Living abroad. Retirement savings options?

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john77
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Living abroad. Retirement savings options?

Post by john77 » Sat Jan 30, 2016 4:43 pm

I'm an American citizen, 38-years-old and residing abroad / American expatriate in an EU country where I'm employed. I am taxed here on my income at about 30%.

My problem is that I have not been investing and putting away for retirement since I moved abroad 6 years ago and I've read and heard at least heard 3 different things regarding contributing to a ROTH IRA when living abroad:

1) I'm legally unable to fund a Roth IRA in the US considering that I'm not being taxed on my income in US.

2) If I want to fund a ROTH IRA, I'd need to not claim any Foreign Earned Income Exception, meaning I'd be double taxed by both my resident country, as well as native US.

3) If I want to fund a ROTH IRA, I can take the FEIE for all but $5500 I'd contribute when filing my taxes

What are my best options for retirement savings while living here? Whether it's a ROTH or something else, I need advice here. I anticipate being here at least another 5-6 years, however I do plan on being back in the US and retiring there.

Other details:

Married to my wife, who is not a US citizen
2 children hold US citizenship and are dual citizens
Household income (before taxes) is about $100,000, $70,000 of which is my earned income

CFM300
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Re: Living abroad. Retirement savings options?

Post by CFM300 » Sat Jan 30, 2016 6:32 pm

My understanding is that you cannot take a partial exclusion on a single source of foreign earned income, so option (3) is out. If you want to contribute to an IRA, you might be able to skip the Foreign Earned Income Exclusion and take a tax credit on your U.S. return based on the taxes you paid to the foreign country where you live, thereby avoiding double taxation you mentioned in option (2).

Here's the official source for the gory details:

https://www.irs.gov/pub/irs-pdf/p54.pdf

But you'll probably find these helpful and more accessible.

http://overseastaxservices.com/ira-information/
http://www.ustax.bz/expats-iras/
http://overseastaxservices.com/foreign- ... exclusion/

john77
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Re: Living abroad. Retirement savings options?

Post by john77 » Sun Jan 31, 2016 6:20 pm

Thank you for this, that's the first I heard I may be able to actually use my high tax rate here (over 30%) to my advantage to be able to contribute and hopefully max out a Roth IRA. Also in need of other retirement savings advice as I'll be here at least another several years and I need to get my butt in gear, as far as saving for retirement.

I'd be very interested to know and learn if anyone here has used or can recommend a tax attorney or CPA who specifically specializes in best practices and loopholes for Americans residing abroad, to ensure I'm taking full advantage of saving for my retirement so that I have something when I return to the US.

The treatment that the US government gives expats is disgustingly atrocious. Most US banks won't even allow me to open an account and one even made me close my account as I don't have a current US address. Should be illegal and is clearly discriminatory. But that's another topic and I'm getting my political hairs up on my back :)

Karamatsu
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Re: Living abroad. Retirement savings options?

Post by Karamatsu » Sun Jan 31, 2016 8:04 pm

I can confirm that (1) is correct: earned income that is covered by the FEIE won't be eligible for an IRA contribution. The only alternative while using the FEIE is to get some US-earned income (for example, salary earned while on a business trip to the US), or if your host country income exceeds the FEIE (in dollar terms).

Option (2) works and as CFM said you can take a foreign tax credit to eliminate double taxation. As a DIY option, use tax software to prepare your return and then just try it both ways to see what results you get. But note that the foreign tax credit only exists to eliminate double taxation, so there's no advantage to paying 30% tax in your host country. The credit will only cover the overlapping tax, leaving the rest of the foreign taxes paid as unused credit carried forward. This may or may not come in handy, but unlike capital losses, FTC carry-forwards expire after 10 years. The other thing to consider is that FTC (Form 1116) is one of the most complex sections of the tax code, and there's a corresponding "frustration tax," trying to deal rules that are very poorly explained, or sometimes not explained at all except in external documents kept in a locked trunk in the basement of the IRS headquarters. Thus aside from being able to make the IRA contribution, there doesn't seem to be much of an advantage.

Also note that the IRS doesn't let you freely shift back and forth between taking the FEIE and not taking it on a year by year basis, so it's probably best to make it a long-term choice. See Publication 54 for details of that.

Option (3) is definitely out. Anyone who tries this is likely to have a rude awakening at retirement, when the IRS will come after them for excess contributions, penalties, and interest on those penalties that is compounded from the time of the contribution. This would almost certainly wipe out any advantage from the tax shelter, and worse, could completely wipe out the IRA accounts. Please ask whoever suggested partial exclusion to check with the IRS directly. If they say it's OK, get it in writing.

Because tax treaties are bilateral what you really need is a tax accountant deeply familiar with both the US laws and those of your host country. Even then, I'm sad to say, they often make mistakes and even if it's a "Big Four" company, you need to check the return very, very carefully to make sure you understand how each number was computed. By the time you do that, you may wonder (quite rightly) why you're paying them, but it's easier to verify correctness than it is to do a return yourself.

In my case I take the FEIE and just forego the IRA contribution. This means that most of my investments are in a taxable account, with bonds in the IRA accounts that I have left-over from when I was in the US. Fortunately living abroad has benefits to compensate for US tax rules!

naanwar
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Re: Living abroad. Retirement savings options?

