In regards, to IRA rules when living abroad it seems to hit complications and little is known about the subject. So, I will aim to go over the basics of IRA rules when living abroad.
Can I still keep my IRA when abroad?
Yes, you can have a Roth and IRA account when you live abroad. The restrictions come when you are looking to make contributions. So, if you have an IRA before you move, you can keep it. However, topping it up might be difficult depending on the conditions of the specific provider but many do require a U.S address.
A traditional IRA – Is stated as tax-deductible depending on certain factors including if you have a 401k or other pension income. You can fund an IRA with only taxable income.
Roth IRA– Is not tax-deductible and to contribute you must meet income requirements, as of 2021, you need to be earning under $140,000 for single filers and $208,000 and under for married couples. You have limits as to what you can contribute, they are $6000 for under 50s and $7000 over 50 on the highest contribution limit depending on income. But, Roth IRAs are tax-free on qualified distribution.
IRA contribution rules for overseas Americans
IRA distribution limits are still the same for expats as if they were in the U.S. but, contribution to an IRA is dependent on foreign earned income exclusion or foreign housing exclusion.
In order to contribute to a Roth IRA when living abroad, you need to have leftover deductions and exclusions. If you exclude all your FEIE you are not eligible to contribute to an IRA. Although, if you only exclude part of your income you may still be eligible to contribute to an IRA.
For example, if Mr Smith living in the U.K earns $100,000 and uses all FEIE to exclude U.S taxes he is not eligible to contribute. But, if he uses tax credit instead of FEIE it would be classed as excluded income on U.S tax filling and would be able to contribute to an IRA.
But, if you earn over the $107,600 income he would not be able to contribute due to earning limits.
Roth IRAs vs Traditional IRAs for U.S. citizens living abroad
IRAs get tax deductions directly correlated to the amount you contribute and are tax-deferred until withdrawals are made.
The differences are:
IRA is tax-deferred and a Roth IRA is tax-free.
Roth contribution withdrawals from income can be done any time while IRA has penalties before 59.5 years old.
No RMDs with Roth IRAs
| ingle Filers (MAGI) | Married Filing Jointly (MAGI) | Married Filing Separately (MAGI) | Maximum Contribution for individuals under age 50 | Maximum Contribution for individuals age 50 and older |
| under $125,000 | under $198,000 | $0 | $6,000 | $7,000 |
| $126,500 | $199,000 | $1,000 | $5,400 | $6,300 |
| $128,000 | $200,000 | $2,000 | $4,800 | $5,600 |
| $129,500 | $201,000 | $3,000 | $4,200 | $4,900 |
| $131,000 | $202,000 | $4,000 | $3,600 | $4,200 |
| $132,500 | $203,000 | $5,000 | $3,000 | $3,500 |
| $134,000 | $204,000 | $6,000 | $2,400 | $2,800 |
| $135,500 | $205,000 | $7,000 | $1,800 | $2,100 |
| $137,000 | $206,000 | $8,000 | $1,200 | $1,400 |
| $138,500 | $207,000 | $9,000 | $600 | $700 |
| $140,000 & over | $208,000 & over | $10,000 & over | $0 | $0 |
How to start an IRA while living abroad
If you are living abroad and looking to contribute to IRA look to see if you can get one in the U.S as an overseas one as if it is not structured correctly it can trigger PFICs. So, make sure if you are looking to open one overseas that it is structured accordingly.
PFICS comes with a high tax.
Can I move my IRA overseas?
This can be done by rolling it into a country-specific pension scheme such as U.K SIPPs, Aus Super, if it is not possible in, like many cases, look for specific rules in your country of residence.
Finally, what you do have the option is rolling over into domestic plans and/or opening up a new IRA and withdrawing funds in the new account.
Conclusion
IRA rules when living abroad can be complicated and it is something you might want to get your head around.
There are earning and contribution limits that you need to be aware of and you can contribute to these while abroad, however you can’t exclude all your income through FEIE.
Please avoid PFICs as this is costly. If you are unsure if an investment will incur a PFICs tax please email me or do your research.
You could look to move your IRA’s overseas, however, this depends on your current residency and their rulings.
If you have any questions on IRAs as an American expat please email me at info@investmentsforexpats.com and I can arrange a time to call you to go through all your questions.
