{"id":1828,"date":"2024-03-20T14:22:30","date_gmt":"2024-03-20T18:22:30","guid":{"rendered":"https:\/\/www.etax.com\/blog\/?p=1828"},"modified":"2025-12-08T18:09:58","modified_gmt":"2025-12-08T23:09:58","slug":"no-credit-for-foreign-taxes-held-in-a-tax-deferred-account","status":"publish","type":"post","link":"https:\/\/www.etax.com\/blog\/2024\/03\/20\/no-credit-for-foreign-taxes-held-in-a-tax-deferred-account\/","title":{"rendered":"Are You Losing Money on Foreign Stocks in Your IRA? The Foreign Tax Credit Trap"},"content":{"rendered":"

Investing in foreign stocks can be a savvy move for diversifying your portfolio, especially with projections suggesting strong growth in international markets. However, a common mistake could be costing you money. If you hold these foreign investments within a tax-deferred account like an Individual Retirement Account (IRA<\/a>), you might be forfeiting a valuable tax benefit: the U.S. foreign tax credit. This article explains the issue and helps you decide the best place for your foreign assets.<\/p>\n

What is the Foreign Tax Credit?<\/b><\/h2>\n

When you receive dividends from foreign stocks, you are often taxed twice: once by the foreign country where the company is based, and again by the United States. To prevent this double taxation, the U.S. government allows taxpayers to claim a foreign tax credit<\/a> on their returns. This credit directly reduces your U.S. tax liability on that foreign income, ensuring you’re not unfairly taxed.<\/p>\n

The Problem: Claiming the Foreign Tax Credit in a Tax-Deferred Account<\/b><\/h2>\n

The benefit of a tax-deferred account like an IRA is that you don’t pay taxes on investment growth or dividends annually. Since there is no U.S. tax liability on the income generated within the IRA each year, there is no tax to offset.<\/p>\n