Post by naanwar » Sun Sep 18, 2016 4:13 am

I am interested in learning more about this.

my background -
My wife and I are US citizens living in Singapore.
I have a financial advisor (who is also my friend :-(((() to manage our retirement accounts for the last 5 years charging us 1% BUT under performing. Her company is associated with UBS so our IRAs and Roth IRAs are with UBS. Our allocations are with front loaded funds :-(

I want to
1. terminate our advisor but keep our friendship.
2. Re-allocate our retirement to Index funds and Bonds.

What is the best way to terminate our advisor and take over our retirement accounts with UBS?
Ideally I would like her to handover our account and I want to reallocate our IRA and roth IRA to index funds and bonds per bogleheads wiki.
Any help will be much appreciated.

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in_reality
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Re: Living abroad. Retirement savings options?

Post by in_reality » Sun Sep 18, 2016 5:35 am

john77 wrote:Thank you for this, that's the first I heard I may be able to actually use my high tax rate here (over 30%) to my advantage to be able to contribute and hopefully max out a Roth IRA. Also in need of other retirement savings advice as I'll be here at least another several years and I need to get my butt in gear, as far as saving for retirement.

I'd be very interested to know and learn if anyone here has used or can recommend a tax attorney or CPA who specifically specializes in best practices and loopholes for Americans residing abroad, to ensure I'm taking full advantage of saving for my retirement so that I have something when I return to the US.

The treatment that the US government gives expats is disgustingly atrocious. Most US banks won't even allow me to open an account and one even made me close my account as I don't have a current US address. Should be illegal and is clearly discriminatory. But that's another topic and I'm getting my political hairs up on my back :)
You can (and probably should I think) invest as an expat. There is nothing stopping you from doing so.

If you do not qualify for retirement contributions, you can always (and probably should I think) contribute to taxable.

Vanguard generally doesn't take expats, Schwab is only able to accept new accounts from certain countries, but can always use Interactive Brokers. They are a US company but able to open accounts in most countries since they have structured their business to do so. There is a monthly minimum if you are under $100k I believe of about $12, but commissions will be deducted from that. Otherwise they seem to have pretty low fees and good access to most (maybe all) ETFs. Schwab (who I use) has a good selection of super low cost ETFs and more straightforward costs. You can check if Schwab can accept your account here http://international.schwab.com/public/ ... intro.html

Also, you have to figure out whether it makes sense to not take the FEIE and instead claim your foreign taxes paid on your US return as a credit. That might give you taxable income and enable a retirement contribution. If you are paying income tax overseas, and declare that income as taxable in the States too, then your foreign income tax should be allowed as a credit. It's a little bit of a complicated series of forms ... I tried it both ways in Turbo Tax several times and in my case, I don't do that because it would result in a higher overall tax bite. This means I am making no tax deferred investments at this time.

I am not sure how your country of residence handles US investments tax wise. Tax deferred in the US, may or not be tax deferred in your country of residence. You have to figure that out.

I don't know of any particular advisors/CPAs who have tax tricks. There are lots of places pushing offshore stuff but ...yuck ... no way.
Last edited by in_reality on Sun Sep 18, 2016 5:56 am, edited 1 time in total.

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in_reality
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Re: Living abroad. Retirement savings options?

Post by in_reality » Sun Sep 18, 2016 5:55 am

john77 wrote: Married to my wife, who is not a US citizen
2 children hold US citizenship and are dual citizens
Household income (before taxes) is about $100,000, $70,000 of which is my earned income
By the way, is your wife a green card holder?

If not, do you file as head-of-household? The brackets are higher, and you qualify as single with a non-citizen, non-resident wife if you pay half the expenses and have dependents. I think you can still take her as a deduction too. If you declare her as a resident for tax purposes though, MFJ is better.

Estate tax wise, be careful too. If your country doesn't have an estate tax treaty, any money your wife holds in the US over $60k would be taxed. So if you die and she has both of your money then dies with $100k remaining in the US, your kids would have an estate tax bill over $8k (tax runs 18-40%) when the $100k went to them.

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in_reality
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Re: Living abroad. Retirement savings options?

Post by in_reality » Sun Sep 18, 2016 6:07 am

naanwar wrote:I am interested in learning more about this.

my background -
My wife and I are US citizens living in Singapore.
I have a financial advisor (who is also my friend :-(((() to manage our retirement accounts for the last 5 years charging us 1% BUT under performing. Her company is associated with UBS so our IRAs and Roth IRAs are with UBS. Our allocations are with front loaded funds :-(

I want to
1. terminate our advisor but keep our friendship.
2. Re-allocate our retirement to Index funds and Bonds.

