Living in the UK, few have heard of IRAs. What are the taxes? Why an ITIN? What does a W8 Ben do? The rules for beneficiaries changed under the SECURE Act. Worse, starting in 2025, the IRS (the USA taxman) is enforcing annual withdrawals, which have caught many people off guard. What you must do, and by when, depends on who you are and when the original owner died. So, where to start and what are the rules and timescales for someone in your situation?
Critical information for a new beneficiary of a US Pension
If you are named as the beneficiary of an IRA, then you need to know a few critical points as the starting place. Three factors decide your deadlines – critically, an inherited IRA is not treated like your own (with one exception, a surviving spouse), you cannot simply leave it untouched. What you must withdraw, and when, turns on three questions: who you are to the deceased, the year they died, and whether they had already started their own RMDs (i.e. reached age 73).
The three beneficiary categories
- Eligible Designated Beneficiary
- A surviving spouse, a minor child of the owner, someone disabled or chronically ill, or anyone not more than 10 years younger than the owner.
- “Most flexibility”
- “Life-expectancy stretch”
- Designated Beneficiary
- Any other named individual — typically an adult child, grandchild, friend or more distant relative.
- “Most common”
- “10 year rule”
- Non-Designated Beneficiary
- An estate, a charity, or a trust that doesn’t qualify as a see-through trust — anything that isn’t a living person.
- “No life“
- “5-year rule / ghost”
Default timeframe and path for inherited IRAs
Most non-spouse beneficiaries of someone who died in 2020 or later fall under the 10-year rule. Here is how the clock runs for inherited IRAs.
Settle the owner’s final-year RMD
If the owner was already taking RMDs and hadn’t taken their full amount for the year they died, that final RMD must still be withdrawn — by the beneficiary — before year-end. The 10-year clock then starts.
Annual RMDs may now begin
If the owner had already started their own RMDs, you must take an annual RMD in each of years 1–9, based on your own life expectancy. If they died before their RMDs began (or it’s a Roth), no annual RMD is required — you may withdraw nothing until year 10 if you wish.
Keep going, or let it grow
Where annual RMDs apply, continue each year by 31 December. Where they don’t, the account can stay invested — but every dollar still has to come out by the end of year 10, so spreading withdrawals usually softens the tax.
The account must be emptied
The entire remaining balance must be withdrawn by 31 December of the 10th year following the year of death. Whatever is left becomes fully taxable in that final year — a large balance left to the end can mean a painful tax bill.
The 2025 inherited IRA enforcement trap
For years, the IRS waived penalties while the rules were unclear. From the 2025 distribution year onward, annual RMDs within the 10-year window are required — with a 25% penalty (10% if corrected within two years) for any missed amounts. If you inherited from someone who had already started RMDs and skipped distributions in earlier years, take advice now.
Some important factors that could change the picture of an inherited IRA
A surviving spouse has more options
You can roll the IRA into your own name (then normal RMDs apply at your age 73), or stay a beneficiary and stretch over your life expectancy — recalculated each year. The right choice often depends on your age.
Inherited Roth IRAs
Still subject to the 10-year rule, but with no annual RMDs in years 1–9 and withdrawals that are normally tax-free. Empty the account by year 10 and let it grow tax-free until then.
Minor children of the owner
Treated as eligible beneficiaries and may stretch — but only until they reach the age of majority (21). The 10-year rule then begins, so the account must be emptied by the year they turn 31.
Missing a distribution is costly
The penalty is 25% of the amount you should have withdrawn, dropping to 10% if corrected within two years. The IRS holds the beneficiary — not the custodian — responsible.
Inherited IRA Calculator to show the rules for you and RMDs
Enter the key dates, and we’ll work out the owner’s Required Beginning Date for you — including whether they died before or after it, which decides whether annual withdrawals are mandatory. You’ll see which rule applies, your exact deadlines, and an estimate of this year’s required withdrawal, using the IRS Single Life Expectancy Table (Table I).
Your inherited IRA at a glance
An illustration only — inherited IRA rules are intricate, so please confirm before acting.
Why an ITIN matters — and why you may need one as UK resident with an Inherited IRA
If you have US-source income or a US tax filing obligation but you are not eligible for a Social Security Number, the IRS still needs a way to identify you. That identifier is an Individual Taxpayer Identification Number (ITIN) — a nine-digit number, issued on Form W-7, used purely for tax purposes. It does not grant the right to work, nor any Social Security entitlement; it simply lets the US tax system recognise you. Without one, much of the machinery that protects you from over-taxation simply cannot operate.
It lets you file a US return
Anyone with a US filing requirement but no SSN — a non-resident with US income, or a US citizen’s foreign spouse joining a return — needs an ITIN to file at all. No identifier, no return.
It unlocks treaty benefits
To claim a reduced treaty rate on most US income, the IRS requires a taxpayer identification number. For someone with no right to a US SSN, that means an ITIN. Without it, the claim generally cannot be processed.
It is how you reclaim over-withheld tax
If 30% has been withheld at source but a treaty entitles you to less, the refund is recovered by filing a US return, which is impossible without an ITIN. The number is the gateway to getting your money back.
It supports family and reporting positions
An ITIN allows a non-SSN spouse or dependent to be listed on a US return and to claim certain credits, and provides the identifier needed for various information-reporting situations.
An ITIN can quietly expire
Under the PATH Act, an ITIN expires if it is not used on a US federal tax return for three consecutive years (lapsing on 31 December of the third year), and older numbers have been retired in batches by their middle digits. File with a lapsed ITIN and the IRS will hold your refund and disallow credits until you renew it on Form W-7. If yours has been dormant, check it before you next need it.
Misunderstanding the USA’s W8Ben
A W-8BEN confirms you are foreign — it does not switch off US withholding. The W-8BEN is one of the most misunderstood forms in cross-border finance. People often treat it as an exemption certificate — sign it, and US tax stops. It does no such thing. A W-8BEN does two things: it certifies to the payer that you are a non-US person (so you are taken out of the US-person reporting and backup-withholding regime), and, where a treaty applies, it lets you claim a reduced rate. It is documentation handed to the payer — not a tax return, and not a waiver of the withholding rules themselves.
Withdrawals from an inherited IRA are taxable income in the US and generally in the UK too, with the US/UK treaty and foreign tax credits used to avoid double taxation. The 10-year rule can force large taxable lump sums into a single UK tax year, and the inherited IRA may also be a US-situs asset for estate purposes. Timing the drawdown across both tax systems is exactly the kind of planning Edale handles for beneficiaries.
The myth
“I’ve filed a W-8BEN, so the IRS can’t withhold US tax from me.”
The form is read as a switch that turns withholding off, leaving the income to be dealt with only at home.
IRS default withholding tax on 401k and IRA is 30%
30% is the statutory rate withheld at source on most US-source passive income (dividends, interest, royalties, certain pensions) paid to a foreign person. To reclaim an amount overpaid if too much was withheld, its only recoverable by filing a US return — which requires an ITIN. The W-8BEN cannot do this for you.