Anyone that is not a U.S. citizen is called a non-resident alien, although the classification may seem different, the tax rate is the same as U.S. citizen.
For more information about the difference between 401k, IRA and Roth it is important to clarify the differences between the schemes.
401K
Paid with pre-tax dollars into a company scheme, you may have several 401ks and you do have a range of at least 3 investment options. The minimum age you can withdraw is 59.5 and have to withdraw is 72. The tax is deferred in 401k.
Finally, you will have this for most major large employers (you do have 403b 457 for governments and churches these do have different properties and SEPs, HR-10 for small business) contribute to 401k. With a simple 401k the employer is required to contribute 2% or match 1%-3% of employee contributions.
IRA
IRA is paid mostly with pre-tax dollars and is tax-deferred it has an age of 59.5 and RMD of 72 and the tax status is tax-deferred. If you withdraw prior to this age then you are taxed 10% as well as at your ordinary income level.
ROTH IRA
Roth IRA, is paid after tax-dollars and can withdraw tax-free at 59.5 or when you have had the IRA for 5 years (so for example if you take an IRA at 58 you will need to take out at 63) also you don’t have a minimum age to withdraw.
Also, an IRA can have a $6000 a year or a $7000 annual limit if you are over 50. You do have exceptions such as first-time house, education, or medical similar rules apply for Roth. Although, an IRA is open to anyone to grow tax-deferred.
Summary of IRA, Roth IRA & 401k
The main difference is that one is paid after-tax dollars (Roth) and the other’s is (mainly with IRA) pre-tax dollars meaning a Roth IRA is not taxed on withdrawal if the conditions are met that stated above, while an IRA is.
One point to consider when you reach 59.5 is the tax bracket that you find yourself as those in the higher-end tax bracket with an IRA at 59.5–72 will not favor too kindly.
Can I make contributions to an 401k
If you are self-employed you can (as well as SEPs that may be more applicable), yes. However, if you are employed it doesn’t allow contributions to a 401k.
Solo plans for expats
Solo 401k Retirement Plans. If you’re self-employed, a Solo 401k will indeed qualify as this, even though this will change if you return to the UK (a 401k is not recognised by HMRC). This is advantageous in the way that you can make ROTH contributions meaning that funded with after-tax dollars rather than a traditionally tax-deferred scheme this will allowed growth on the scheme to grow tax-free.
What Savings For Retirement Are Available?
IRAs may be a slightly simpler option for most UK expats, though it’s important that you know where you stand, whether you’re looking at a 401k, a Solo 401k, a traditional IRA or a Roth IRA.
If you would like to have more personalised circumstances tailored to your situation, please email me and I can arrange time to call you.
