r2i forum

I admit I have no idea and web searches have not yielded any postive results. I am interested in finding out about the following as a possibility. Create a trust in the US and put all the IRA monies into the trust. GOI taxes residents on worldwide income. My questions is whether GOI specifically taxes a foreign trust. The IRS does. A trust is considered a separate entity. If there is no law that specifically prohibits taxation of a foreign trust held by a USC resident of India then it will be possible to avoid the headache of reporting and paying taxes on US IRA's and 401K's and other monies. Another thing I am not sure about is whether 401K's and IRA's can be put into a trust in the first place?

Opinions from the experts solicited.

Another option is to create an LLC or other corporation and put your monies from Roth/401k/Trad & Rollover IRAs into it.

Any expert suggestions would be appreciated.


anandr2i

IRA funds are already held in a US trust.

If the objective is to avoid GOI taxes on IRA accruals that occur when IRA owner is ROR, then the trust veil, Indian or non-Indian, will not help. Indian IT law was not born yesterday - the law has provisions to take into account such devices. Specifically, per Sec 61 of Indian tax law, all income arising to an entity (here trust) by virtue of a revocable transfer of assets, will be deemed to be income of the transferor (IRA owner here).

http://law.incometaxindia.gov.in/TaxmannDit/Displaypage/dpage1.aspx?md=2&typ=cn&yr=2007&chp=156

01. Transferring IRA money into another trust need to cross the individual IRA distribution hurdle first. It would be taxed as an individual's income at that point.

02. Subsequent income from the trust need to be distributed to trust beneficiaries on yearly basis.

03. Beneficiaries pay at individual rate on the distribution.

04. On any undistributed income, trusts have to pay tax using the tax rates for trust which are much higher.