For Australians who’ve lived or worked in the United States, or for those with cross-border family ties and investment portfolios, understanding IRS rules can be crucial—especially when it comes to retirement savings. IRS Publication 590-B is the official US tax document that covers the nitty-gritty of distributions from Individual Retirement Arrangements (IRAs). As cross-border financial complexity grows in 2025, so does the need for clear guidance on how American retirement accounts interact with Australian tax rules and global investment strategies.
What Is IRS Publication 590-B?
IRS Publication 590-B, updated annually, sets out the rules for reporting and taxing distributions (withdrawals) from IRAs. In 2025, the publication covers:
- Traditional IRAs
- Roth IRAs
- Simplified Employee Pension (SEP) IRAs
- SIMPLE IRAs
It details Required Minimum Distributions (RMDs), tax treatment of early withdrawals, exceptions, and reporting requirements. While these are US regulations, Australians with US-based IRAs (often from past employment or inheritance) must comply with these rules and understand how they interact with ATO obligations.
Key 2025 Updates: Required Minimum Distributions and Penalty Relief
This year, US Congress further tweaked retirement distribution rules. The SECURE 2.0 Act, fully effective from 2025, has increased the age at which RMDs must begin—from 73 to 75. This means Australians holding US IRAs now have a longer window before mandatory withdrawals start, allowing more time for tax planning both in the US and Australia.
- RMD Start Age: If you turn 75 after 2024, your first RMD is due by April 1 of the year following your 75th birthday.
- Penalty Reductions: The penalty for failing to take an RMD has been cut from 50% to 25% (and as low as 10% if corrected promptly).
For Australians, this delay can be a double-edged sword—more time to grow investments, but also more time for currency risk and US estate tax exposure. And while the IRS only taxes the US-sourced account, the ATO may also assess income tax on distributions, depending on your residency status and double tax treaty protections.
Australian Tax Implications and Real-World Scenarios
Let’s look at two scenarios:
- Former US Resident, Now Australian Tax Resident: Olivia worked in Silicon Valley, built up a US IRA, and has now returned to Sydney. When she takes a distribution, the US withholds tax (usually 15% under the US-Australia tax treaty). Olivia must also declare the income to the ATO, but she can generally claim a foreign tax offset for the US withholding. If she’s under 59½, early withdrawal penalties may still apply unless an exception is met.
- Australian Inheriting a US IRA: Jack inherits his aunt’s IRA in Boston. As a non-spouse beneficiary, he’s subject to the 10-year rule: the entire balance must be distributed within a decade, as per 2025 IRS rules. Each year, Jack must report US income and pay Australian tax, mindful of both countries’ filing requirements.
Remember, IRS Publication 590-B also covers exceptions to penalties, such as disability, qualified first-home purchases, or substantial medical expenses—though these may not always align with ATO rules.
Practical Tips for Australians with US IRAs
- Coordinate Withdrawals: Plan distributions in years with lower income to optimise tax outcomes in both countries.
- Monitor Currency Movements: Exchange rates affect both your returns and the value reported to the ATO.
- Stay on Top of Reporting: The IRS expects Form 1040 (or 1040-NR for non-residents), while the ATO requires reporting of all foreign income. Missing paperwork can trigger audits or penalties.
- Keep Records: Maintain statements, tax forms (like US Form 1099-R), and evidence of any US taxes paid for Australian tax offset claims.
With both US and Australian rules evolving, cross-border retirees and inheritors should watch for new policy updates, especially as both governments look to close loopholes and increase compliance in 2025 and beyond.
