they made one very deliberate decision: María would never become part of the U.S. tax system. She never applied for a Social Security number (SSN) or even an ITIN (Individual Taxpayer Identification Number), and they kept all joint accounts abroad.
Why? Like many non-U.S. spouses, María and John didn’t want to trigger unnecessary tax complications, including FATCA reporting requirements, U.S. income tax filings, or estate tax issues.
But when John passed away suddenly, María was left with a major problem—one that thousands of foreign spouses face every year. John had accumulated a large IRA and María was the primary beneficiary. Now she was faced with the question: What can I legally inherit—and what will it cost me?
The Key Challenges Foreign Spouses Face
Unlike U.S. spouses, foreign spouses cannot automatically roll over an IRA into their own name without triggering potential U.S. tax consequences. Here’s what typically happens:
1. No Spousal Rollover
U.S. citizens and green card holders who inherit IRAs from their spouses can do what’s called a “spousal rollover.” This allows the surviving spouse to treat the IRA as their own, potentially deferring taxes and managing distributions on their own schedule.
Foreign spouses, especially those without SSNs, cannot do this. Instead, they are treated as non-spouse beneficiaries, even if they were married for decades. This means they must follow the 10-year rule—completely withdrawing all IRA funds within 10 years of the original owner’s death.
2. Withholding Taxes
The U.S. requires 30% withholding on distributions from IRAs made to nonresident aliens (NRAs). That means María may only receive 70 cents on the dollar—and she might not be able to recover the rest, depending on her country’s tax treaty with the U.S., if any.
3. Estate Tax Exposure
Here’s the shocker for many: the U.S. estate tax exemption for non-U.S. citizens is only $60,000. Compare that to the $13.6 million exemption for U.S. citizens in 2024. If John’s U.S. estate (including his IRA) was worth more than $60,000, it could be subject to U.S. estate tax, unless they had done proper estate planning in advance.
What Can Be Done?
If you or your clients are in a cross-border marriage and want to preserve U.S. retirement assets, you need proactive strategies. Here are a few that may help:
1. Use a Qualified Domestic Trust (QDOT)
A QDOT is a special type of trust that allows a non-citizen spouse to inherit U.S. assets—including IRAs—without immediate estate taxes. The assets are held in trust and distributions are made under specific IRS guidelines. It’s not ideal for everyone, but it’s one of the few tools available to protect foreign spouses from estate tax exposure.
2. Name a U.S. Trust as IRA Beneficiary
In some cases, setting up a trust as the IRA beneficiary—rather than the foreign spouse directly—can offer better control over distributions, tax reporting, and long-term planning. However, the trust must be carefully drafted to comply with IRS rules.
3. Seek Treaty Benefits
Some Latin American countries have tax treaties with the U.S. that may reduce or eliminate withholding taxes on retirement distributions. For example, if María lived in a country with a treaty that reduced the withholding to 15%, that could significantly ease her tax burden. But these benefits must be proactively claimed—and often require an ITIN.
Proactive Planning is Essential
The biggest mistake we see? Couples waiting too long to address these issues. Many expat families don’t realize the problem until the U.S. spouse passes, and by then, it’s often too late to take advantage of the most effective strategies.
It’s common among Latin American spouses to deliberately avoid entering the U.S. tax system, sometimes out of fear or complexity. But that decision must be weighed against the risk of losing a large portion of inherited assets. Without an ITIN, or without a QDOT or proper estate planning in place, it may cost the surviving spouse tens of thousands—if not hundreds of thousands—of dollars in unnecessary taxes.
Final Thoughts
If you are a non-U.S. spouse, or advising one, the inheritance of U.S. assets like IRAs is not a simple matter. The love story might be international, but the tax rules are strictly American—and often unforgiving.
Whether you’re a Latin American woman like María, or a cross-border couple living between two worlds, it’s essential to have a U.S.-licensed advisor familiar with international estate planning on your team.
At Expat Wealth Management Services, we specialize in helping global families navigate these tricky situations. Don’t wait until the unexpected happens—let’s make sure your family’s future is protected today.