What is the best way to terminate our advisor and take over our retirement accounts with UBS?
Ideally I would like her to handover our account and I want to reallocate our IRA and roth IRA to index funds and bonds per bogleheads wiki.
Any help will be much appreciated.
AFAIK, you have to use Interactive Brokers. I know they accept IRA rollovers/Trustee-to-Trustee transfers, but aren't 100% sure they do so from expats. https://www.interactivebrokers.com/en/s ... ethods.htm

Their customer service might be a little bare bones and I think they target experienced traders a little more, but usually when expats or foreign residents want to open an account and Schwab won't take them (Schwab can't open accounts in Singapore by the way), the advice is almost always Interactive Brokers. There's a monthly minimum fee ($12) if you are below $100k but transaction fees get subtracted from it. Their fee structure is more complicated than Schwab's but hey, they have good pricing and can open an account for you just about anywhere.

You should be able to transfer there and do an ETF portfolio. Mutual funds are not available to people overseas due to tax laws.

New contributions require US earned income meaning any income excluded under FEIE doesn't count.

john77
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Re: Living abroad. Retirement savings options?

Post by john77 » Sun Sep 18, 2016 3:17 pm

Oh I gave up and ended up talking with a broker. I'm looped in now with American Funds / Capital Group. While I pay a 5.75% commission at time of investment and am invested in several mutual funds, opened up a Roth, Brokerage (I have specifically earmarked for retirement and will not be touched) and 2 brokerages for each of my kids that I'll dump money into that I would have instead dumped into an ESA for each. But considering they may not attend university in the US, the ESA was silly for me to worry about all the penalties if they didn't attend school there. I no longer worry myself, I max out my Roth and I make monthly deposits into my brokerage and kids' brokerage accounts.

If I was in the US, I wouldn't be using a broker like this, but the fact of the matter is that I'm not in US and I lost the patience of trying to circumvent and figure out all the US Federal and US banking anti-US-resident laws. So the 5.75% is a small price to pay for the peace of mind to know that I'm investing monthly for my retirement and for my kids' college (or something else if they decide not to attend college in US).

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market timer
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Re: Living abroad. Retirement savings options?

Post by market timer » Sun Sep 18, 2016 3:23 pm

Many people here started out buying 5.75% front load funds. I expect you'll drop the broker once you are more comfortable with the process. As an American investor living abroad, I've not found investing to be really any different than it was in the US.

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in_reality
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Re: Living abroad. Retirement savings options?

Post by in_reality » Sun Sep 18, 2016 7:41 pm

john77 wrote:I no longer worry myself, I max out my Roth and I make monthly deposits into my brokerage and kids' brokerage accounts.

... I lost the patience of trying to circumvent and figure out all the US Federal and US banking anti-US-resident laws. So the 5.75% is a small price to pay for the peace of mind to know that I'm investing monthly for my retirement and for my kids' college (or something else if they decide not to attend college in US).
IRS penalties for over contribution are harsh. How did you get taxable income? If it's excluded under the Foreign Earned Income Exclusion (form 2555), it can't go into an IRA. American Funds will not have your tax returns and I don't believe they offer tax advice.

IRS penalties work like this:

The IRS will charge you a 6% penalty tax on the excess amount for each year in which you don't take action to correct the error.
For example, if you contributed $1,000 more than you were allowed, you'd owe $60 each year until you correct the mistake.
If you remove your excess contribution plus earnings before either the April 15 or October 15 deadline, the earnings are taxed as ordinary income.
And if you're under 59½, you'll be subject to a 10% early withdrawal penalty.

Also, Interactive Brokers will take you. You can most likely transfer your IRAs/ROTHs and then use low cost Vanguard ETFs. Again, do confirm your contribution eligibility because a 6% penalty each year on your contribution will have you going backwards.

john77
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Re: Living abroad. Retirement savings options?

Post by john77 » Mon Sep 26, 2016 3:57 pm

in_reality wrote:
IRS penalties for over contribution are harsh. How did you get taxable income? If it's excluded under the Foreign Earned Income Exclusion (form 2555), it can't go into an IRA. American Funds will not have your tax returns and I don't believe they offer tax advice.

No, I no longer am taking the FEIE as of 2015 tax year. I take the Foreign Tax Credit (FTC).

CentScrut
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Re: Living abroad. Retirement savings options?

Post by CentScrut » Tue Feb 06, 2018 2:55 pm

Can someone point me to the IRS reference that states you may not take a partial exclusion when claiming FEIE? In scouring Pub 54 for just such a reference, all I have come across is one mention in one of the examples stating that you cannot choose to exclude more than the amount you earned overseas. However, there is no rule or example stating that the opposite (i.e., excluding less than the amount you've made) is not allowed.

Has anyone come across any guidance in this regard?

Thanks and regards

Money Market
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Re: Living abroad. Retirement savings options?

Post by Money Market » Tue Feb 06, 2018 9:29 pm

CentScrut wrote:
Tue Feb 06, 2018 2:55 pm
Can someone point me to the IRS reference that states you may not take a partial exclusion when claiming FEIE? In scouring Pub 54 for just such a reference, all I have come across is one mention in one of the examples stating that you cannot choose to exclude more than the amount you earned overseas. However, there is no rule or example stating that the opposite (i.e., excluding less than the amount you've made) is not allowed.

Has anyone come across any guidance in this regard?

Thanks and regards
There is no other reference other than the one you quoted. But if you fill out Form 2555 for calculating the FEIE amount, you'll notice that they ask you to transfer the entire FEIE applicable (to the max) to Form 1040. This is enough to infer that you cannot transfer a partial amount or there'd be a math inconsistency.

