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Individual Retirement Accounts

Those saving for retirement while living abroad will need to be aware of the contribution limitations.

By Bethany Bouw

As US individuals look to save for retirement, it is important to note that those residing abroad may face some additional considerations. Many people seek to save for retirement via traditional and ROTH IRAs. Residing abroad doesn’t automatically preclude one from contributing to these types of accounts, but there may be limitations and other things to consider in making an investment.

Five Things to Remember:

  1. IRA contributions are limited for everyone. Total IRA contributions for 2017 may not exceed the lessor of $5,500 ($6,500 if aged 50 or older) or taxable compensation for the year. The ROTH may be further limited based on income and filing status. It is also important to note that you may not make traditional IRA contributions if you are over 70 and a half years old.
  2. Foreign earned income & taxable compensation. The foreign earned income exclusion excludes income from tax. The foreign earned income exclusion is capped. If your compensation is fully excluded under the foreign earned income exclusion, you have no taxable compensation. With no taxable compensation, you are not eligible to make an IRA contribution. The foreign housing exclusion can also have an impact on your ability to make contributions.
  3. Compensation exceeds the foreign earned income exclusion. If your compensation isn’t fully excluded with the foreign earned income exclusion, you may have taxable compensation that can be used in consideration of making an IRA contribution.
  4. Talk with your tax preparer before you make contributions. Be sure to discuss options with your tax advisor regarding the type of contribution you want to make. It is always better to find out ahead of time if the contribution you are making is not allowed. Should you make a contribution that is disallowed, that excess contribution will be taxed at 6% per year. Such a tax will continue for each year that the excess remains in the IRA.  There is also the 10% early withdrawal penalty if under 59 and a half years old when removing the excess contribution. Due to the penalties and tax that exist with excess contributions, please contact your tax advisor before making contributions or corrections to your IRA accounts.
  5. Other Considerations. It is best to contact your tax advisor regarding traditional versus ROTH contributions. A ROTH may be more advantageous in situations when the taxpayer has no tax liability but earned income after exclusion.

Ryan & Wetmore has assisted clients with their IRA tax planning and foreign earned income exclusions over the years. We would be happy to assist you if you have concerns about your eligibility to contribute to an IRA.

 

Bethany Bouw CPA, is a manager at Ryan & Wetmore and has been with the firm for over eight years. She has experience with offshore voluntary compliance and assisting taxpayers with foreign asset and entity reporting requirements. Contact her at bbouw@ryanandwetmore.com.

Traci Getz CPA, is a partner with Ryan & Wetmore, P.C. Traci has over fifteen years of experience providing accounting, tax, and consulting services to small and medium-sized business owners. She works with clients to understand their accounting and tax issues while specializing in international tax, healthcare, and construction. Please contact Traci at Tgetz@ryanandwetmore.com.

 


Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.