Withholding on Stock Dividend in Roth

[sengsational]

In a Roth account, I have stock in a company that's traded on NASDAQ, but the company paid dividends from outside the US and they withheld funds. The transaction description at the brokerage is this:

Foreign Tax Withheld at the Source

This is the first time this has happened for me, and I wondered if anyone else had this happen. I guess that the tax status of a Roth account isn't accepted elsewhere. Does this just go into "foreign taxes paid" and reduce my taxes by that amount. I don't recall having a separate question about taxes withheld in Roth vs taxes withheld elsewhere.

 

[cathy63]

Yes, we own some Novartis stock in an IRA and pay a couple dollars to Switzerland every year as a result. As far as I've been able to figure out, you just lose that money. There's no U.S. tax credit you can take for it.

 

[gromit]

Here's a table of the withholding rates used by other countries. Notice that UK stocks have 0% withholding.

https://www.spglobal.com/spdji/en/documents/additional-material/withholding-tax-index-values.pdf

 

[CyclingInvestor]

As Cathy63 said, you just lose foreign taxes withheld in an IRA.

UK does not withhold taxes, except on their REITs. Canada has a tax treaty with the US so no taxes are withheld if the stock is in an IRA (and your broker files the correct forms, which Schwab does for me).

 

[Sunset]

I always thought foreign stocks would withhold taxes, and this is why it was better to have them in a taxable account, so the foreign tax credit could be claimed.

I generally don't buy individual foreign stocks, mainly just some ETFs , but the principle is the same.

 

[GalaxyBoy]

This is why I keep my international allocation in a taxable account, so I get the foreign tax credit. Your situation may vary.

 

[pb4uski]

This is a different animal than foreign taxes paid that you can take as a foreign tax credit... it is a withholding tax on dividends paid on foreign shares.

From what I've read, one could file a non-resident tax return to claim a refund (clearly not worth the effort for a few $$$) or buy the ADR:

One way to avoid excess withholding is to purchase American depository receipts (ADRs) instead of directly holding Swiss stocks. ADRs are issued by a US intermediary. Each ADR represents a certain number of shares of stock in the foreign company. Typically, the intermediary will apply for the tax refund, and then distribute the dividend to the shareholders about a month after the foreign company issues their dividend.

 

[Phroig]

This is a different animal than foreign taxes paid that you can take as a foreign tax credit... it is a withholding tax on dividends paid on foreign shares.

From what I've read, one could file a non-resident tax return to claim a refund (clearly not worth the effort for a few $$$) or buy the ADR:

I thought OP's stock is an ADR, since it trades on the NASDAQ. The quote included by Pb4uski indicates that most/all of the tax withheld on Swiss stocks is refunded by an intermediary. Do any of you have experience with this?


After reading the Form 1116 thread, I've decided that I'll hold just enough international in taxable to keep my FTC under $600. I have most of mine in tax-deferred and Roth. The typical yield from an international fund is quite high, and a significant portion is not qualified, so I imagine the net cost of missing out on the FTC isn't too high.

 

[sengsational]

It's an Israel based company, and I guess I have no other option than to let them party on the 22% they withheld.

 

[Montecfo]

You lose that money. Good reason to not hold stocks subject to foreign withholding in IRAs.