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in_reality
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Re: Living abroad. Retirement savings options?

Post by in_reality » Tue Feb 06, 2018 9:31 pm

CentScrut wrote:
Tue Feb 06, 2018 2:55 pm
Can someone point me to the IRS reference that states you may not take a partial exclusion when claiming FEIE? In scouring Pub 54 for just such a reference, all I have come across is one mention in one of the examples stating that you cannot choose to exclude more than the amount you earned overseas. However, there is no rule or example stating that the opposite (i.e., excluding less than the amount you've made) is not allowed.

Has anyone come across any guidance in this regard?

Thanks and regards
I have consistently heard that partial exclusion of foreign income is not possible. I have never see it explained by the IRS that you can not do it, but rather that you must enter in the total amount for foreign income.

The instructions for form 2555 state:
Foreign Earned Income
Enter in this part the total foreign earned
income you earned and received
(including income constructively received)
during the tax year.
Obviously, if you leave out $5500 so you will for example have US taxable income to make an IRA contribution, you will not be in compliance with the instructions to enter in the total of foreign earned income you earned and received. Again, it doesn't say the "total amount you are excluding", it says "income you earned and received".

123
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Re: Living abroad. Retirement savings options?

Post by 123 » Tue Feb 06, 2018 9:43 pm

Are there retirement account options available to you in your EU country? Have you investigated any tax treaty provisions that might apply to them? Some countries can have very different approaches to taxes and what is taxed, when it is taxed, and how much it is taxed. Looking at options for retirement accounts in the US might not give you the best bang for the buck.
The closest helping hand is at the end of your own arm.

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robolove
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Re: Living abroad. Retirement savings options?

Post by robolove » Tue Feb 06, 2018 9:57 pm

Why not open a U.S. bank account with a relative’s address?
Karamatsu wrote:
Sun Jan 31, 2016 8:04 pm
In my case I take the FEIE and just forego the IRA contribution. This means that most of my investments are in a taxable account, with bonds in the IRA accounts that I have left-over from when I was in the US. Fortunately living abroad has benefits to compensate for US tax rules!
Same here.

Unfortunately, my bonds are in taxable...

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Re: Living abroad. Retirement savings options?

Post by bpp » Tue Feb 06, 2018 10:08 pm

CentScrut wrote:
Tue Feb 06, 2018 2:55 pm
Can someone point me to the IRS reference that states you may not take a partial exclusion when claiming FEIE?
The IRS told me this directly, back when they used to actually answer questions like that.
So I've heard it first-hand from the horse's mouth.

And now you've heard it second-hand from a random stranger on the internet. Which is admittedly a less compelling source, but all I can offer is that I have no particular reason to lie one way or the other about this.

Also, as has been pointed out, the tax paperwork and instructions provide no way to enter a partial FEIE.

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in_reality
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Re: Living abroad. Retirement savings options?

Post by in_reality » Tue Feb 06, 2018 11:51 pm

123 wrote:
Tue Feb 06, 2018 9:43 pm
Are there retirement account options available to you in your EU country? Have you investigated any tax treaty provisions that might apply to them? Some countries can have very different approaches to taxes and what is taxed, when it is taxed, and how much it is taxed. Looking at options for retirement accounts in the US might not give you the best bang for the buck.
Watch out on that. Tax sheltered retirement accounts overseas very well may be taxed by the US. Also, IRAs may be taxed by your country of residence. If only one country is taxing, there’s no double taxation...

StealthRabbit
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Re: Living abroad. Retirement savings options?

Post by StealthRabbit » Wed Feb 07, 2018 1:57 am

during my expat yrs, I did not use USA tax advantaged retirement investing options. I grew wealth in different investments (including Real Estate). Wage income is 'fair game' to taxing authorities, yet each country has interesting options (especially Singapore!!!) :moneybag

When I came back to USA, I again funded 'retirement' as a 'Yankee' (kinda boring / status quo) You need to seriously consider diversification / income stream during retirement (sooner the better).

Consider that you may NOT be able to 'retire' in USA (big "IF" is Healthcare costs). Private USA coverage (even Medicare supplements) is absolutely unaffordable for many. As an early retiree in USA, I'm looking at potential $50k / yr in premiums & co-pays ALONE before insurance kicks in (not including acute care needs). That is not sustainable (Don't burn your bridges overseas!)

kermittfrog
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Re: Living abroad. Retirement savings options?

Post by kermittfrog » Tue Feb 13, 2018 1:11 pm

in_reality wrote:
Sun Sep 18, 2016 7:41 pm
IRS penalties for over contribution are harsh. How did you get taxable income? If it's excluded under the Foreign Earned Income Exclusion (form 2555), it can't go into an IRA. American Funds will not have your tax returns and I don't believe they offer tax advice.
Sorry for resurrecting the thread but I have a question. I must have taxable income that is not foreign earned to contribute to a Roth IRA. What if I start a small independent business in the US selling art, or honey, or services etc., and within a tax year I could prove that that company took in $5,500.00, all the while I have also been working my full-time job overseas earning money that also qualifies as "Foreign Earned Income." Could I then still qualify to file my taxes with the FEIE, AND have a Roth IRA?

