[ Offshore Tax ] Let’s talk about US retirement account contributions while working abroad

The IRA distribution rules for U.S. citizens living abroad are the same as those for citizens residing stateside. Whether you can contribute to your regular or Roth IRA while living abroad depends on your foreign income and the exclusions and deductions you claim, namely the foreign earned income exclusion (FEIE) or foreign housing exclusion.
To contribute to an IRA while living abroad, you must have income left over after deductions and exclusions. If you exclude all of your income with the FEIE and have no other sources of earned income, you are not eligible to contribute to an IRA. However, if you only exclude part of your income or claim the foreign tax credit (FTC) instead, you may still be able to contribute to an IRA.

TIMESTAMPS:
0:00 INTRO
0:10 End of service in Saudi Arabia
1:10 Investing in ROTH as a US ex-pat
2:40 SEC rules for US ex-pats
4:20 US retirement account contributions while working abroad
4:55 OUTRO

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DERREN JOSEPH:
If you receive an end-of-service benefit in Saudi Arabia, can you roll it into a retirement account without penalty or tax obligations? So can it be rolled into a retirement account if you have a, well, if it is you receiving it in Saudi Arabia, there are US companies operating in Saudi Arabia, of course? But let’s assume that your employer or your former employer is a non-US company, then you’re probably looking to take that payment and onboard it, and apply it to your own existing retirement account. A US-qualified retirement account. Sorry, a traditional IRA or a ROTH. So if it’s a ROTH, that’ll obviously be easy to the extent that it’s an after-tax one. So, so the, the, the benefit really with a Roth is you would know is upon distribution when you retire, you’re gonna be able to pull out everything task free. So depending on your individual situation and what your contribution limits would be, and give your financial situation, you may be able to deposit, yeah. To, invest it into your raw. If it is that you already have some sort of self-administered IRA, then you may be able to invest it into that as well. But then that’s a qualified product. So you just wanna make sure that your income level, et cetera, et cetera, are within the terms. Because you don’t want to have any excess contributions because excess contributions create retirement and concrete a lot of headaches. We deal with clients because the tax benefit is claimed. So it has to, you have to amend returns. We have to pay penalties, plus interest. You know, it just gets, it gets messy. So just check with your preferred financial advisor, or tax advisor who knows your situation, or A senior returns, cuz I am, no, nobody here. Senior return and we have a look, make sure that, okay, so this is your situation or this is the this is a retirement account you wanna put it into, it’s not in breach of the contribution limits. We still have some time.

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When working abroad, it can sometimes be confusing to know how to manage your finances. One of the most important questions to consider is how to contribute to your US retirement accounts while living and working overseas. The good news is that, yes, you can continue to make contributions to your retirement accounts even while living abroad. However, there are some rules and regulations to consider.

The first thing to consider is which type of retirement account you have. If you have a traditional Individual retirement account (IRA) or a 401(k) plan, you can generally continue to make contributions as long as you have earned income. This is true even if you are living and working abroad, as long as you are still a US citizen or resident.

However, there are some limitations to keep in mind. The IRS limits the amount you can contribute to your retirement accounts each year, and these limits apply regardless of whether you are living in the US or abroad. For example, in 2021, the maximum you can contribute to a traditional IRA is $6,000 ($7,000 if you are 50 or older).

Another thing to consider is the type of income you are earning while working abroad. If you are earning foreign income, you may be able to exclude some or all of that income from your US taxes using the Foreign Earned Income Exclusion (FEIE). However, this exclusion only applies to earned income – that is, income you receive in exchange for work or services. It does not apply to investment income or other passive income.

If you do decide to make contributions to your US retirement accounts while living abroad, there are a few things to keep in mind. First, make sure you are contributing to a US-based retirement account, rather than a foreign retirement account. While some foreign retirement accounts may be eligible for tax benefits in the US, they can be complicated to manage and may not be recognized by the IRS.

Additionally, keep in mind that there may be some tax implications when it comes time to withdraw funds from your retirement accounts. For example, if you have a traditional IRA, the funds you withdraw in retirement will generally be subject to US income tax, even if you are living abroad at the time. However, if you have a Roth IRA, your withdrawals are generally tax-free, as long as you meet certain eligibility requirements.

In summary, it is possible to continue making contributions to your US retirement accounts while living and working abroad, as long as you have earned income and meet other eligibility requirements. However, there are some limitations and tax implications to keep in mind, so it’s important to consult with a financial professional who can help guide you through the process. With careful planning and management, you can continue to build your retirement savings while living the expat life.