Cross-Border Taxpayers Risk Penalties If They Don’t Plan for the New IRS 10-Year Rule

May 12 20:15 2023
Advisors at Cardinal Point Wealth Management urge proactive, strategic planning to avoid unnecessary tax liability and preserve retirement savings.

Retirement accounts are one of the best and most reliable ways to save for retirement. But in order to optimize the return on investment in such accounts, cross-border financial planning advisors at Cardinal Point Wealth Management point out that it’s important to follow rules regarding RMD withdrawals. Otherwise, there may be stiff penalties and steep taxes incurred, which can effectively undermine retirement savings goals.

As per the Internal Revenue Service (IRS) guidelines, the U.S. Minimum Distribution Rules require that individuals who have tax-deferred retirement accounts withdraw a minimum amount of money annually from their accounts, known as Required Minimum Distributions (RMDs). The amount of the RMD is calculated by dividing the account balance by a life expectancy factor, and failure to withdraw the minimum amount can result in a steep penalty of up to 25% (previously 50%) of the amount not withdrawn on time.

The age for taking the first RMD was raised to 73 as of 2023 and will be 75 starting in 2032. Delaying the first RMD until the following year (and before April 1st) will require taking two RMDs that year. Subsequent RMDs must be taken by December 31st of each year. Additionally, there is a new 10-year distribution period, known as the 10-year rule, which applies to specific circumstances regarding inherited accounts.

The 10-year rule went into effect on January 1st, 2020. This rule applies to certain designated beneficiaries of inherited retirement accounts in the U.S. and requires them to withdraw the entire balance of the inherited account within 10 years of the account owner’s death. 

It specifically applies to beneficiaries who are not considered “eligible designated beneficiaries,” which includes surviving spouses, minor children, disabled individuals, and individuals not more than 10 years younger than the account owner. Under the 10-year rule, beneficiaries are required to take annual RMDs as with traditional inherited IRAs, and the entire balance must be withdrawn by the end of the 10th year. 

But beneficiaries must pay income tax on the distributions, which may push them into higher tax brackets. Therefore, the 10-year rule has significant implications for retirement and estate planning, both for Canadian and U.S. beneficiaries. It is advised that individuals review and update their plans to reflect this new rule – preferably with expert guidance from qualified cross border tax planning and legal professionals.  

Additionally, the 10-year rule can impact estate planning for individuals holding cross-border retirement accounts. It is essential to consider how beneficiaries will inherit the accounts and then adjust estate plans accordingly to reduce the impact of potentially accelerated distributions on a beneficiary’s tax obligations – and to ensure full compliance with applicable rules and regulations.

About Cardinal Point Wealth Management

Cardinal Point is an independent cross-border wealth management firm with offices in both the United States and Canada. Cardinal Point provides personalized cross-border investment management, cross-border estate planning, cross-border tax planning, cross border wealth management, and cross-border financial planning solutions to affluent individuals and families located in both the United States and Canada. For more information about Cardinal Point, please visit

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Company Name: Cardinal Point Wealth Management
Contact Person: Jeff Sheldon
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Phone: 866-213-2036
Address:2255 Glades Road, Suite 324A
City: Boca Raton
State: FL 33431
Country: United States