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market timer
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Re: Living abroad. Retirement savings options?

Post by market timer » Tue Feb 13, 2018 8:24 pm

kermittfrog wrote:
Tue Feb 13, 2018 1:11 pm
Sorry for resurrecting the thread but I have a question. I must have taxable income that is not foreign earned to contribute to a Roth IRA. What if I start a small independent business in the US selling art, or honey, or services etc., and within a tax year I could prove that that company took in $5,500.00, all the while I have also been working my full-time job overseas earning money that also qualifies as "Foreign Earned Income." Could I then still qualify to file my taxes with the FEIE, AND have a Roth IRA?
You could do this on a Schedule C. However, you'd owe FICA taxes (employer + employee) on the $5,500.

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in_reality
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Re: Living abroad. Retirement savings options?

Post by in_reality » Tue Feb 13, 2018 8:37 pm

kermittfrog wrote:
Tue Feb 13, 2018 1:11 pm
in_reality wrote:
Sun Sep 18, 2016 7:41 pm
IRS penalties for over contribution are harsh. How did you get taxable income? If it's excluded under the Foreign Earned Income Exclusion (form 2555), it can't go into an IRA. American Funds will not have your tax returns and I don't believe they offer tax advice.
Sorry for resurrecting the thread but I have a question. I must have taxable income that is not foreign earned to contribute to a Roth IRA. What if I start a small independent business in the US selling art, or honey, or services etc., and within a tax year I could prove that that company took in $5,500.00, all the while I have also been working my full-time job overseas earning money that also qualifies as "Foreign Earned Income." Could I then still qualify to file my taxes with the FEIE, AND have a Roth IRA?

And remember, if you have foreign income over the FEIE limit, you can contribute that to IRAs. Excluded income counts towards the ROTH eligibility limit. And the foreign country may tax your ROTH. It depends on their rules.

plats
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Re: Living abroad. Retirement savings options?

Post by plats » Tue Feb 13, 2018 10:10 pm

kermittfrog wrote:
Tue Feb 13, 2018 1:11 pm
in_reality wrote:
Sun Sep 18, 2016 7:41 pm
IRS penalties for over contribution are harsh. How did you get taxable income? If it's excluded under the Foreign Earned Income Exclusion (form 2555), it can't go into an IRA. American Funds will not have your tax returns and I don't believe they offer tax advice.
Sorry for resurrecting the thread but I have a question. I must have taxable income that is not foreign earned to contribute to a Roth IRA. What if I start a small independent business in the US selling art, or honey, or services etc., and within a tax year I could prove that that company took in $5,500.00, all the while I have also been working my full-time job overseas earning money that also qualifies as "Foreign Earned Income." Could I then still qualify to file my taxes with the FEIE, AND have a Roth IRA?
If you're physically overseas then the income you earned selling honey is overseas earned income.

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CyclingDuo
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Re: Living abroad. Retirement savings options?

Post by CyclingDuo » Tue Feb 13, 2018 10:41 pm

For those who come along and view this thread via a search...

Living and working overseas with foreign income severely limits your options to contribute to retirement in the US.

The exception being something such as the Fidelity Personal Retirement Annuity or the Vanguard Variable Annuity (both have index funds you can invest in):

https://www.fidelity.com/annuities/FPRA ... y/overview

https://investor.vanguard.com/annuity/variable

Both allow US citizens working abroad being paid from a foreign entity to put money into a tax deferred variable annuity. Works much like an IRA, except contributions are not tax deductible and there are no required RMD's. Standard penalty on withdrawals before age 59 1/2.

The Fidelity Personal Retirement Annuity is the vehicle we used to contribute to our retirement while living and working overseas being paid by a foreign entity in the early 1990's to 2003 time frame.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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in_reality
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Re: Living abroad. Retirement savings options?

Post by in_reality » Tue Feb 13, 2018 11:23 pm

plats wrote:
Tue Feb 13, 2018 10:10 pm
kermittfrog wrote:
Tue Feb 13, 2018 1:11 pm
in_reality wrote:
Sun Sep 18, 2016 7:41 pm
IRS penalties for over contribution are harsh. How did you get taxable income? If it's excluded under the Foreign Earned Income Exclusion (form 2555), it can't go into an IRA. American Funds will not have your tax returns and I don't believe they offer tax advice.
Sorry for resurrecting the thread but I have a question. I must have taxable income that is not foreign earned to contribute to a Roth IRA. What if I start a small independent business in the US selling art, or honey, or services etc., and within a tax year I could prove that that company took in $5,500.00, all the while I have also been working my full-time job overseas earning money that also qualifies as "Foreign Earned Income." Could I then still qualify to file my taxes with the FEIE, AND have a Roth IRA?
If you're physically overseas then the income you earned selling honey is overseas earned income.
Not exactly...it's true for services but not necessarily from sales of products.

For businesses whose primary income comes from personal service (such as lawyers and doctors), the source of the income is wherever the services are performed. For businesses whose primary income comes from selling products (like a store or direct sales business), the source of the income comes from where the products are sold, if the company purchases the items it sells. If the company produces the items it sells, then the country where the items are produced is the source of the income.

https://www.greenbacktaxservices.com/bl ... ed-income/

CFM300
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Re: Living abroad. Retirement savings options?

