Join MyExpatTaxes CEO and IRS enrolled agent as she walks you through what expats should know about IRAs and Roth IRAs as an American living outside the US.
Some questions Nathalie answers:
How much can I contribute to my IRA?
Should I open an IRA as an expat?
Should I close my US IRA now that I’m abroad?
Are there penalties I should be aware of?
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All the new info for filing your taxes as an expat in 2022
Intro: (00:00)
IRAs for Expats (00:20)
Roth IRA or Traditional IRA? (00:48)
Who is eligible to make IRA contributions? (02:22)
Which IRA is best for expats: (04:42)
Outro (06:53)…(read more)
LEARN MORE ABOUT: IRA Accounts
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IRAs & Roth IRAs as a US Expat: Tax Deductions & Eligibility for Americans Abroad
Navigating the realm of taxes can be overwhelming, especially for Americans living abroad. As a US expat, it is crucial to understand the tax implications associated with investment tools like Individual Retirement Accounts (IRAs) and Roth IRAs. These accounts offer tax advantages for retirement savings, but it is important to know the rules and restrictions that apply when residing overseas.
First and foremost, it’s important to understand the difference between a traditional IRA and a Roth IRA. A traditional IRA allows you to contribute pre-tax income, which means that you can deduct the amount contributed from your taxable income, potentially reducing your overall tax liability. However, when you withdraw funds from a traditional IRA in retirement, those distributions are taxed as ordinary income.
On the other hand, a Roth IRA is funded with after-tax dollars, meaning you contribute money that has already been taxed. The benefit is that when you withdraw funds from a Roth IRA in retirement, the distributions are generally tax-free, including both the initial contributions and any investment growth.
For US expats, contributing to a traditional IRA might not provide the same benefit as it does for US residents. This is because the Foreign Earned Income Exclusion (FEIE), which allows expats to exclude a portion of their foreign income from US taxation, already reduces their taxable income. Consequently, there may be little or no taxable income left to deduct contributions to a traditional IRA, making it less advantageous in terms of immediate tax savings.
However, contributing to a Roth IRA can still be an excellent option for expats. Since Roth IRA contributions are made with after-tax income, the FEIE does not impact the eligibility to contribute. Additionally, the tax-free growth and withdrawals in retirement make it an attractive option, especially if you expect your tax rate to be higher during retirement or if you anticipate remaining a US citizen long-term.
It’s worth noting that the eligibility to contribute to a Roth IRA is subject to income limits. For tax year 2021, single filers must have a modified adjusted gross income (MAGI) below $140,000 to make the maximum contribution. For married couples filing jointly, the MAGI limit is $208,000. Beyond these thresholds, contributions to a Roth IRA are gradually reduced until they are no longer allowed.
Another important consideration for expats is their choice of IRA custodian. While many US financial institutions offer IRAs and Roth IRAs, some may not accept overseas applicants or may have restrictions on non-US residents. It’s essential to select a custodian that understands the unique needs of expats and can accommodate their specific circumstances. Doing thorough research and consulting with a financial advisor who specializes in working with expats can help ensure you choose the right custodian for your situation.
Finally, it is essential for US expats to stay up to date with tax laws and regulations, as they can change over time. Tax policies can vary depending on the country of residence and the existence of a tax treaty between the United States and that particular country. Working with a tax professional, like Nathalie, who specializes in expat tax matters, can help ensure compliance with both US and local tax requirements.
In conclusion, IRAs and Roth IRAs can be valuable retirement savings tools for US expats. While the eligibility and tax deductions may vary depending on factors like income level, residency, and tax policies, contributing to a Roth IRA generally remains an attractive option for expats. Understanding the rules and working with an expert in expat taxes can help maximize the benefits of these investment accounts, ultimately helping you secure a more financially secure retirement as an American living abroad.
Hello Natalie, I have lived in South Korea for 10 years. I want to invest in a Roth IRA and know I cant claim all my salary on 2555 (as I usually do and pay no taxes). If I use the exclusion, can I exclude a certain amount or do I have to exclude my entire SK salary? I am unsure what SK does about IRAs. I would like to be able to contribute the max of $6,500 to the Roth IRA each year.
So, If I understood this correctly for me and my wife, living in Italy, wouldn't make any sense opening a Roth IRA account because Italy will tax those earnings when we will start withdrawing them, right? Unless we decide to move back our residency in the US when we decide to retire…correct?
4:25 I do make over $10k married to foreign spouse. Does that rule apply to me?
Hi! Thank you so much for the video!
Me and my wife had an existing Roth IRA account before we recently moved and we are currently working in the Uk. Our joint income right now is £110K or around $135-140k USD, we have no kids. In this case, are we still eligible for contributing to our Roth IRA account?
Please kindly advise. Thank you!
Thanks for the info. I wonder if we can set up a custodial Roth IRA as an expat.
Hello I am a new US expat who recently moved to Thailand. Before I moved to Thailand I opened an account with Charles Schwab and fidelity but I did not invest anything until I moved to Thailand in which I recently opened a Roth IRA account with Fidelity and I put the max 7000 dollar limit since I did work until I retired a couple months ago.. I did call fidelity and told them I am living outside of the US and I want to invest and they told me as long as I still have a US address I can use then I can invest. So I started using my Aunts address in Arizona and then I moved that address to my Private mailbox which I am not sure is legal to use private mailbox. Now I am nervous that this will cause me problems when I do my taxes and I also want to invest more but I am also nervous to invest more since I no longer live in the US. Please help
Hi Natalie, I am an American living abroad in China and I just opened a Roth IRA account. I still haven't filed my 2021 taxes, but I was planning to do that soon.
If I don't use the FEIE and only use the FTC, I will be responsible for paying around $1000 in income taxes. (the difference between my Chinese tax burden and hypothetical American tax on my income) I think this is a good decision because it will let me contribute to a Roth IRA and have the money grow tax free.
My question is, because I didn't actually open the Roth IRA until 2022, can I still make contributions to the IRA during 2022 if I take the FEIE on my 2021 taxes? I would prefer to make contributions as soon as possible, but to me it doesn't make sense to not use the FEIE for my 2021 income because I didn't open the IRA during that year. Thanks for all the help!
Hi Natalie – thanks for this great video! For US expats living abroad, I understand roughly the first ~$105k of earned income is not subject to US income tax. Do you know if income from Traditional IRA distributions are treated the same way? Also, does the US government consider earned income (from job/work) for US expat retirees against Social Security income limits? Thank you so much for your expertise!