What are the tax implications for holding ADR stock in a Roth IRA?

I own stock of BP (British Petro) , AIB (Allied Irish Banks), and looking to pick up some E (Eni) which are/will be held in a U.S. Roth IRA account.

How will any future dividends or capital gains be handled since these are foreign stocks? Will they be tax free in conjunction with the rules of a Roth IRA?


@Mike - is there a way to see where a certain stock issued from? Like your RDS example?

Can this be done from a financial site like google finance or yahoo finance, or do you have to dig through the annual report?

5 Answers

  • 9 years ago
    Best Answer

    There aren't any.

    Fist off, ADRs -- American Depository Receipts -- are not foreign stocks, they are US securities issued to cover an equivalent number of foreign securities held by a registered broker. Therefore there are no US implications on holding foreign securities.

    US persons and entities, other than registered securities brokers, are generally prohibited from directly holding foreign securities. An American living in Europe for example, must certify that they are not US persons or entities in order to purchase securities from a European dealer. It's a boilerplate clause in all European securities contracts and nobody checks up on it.

    In reality it's all done with a nod and a wink -- I've owned foreign shares while living in Europe. I reported the gains on my US returns and paid any taxes due, and took credit for the foreign taxes paid using Form 1116. Thankfully the IRS isn't permitted to report securities irregularities as long as the taxes are paid. That's a moot point in your case because ADRs are not foreign securities and because you are holding them in an IRA.

    If there are any foreign taxes on the underlying securities those are usually withheld at the source and you receive the net. Otherwise the foreign tax would be paid by the dealer and you again receive the net. However since these are held in a tax deferred account in your case, you cannot claim any credit for the foreign taxes paid. That's negated by the fact that you receive the net gain after the foreign taxes so it's largely a moot point.

    Since these are US securities held within your IRA there are no tax consequences any more than with any other US security.

  • Mike
    Lv 6
    9 years ago

    If dividends are taxed at the source, that is lost. An example Royal Dutch Shell issues stocks on two different exchanges in two different countries. RDS.A is issued out of the Netherlands and the Dutch government withholds tax on dividends (about 25%) but RDS.B is issued out of London and doesn't withhold tax on dividends.

    Therefore it is better for an American to hold RDS.B than RDS.A (especially for a tax free account).

    As far a capital gains, foreign governments do not tax ADR gains.

  • Anonymous
    9 years ago

    Once you put money into an IRA (traditional or Roth) it changes the way it is taxed.

    Dividends are not taxed as dividends.

    Capital gains are not taxed as capital gains.

    You get zip for a foreign tax credit when the fund pays foreign taxes on the account.

    If you hold the Roth long enough, no tax at all.

    If you LOSE some of your money and take out less than you put in, you get a tiny deduction on schedule A in the year you close ALL of your accounts.

  • 3 years ago

    right here is one element of undergo in suggestions with regard to the Roth IRA account. there is by no skill any tax on it the place as there is on your 401k. This will become significant whilst pondering your asset mixture. earnings producing investments are taxed on the full tax cost as would be your 401k. consequently it extremely is sensible to take a place a minimum of a few of your 401k in earnings producing sources--bonds, LPs, REITs. The earnings from each and every of those is taxed on the full tax cost besides. Now simply by fact the Roth IRA is by no skill taxed, it is likewise smart to place those varieties of sources into the Roth IRA additionally. and additionally fairness investments. What you ignored to point are investments exterior of those 2 automobiles. in case you have some, they could be investments that could desire to be taxed on the capital features cost--fairness investments. surely, until you're interior the utmost tax bracket it extremely is sensible to have an element to your fairness investments exterior of a 401k. by doing so your finished tax bill would be decreased, extremely once you're an prolonged term investor. in case you have the least hankering to take a place a number of your money in gold and silver those actual could be interior a Roth IRA. the two are taxed as collectibles in any different case. yet another element of evaluate in regard to the 401k is that for the time of years yet to come the tax cost might surely be greater, possibly plenty greater, than it at the instant is. considering you particularly have not have been given any decision of putting non-mutual fund investments interior a 401k aside from possibly organisation inventory, it extremely does make experience to take a place Roth IRA money in organisation shares fairly than mutual money. yet be careful. it extremely is extremely tempting for many to take a position with their Roth IRA account extremely short term paying for and merchandising which in any different case may be taxed on the full tax cost. that could desire to be a stable thank you to shrink that cost of the Roth account. Be basically a sprint careful. make investments interior the likes of MCD, WMT, JNJ, BDX, KO, etc. or perhaps ETP with its 8% dividend or PAA with its 7.5% dividend. and don't make investments it in fewer than 5 distinctive companies.

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  • tro
    Lv 7
    9 years ago

    you can have your IRA made up of various stocks, and barter them back and forth with the earnings added to your IRA

    your taxability is when you take distribution

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