Post by CFM300 » Wed Feb 14, 2018 1:41 am

market timer wrote:
Tue Feb 13, 2018 8:24 pm
kermittfrog wrote:
Tue Feb 13, 2018 1:11 pm
Sorry for resurrecting the thread but I have a question. I must have taxable income that is not foreign earned to contribute to a Roth IRA. What if I start a small independent business in the US selling art, or honey, or services etc., and within a tax year I could prove that that company took in $5,500.00, all the while I have also been working my full-time job overseas earning money that also qualifies as "Foreign Earned Income." Could I then still qualify to file my taxes with the FEIE, AND have a Roth IRA?
You could do this on a Schedule C. However, you'd owe FICA taxes (employer + employee) on the $5,500.
Correct. You'd owe self-employment tax EVEN IF you excluded the income via FEIE.

<begin quoting the IRS>
You must take all of your self-employment income into account in figuring your net earnings from self-employment, even income that is exempt from income tax because of the foreign earned income exclusion.

Example: You are in business abroad as a consultant and qualify for the foreign earned income exclusion. Your foreign earned income is $95,000, your business deductions total $27,000, and your net profit is $68,000. You must pay self-employment tax on all of your net profit, including the amount you can exclude from income.
<end of quote>

source: https://www.irs.gov/individuals/interna ... ses-abroad

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in_reality
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Re: Living abroad. Retirement savings options?

Post by in_reality » Wed Feb 14, 2018 3:10 am

CFM300 wrote:
Wed Feb 14, 2018 1:41 am
market timer wrote:
Tue Feb 13, 2018 8:24 pm
kermittfrog wrote:
Tue Feb 13, 2018 1:11 pm
Sorry for resurrecting the thread but I have a question. I must have taxable income that is not foreign earned to contribute to a Roth IRA. What if I start a small independent business in the US selling art, or honey, or services etc., and within a tax year I could prove that that company took in $5,500.00, all the while I have also been working my full-time job overseas earning money that also qualifies as "Foreign Earned Income." Could I then still qualify to file my taxes with the FEIE, AND have a Roth IRA?
You could do this on a Schedule C. However, you'd owe FICA taxes (employer + employee) on the $5,500.
Correct. You'd owe self-employment tax EVEN IF you excluded the income via FEIE.
That may or may not be correct depending on if your country of residence has a social security totalization agreement with the United States.

It could be that by treaty you don't owe the US self-employment tax and can't pay even if you wanted too (which I actually do since I am just under the necessary 10 credits).

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robolove
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Re: Living abroad. Retirement savings options?

Post by robolove » Wed Feb 14, 2018 4:19 am

CyclingDuo wrote:
Tue Feb 13, 2018 10:41 pm
Living and working overseas with foreign income severely limits your options to contribute to retirement in the US.

The exception being something such as the Fidelity Personal Retirement Annuity or the Vanguard Variable Annuity (both have index funds you can invest in):

https://www.fidelity.com/annuities/FPRA ... y/overview

https://investor.vanguard.com/annuity/variable

Both allow US citizens working abroad being paid from a foreign entity to put money into a tax deferred variable annuity. Works much like an IRA, except contributions are not tax deductible and there are no required RMD's. Standard penalty on withdrawals before age 59 1/2.

The Fidelity Personal Retirement Annuity is the vehicle we used to contribute to our retirement while living and working overseas being paid by a foreign entity in the early 1990's to 2003 time frame.
Thank you for this info.

Edit: just searched annuities on this forum... sure is something I do not understand and know whether if it’s right for me.. yet....
Last edited by robolove on Wed Feb 14, 2018 5:33 am, edited 3 times in total.

CFM300
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Re: Living abroad. Retirement savings options?

Post by CFM300 » Wed Feb 14, 2018 4:30 am

in_reality wrote:
Wed Feb 14, 2018 3:10 am
CFM300 wrote:
Wed Feb 14, 2018 1:41 am
market timer wrote:
Tue Feb 13, 2018 8:24 pm
kermittfrog wrote:
Tue Feb 13, 2018 1:11 pm
Sorry for resurrecting the thread but I have a question. I must have taxable income that is not foreign earned to contribute to a Roth IRA. What if I start a small independent business in the US selling art, or honey, or services etc., and within a tax year I could prove that that company took in $5,500.00, all the while I have also been working my full-time job overseas earning money that also qualifies as "Foreign Earned Income." Could I then still qualify to file my taxes with the FEIE, AND have a Roth IRA?
You could do this on a Schedule C. However, you'd owe FICA taxes (employer + employee) on the $5,500.
Correct. You'd owe self-employment tax EVEN IF you excluded the income via FEIE.
That may or may not be correct depending on if your country of residence has a social security totalization agreement with the United States.
You're right. That's covered further down the page I linked earlier, under "International Social Security Agreements".

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Re: Living abroad. Retirement savings options?

