{"id":11303,"date":"2017-04-29T12:00:57","date_gmt":"2017-04-29T16:00:57","guid":{"rendered":"http:\/\/www.escapeartist.com\/?p=11303"},"modified":"2020-07-10T07:10:04","modified_gmt":"2020-07-10T11:10:04","slug":"ira-roth-contribution-limits-expats","status":"publish","type":"post","link":"https:\/\/www.escapeartist.com\/blog\/ira-roth-contribution-limits-expats\/","title":{"rendered":"IRA and ROTH Contribution Limits for Expats"},"content":{"rendered":"
If you\u2019re living abroad and operating a business in a low tax country, and your income exceeds the Foreign Earned Income Exclusion, you might consider setting up a US compliant IRA, ROTH, or SEP. Here are the IRA and ROTH contribution limits for expats and how to structure your retirement account. <\/span><\/p>\n Let\u2019s start from the position that one should only set up a US retirement account if it will help to reduce your US tax bill. That means you can consider a US IRA or ROTH if you\u2019re working in a country with a lower tax rate than you pay in the United States. <\/span><\/p>\n For example, let\u2019s assume your US personal income tax rate is 30%. If you\u2019re living the the UK, and earn \u00a3150,000, your UK tax rate will be about 40%. <\/span><\/p>\n Because your UK rate is higher than your US rate, you will pay no taxes to the US. The foreign tax credit will allow you to deduct or exclude the taxes paid to the UK so that you owe nothing to the IRS. <\/span><\/p>\n Next, let\u2019s say you earn that same salary but are living in and working in the Cayman Islands. Cayman has no personal income tax, thus you pay zero to your country of residence. <\/span><\/p>\n This means that your foreign tax credit in the United States is zero and the IRS will tax your $150,000 at 30% unless you can take the Foreign Earned Income Exclusion (see below) and reduce your taxes by contributing to a US retirement account. <\/span><\/p>\n The same can happen if you\u2019re running a business in a country that doesn\u2019t tax foreign source income, only local sourced income. For example, you\u2019re operating a business from Panama that sells products or services online to customers in the United States. <\/span><\/p>\n You have no local sourced profits in Panama because you\u2019re not selling to locals. So, your corporation pays no tax in Panama. <\/span><\/p>\n