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IRAs for American Expats

Retirement planning for Americans is a complex affair in even the simplest of circumstances. For American expats living abroad however, trying to make sense of their options in relation to IRAs, Roth IRAs and other retirement accounts may prove to be a particularly headache-inducing experience.

Factors you will have to consider include the following:

  • Compliance rules
  • Contribution limits
  • Tax implications
  • Your country of residence
  • Withdrawal requirements

Individually, these are all important considerations, but, when looked at together, they require careful and experienced management if the account holder is to ensure that they work to their advantage.

Foreign Earned Income Exclusion

If you live abroad you may qualify for the Foreign Earned Income Exclusion (FEIE) and/or the Foreign Housing Exclusion (FHE). However, it is necessary for you to understand how utilising these will affect your retirement accounts.

For example, if you exclude all your income and have no other source of earned income, you will be unable to contribute to an IRA. However, if you exclude only a portion of your income, you may still be eligible to contribute to your IRA.

For example, if you work abroad, are employed by a non-US company, earn $90,000 and use FEIE to exclude all your income from US tax liability, you will have no income acceptable for IRA contribution. In contrast, if you have a higher annual income (e.g. $204,000) and are able to apply foreign tax credits or a combination of the FEIE and FHE, you may still be able to contribute a portion of your income to the account. Circumstances will differ from individual to individual, so it is essential that you discuss your situation with an experienced and professional advisor.

Foreign Tax Credit

Many expats many find it advantageous to utilise the Foreign Tax Credit instead of the Foreign Earned Income Exclusion. Not only does claiming FTC give you the opportunity to contribute to an IRA, it may also allow you to claim a tax reduction in the US that is calculated according to the of tax you have paid in your country of residence.

Other aspects that may make FTC more favourable than FEIE include:

  • A streamlined and less onerous filing process
  • No need to pass the Bona Fide or Physical Residence tests
  • Ease of ability to switch to FEIE and, if necessary, back to FTC again
  • The ability to claim additional Child Tax Credit
  • The ability to carryover or carry-back any unused foreign income tax

IRA planning for Expats with Blacktower in the US

Blacktower in the US can help you make sense of your options regarding IRA and Roth IRA contributions as a US citizen living in abroad.

For example, we can help you decide whether it may be better to be taxed now (a Roth IRA) or taxed later (a traditional IRA) depending on your income, likely future income, age and other factors.

Whatever, the case, as an American living abroad you will have a unique set of circumstances that will impact on the retirement planning strategy you adopt. This is why it is best to discuss your situation with a qualified cross-border investment adviser. Speak with Blacktower in the US today.


We are not tax advisers and independent tax advice should be sought. The above does not constitute advice.

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