Post by kermittfrog » Wed Feb 14, 2018 8:27 am

CFM300 wrote:
Wed Feb 14, 2018 4:30 am
in_reality wrote:
Wed Feb 14, 2018 3:10 am
CFM300 wrote:
Wed Feb 14, 2018 1:41 am
market timer wrote:
Tue Feb 13, 2018 8:24 pm
kermittfrog wrote:
Tue Feb 13, 2018 1:11 pm
Sorry for resurrecting the thread but I have a question. I must have taxable income that is not foreign earned to contribute to a Roth IRA. What if I start a small independent business in the US selling art, or honey, or services etc., and within a tax year I could prove that that company took in $5,500.00, all the while I have also been working my full-time job overseas earning money that also qualifies as "Foreign Earned Income." Could I then still qualify to file my taxes with the FEIE, AND have a Roth IRA?
You could do this on a Schedule C. However, you'd owe FICA taxes (employer + employee) on the $5,500.
Correct. You'd owe self-employment tax EVEN IF you excluded the income via FEIE.
That may or may not be correct depending on if your country of residence has a social security totalization agreement with the United States.
You're right. That's covered further down the page I linked earlier, under "International Social Security Agreements".
So if I read all of this correctly, here would be my scenario then. I make $70,000.00 working for a company in Vietnam, I exclude that income via FEIE. All the while I have an art business/website based in the US. Say I travel to the US once a year (would be doing this already regardless of this hypothetical working or not), paint a painting in the US, sell it for $5,500 (the maximum contributions I can make into a Roth IRA) in the US, and then file this income under a Schedule C where I would owe FICA taxes on the $5,500, and not the $70,000.00 as well because as I said the $70,000.00 income is from another company, in another country, and excluded from my taxes via FEIE. If it helps, Vietnam does have a social security scheme I will be paying into but I do not think it is an official "International Social Security Agreement." See link: https://home.kpmg.com/xx/en/home/insigh ... 7-188.html

Is this correct or did I miss something, or read your suggestions wrong? Thank you all by the way for the help!
CyclingDuo wrote:
Tue Feb 13, 2018 10:41 pm
For those who come along and view this thread via a search...

Living and working overseas with foreign income severely limits your options to contribute to retirement in the US.

The exception being something such as the Fidelity Personal Retirement Annuity or the Vanguard Variable Annuity (both have index funds you can invest in):

https://www.fidelity.com/annuities/FPRA ... y/overview

https://investor.vanguard.com/annuity/variable

Both allow US citizens working abroad being paid from a foreign entity to put money into a tax deferred variable annuity. Works much like an IRA, except contributions are not tax deductible and there are no required RMD's. Standard penalty on withdrawals before age 59 1/2.

The Fidelity Personal Retirement Annuity is the vehicle we used to contribute to our retirement while living and working overseas being paid by a foreign entity in the early 1990's to 2003 time frame.
Huh, that is something new I have not heard of before. So CyclingDuo, if I understand what you are saying, Fidelity Personal Retirement Annuity or the Vanguard Variable Annuity have retirement plans that tax my contributions going into it, lets the money grow, and once I hit 59 1/2 I can start taking this money out, or all of it out, un-taxed, just like a Roth IRA? If so then that would be a great option for me! If I ever move back to the US, would I still be allowed to contribute to this retirement plan option?

Thank you all again for your time!

EDIT: "Both allow US citizens working abroad being paid from a foreign entity to put money into a tax deferred variable annuity." Ah didn't see that. But still a great option to consider if my art business idea is a flop!

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CyclingDuo
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Re: Living abroad. Retirement savings options?

Post by CyclingDuo » Wed Feb 14, 2018 9:19 am

kermittfrog wrote:
Wed Feb 14, 2018 8:27 am

Huh, that is something new I have not heard of before. So CyclingDuo, if I understand what you are saying, Fidelity Personal Retirement Annuity or the Vanguard Variable Annuity have retirement plans that tax my contributions going into it, lets the money grow, and once I hit 59 1/2 I can start taking this money out, or all of it out, un-taxed, just like a Roth IRA? If so then that would be a great option for me! If I ever move back to the US, would I still be allowed to contribute to this retirement plan option?

Thank you all again for your time!

EDIT: "Both allow US citizens working abroad being paid from a foreign entity to put money into a tax deferred variable annuity." Ah didn't see that. But still a great option to consider if my art business idea is a flop!
Your edit caught it correctly. Not tax free, but tax deferred. Withdrawals will be taxed as ordinary income on the gains. At age 59 1/2 withdrawals can begin. There are never any RMD's required with these products which at least provides yet another flexible option when combined with one's other investments when it comes to age 70 and beyond.

Fidelity and Vanguard's are the lowest priced retirement variable annuities available where you can invest in underlying index funds. That being said, the administrative annual fee and underlying fund fees mean that total fees are a bit higher than in a taxable account similar product. We have paid fees that total .35% for Fidelity's S&P Index Fund. Fidelity's annual fee on balances below $1M is .25%, or .1% for balances over $1M. The S&P 500 Index ER fee is .1% on top of that, so a total of .35% for under $1M and .2% for balances above $1M. Vanguard's Total Stock Market Index Fund held within the variable annuity has a total fee (administrative for the product + plus the fund ER itself) of .45%. Total Bond Market is .44%. International is .68%.

