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The Short Answer

A Taxing Dilemma: Foreign Investments and Your Retirement Account

Investors with IRA and 401(k) accounts still may end up paying foreign income taxes.

Question: Someone told me that each year I pay taxes on the dividends from the foreign-stock funds held in my IRA. If I'm not supposed to be paying taxes on dividend payments in my IRA, how can this be?

Answer: To understand why you may be paying taxes on foreign dividends held in your IRA (and your 401(k), if you have one) you first must understand how the U.S. tax code treats the income U.S. taxpayers receive from abroad.