Withholding Tax on an ADR Held in a Roth IRA
Roth IRA owner is over 59-1/2 and has held this Roth IRA for over 5 years.
One of this IRA’s assets is the Philippine Long Distance Co. Sponsored ADR (PHI). Last year 15% of this stock’s dividends were reduced by foreign withholding “at the source” but this year it was increased to 30%! Vanguard said withholding is common with ADR’s and applies to all accounts–TIRA’s, RIRA’s and nonretirement accounts. If this were a nonretirement account, the foreign tax could be taken as a tax credit on page 2 of the 1040, but seemingly with any IRA it’s wasted withholding from the IRA owner’s perspective since it reduces the dividends without any offsetting benefit.
Can anyone help with a way to derive any benefit from this withholding in a Roth IRA account?
Thank you.
Permalink Submitted by Alan Spross on Wed, 2010-10-27 20:49
I don’t know if there is any offset available, other than if the withholding is in violation of the tax treaty between the US and whatever foreign country, the IRA owner can sometimes file a claim for a return of the withheld amount from the foreign government tax authority. That used to be the situation with Canada, don’t know if it still is. And since the claim process will take well over 60 days from the date withheld, there is no easy path to roll it back to the IRA. Withholding does not appear on the list of automatic 60 day waivers. Obviously this situation is worse with a Roth IRA because it is after tax money rather than pre tax money that has been lost.