What are the rules on IRAs for U.S. citizens living abroad?

Even the most financially savvy Americans have a tough time understanding the full array of retirement investment options available. Moving to a foreign country only adds complications to contribution rules. There are volumes of articles on investing abroad and retirement vehicles, but when it comes to the tax rules on IRAs for U.S. citizens living abroad, here are the basics of what you need to know.

Can a U.S. citizen living abroad have an IRA?

Yes, a U.S. citizen living abroad can have both a traditional and/or Roth IRA. The restrictions only come with making contributions—so, if you had an existing IRA before you moved abroad, you don’t have to get rid of it or transfer assets, but you may not be able to add to it while you’re overseas.

If you’re unfamiliar with IRAs, you should understand the difference between the two types:

• Traditional IRA: Traditional IRAs are tax-deductible depending on your income, filing status, and whether or not you have an employer-sponsored 401k, pension, or receive social security benefits. You can open one or contribute to one if you (or, if you file a joint return, your spouse) received taxable income during the year and are under the age of 70½.
• Roth IRA: Roth IRA contributions are never tax deductible, and you must meet certain income requirements in order to make contributions. Roth IRAs are also tax-free upon a qualified distribution.

IRA contribution rules for overseas Americans

For 2023, traditional and Roth IRA rules state Americans may contribute up to $6,500 per year or $7,500 for Americans over the age of 50. The IRA distribution rules for U.S. citizens living abroad are the same as they are for citizens living stateside. Whether or not 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.

In order to contribute to an IRA while living abroad, you need to have income leftover 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.

For example, let’s say a U.S. citizen employed in Australia makes $95,000 and uses the FEIE to exclude all of it on her U.S. taxes. Because she has no income leftover after the exclusion, she is not able to contribute to an IRA while working abroad. If, however, she had used the Foreign Tax Credit instead of the FEIE, she would have unexcluded income on her U.S. tax filing and would be able to contribute to her IRA.

Now, let’s say she earns $150,000, and uses the FEIE to exclude the maximum amount for 2020 of $107,600. Because she has income leftover after the FEIE, she would be allowed to contribute to an IRA.

Because each situation is different and there is a wide range of compliance rules, complex tax laws, and stipulations depending on the country in which you live, it’s crucial to get the help of an expert Tax Advisor that can guide you towards the best decision. Get started by creating your online tax portal and uploading your documents.

Roth IRAs vs Traditional IRAs for U.S. citizens living abroad

With traditional IRAs, you are allowed to contribute up to a certain amount and in return you get a tax deduction directly correlated to the amount you contribute. Money in these traditional retirement accounts are tax-deferred, meaning you don’t have to pay taxes on them until you begin withdrawals.

Roth IRAs are similar to traditional IRAs, with some exceptions:

• When you open the account, you must designate it as a Roth IRA.
• Roth IRA earnings are (in general) tax-free instead of tax deferred.
• You can withdraw Roth IRA contributions at any time without tax or penalty.
• You can continue to make contributions after you reach age 70½. However, you must still receive taxable compensation.
• You don’t have to begin taking withdrawals from your account at age 70½.

There are income limitations on Roth IRAs—each person is able to contribute up to the maximum amount if you have under $146,000 in income for 2024. If you make between $146,000 – $161,000 you’re allowed to contribute a phased-out amount, and if you make over $161,000, you’re unable to contribute.

If your 2024 filing status is…	And your MAGI is…	Then you can contribute…
Married filing jointly or qualifying widow(er)	< $230,000	$7,000 ($8,000 if 50 or older)
> $230,000 but < $240,000	a reduced amount
> $240,000	zero
Married filing separately and you lived with your spouse at any time during the year	< $10,000	a reduced amount
> $10,000	zero
Single, head of household, or married filing separately and you did not live with your spouse at any time during the year	< $146,000	$7,000 ($8,000 if 50 or older)
> $146,000 but < $161,000	a reduced amount
> $161,000	zero

How to start an IRA while living abroad

If you already live abroad and are looking to start an IRA, we recommend you choose a U.S.-based IRA over a foreign IRA. Foreign investments are taxed differently than U.S.-based ones, and also come with a hefty amount of reporting requirements.

Speak to an Expat Tax Advisor before contributing to make sure you’re making the right choice.

Can I move my IRA overseas?

A question we get a lot from seasoned expats is if they can move their existing U.S.-based IRA overseas. If you want to roll over an existing IRA to a foreign pension, you may have an uphill battle—rollovers can typically only occur between domestic plans. Other options you may want to look into are withdrawing your funds in your current U.S. IRA and opening a brand new one overseas or leaving the funds in your existing account.

Because of the significant impact withdrawals can have on your overall financial health, we recommend speaking with an expert before withdrawing funds.

Need help with overseas IRA reporting and IRAs for expats? Leave it to the trusted experts at H&R Block

Have more questions about contributions to an IRA for U.S. citizens living abroad? Ready to file? No matter how complicated your U.S. tax return is, there’s an expat tax expert ready to help. Get started with Virtual Expat Tax Preparation from H&R Block, the tax pros trusted by U.S. expats in every corner of the globe.