Those are obviously higher fees due to the administrative fee, but not that far off compared to a lot of combined fees in various 401k/403b/457b plans. The Fidelity product was brought to our attention by our CPA back in the mid 1990's when we were preparing to move overseas and work for a foreign entity and would no longer be able to contribute to our IRA's as a result. We used the Fidelity product as a substitute for our IRA's and retirement contributions - along with taxable account investing - the years we were living and working overseas.

We're not going to pound the table and say these products are the only way to go, but just mention that they are a viable option for those living and working overseas for foreign entities to set aside money in a tax deferred product.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

kermittfrog
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Re: Living abroad. Retirement savings options?

Post by kermittfrog » Wed Feb 14, 2018 9:31 am

CyclingDuo wrote:
Wed Feb 14, 2018 9:19 am
kermittfrog wrote:
Wed Feb 14, 2018 8:27 am

Huh, that is something new I have not heard of before. So CyclingDuo, if I understand what you are saying, Fidelity Personal Retirement Annuity or the Vanguard Variable Annuity have retirement plans that tax my contributions going into it, lets the money grow, and once I hit 59 1/2 I can start taking this money out, or all of it out, un-taxed, just like a Roth IRA? If so then that would be a great option for me! If I ever move back to the US, would I still be allowed to contribute to this retirement plan option?

Thank you all again for your time!

EDIT: "Both allow US citizens working abroad being paid from a foreign entity to put money into a tax deferred variable annuity." Ah didn't see that. But still a great option to consider if my art business idea is a flop!
Your edit caught it correctly. Not tax free, but tax deferred. Withdrawals will be taxed as ordinary income on the gains. At age 59 1/2 withdrawals can begin. There are never any RMD's required with these products which at least provides yet another flexible option when combined with one's other investments when it comes to age 70 and beyond.

Fidelity and Vanguard's are the lowest priced retirement variable annuities available where you can invest in underlying index funds. That being said, the administrative annual fee and underlying fund fees mean that total fees are a bit higher than in a taxable account similar product. We have paid fees that total .35% for Fidelity's S&P Index Fund. Fidelity's annual fee on balances below $1M is .25%, or .1% for balances over $1M. The S&P 500 Index ER fee is .1% on top of that, so a total of .35% for under $1M and .2% for balances above $1M. Vanguard's Total Stock Market Index Fund held within the variable annuity has a total fee (administrative for the product + plus the fund ER itself) of .45%. Total Bond Market is .44%. International is .68%.

Those are obviously higher fees due to the administrative fee, but not that far off compared to a lot of combined fees in various 401k/403b/457b plans. The Fidelity product was brought to our attention by our CPA back in the mid 1990's when we were preparing to move overseas and work for a foreign entity and would no longer be able to contribute to our IRA's as a result. We used the Fidelity product as a substitute for our IRA's and retirement contributions - along with taxable account investing - the years we were living and working overseas.

We're not going to pound the table and say these products are the only way to go, but just mention that they are a viable option for those living and working overseas for foreign entities to set aside money in a tax deferred product.
Super informative, thank you very much, it leaves me with more options. I'm in my 20's and shipping out in the next couple of months and am trying to get my ducks in a row so I don't have to do all this leg work in the mist of starting a new job, and getting settled living abroad. Definitely don't want to mess up my retirement or put it under the rug to worry about later.

CFM300
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Re: Living abroad. Retirement savings options?

Post by CFM300 » Wed Feb 14, 2018 12:23 pm

kermittfrog wrote:
Wed Feb 14, 2018 8:27 am
So if I read all of this correctly, here would be my scenario then. I make $70,000.00 working for a company in Vietnam, I exclude that income via FEIE. All the while I have an art business/website based in the US. Say I travel to the US once a year (would be doing this already regardless of this hypothetical working or not), paint a painting in the US, sell it for $5,500 (the maximum contributions I can make into a Roth IRA) in the US, and then file this income under a Schedule C where I would owe FICA taxes on the $5,500, and not the $70,000.00 as well because as I said the $70,000.00 income is from another company, in another country, and excluded from my taxes via FEIE. If it helps, Vietnam does have a social security scheme I will be paying into but I do not think it is an official "International Social Security Agreement." See link: https://home.kpmg.com/xx/en/home/insigh ... 7-188.html

Is this correct or did I miss something, or read your suggestions wrong? Thank you all by the way for the help!
Sounds generally correct to me, except...

1. You would need to deduct business expenses on your $5,500 gross earnings, so your net SE income would be less than $5,500.

2. Your maximum allowable contribution would not be $5,500, but rather $5,500 minus 1/2 of your SE taxes. So you'd want to earn a bit more in order to contribute the max to your IRA.

Actually, you should just sell a lot more art and then open up a solo 401(k), which will allow you to contribute up to $18,500 plus 20% of your SE net income.

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Re: Living abroad. Retirement savings options?

Post by kermittfrog » Wed Feb 14, 2018 12:46 pm

CFM300 wrote:
Wed Feb 14, 2018 12:23 pm
kermittfrog wrote:
Wed Feb 14, 2018 8:27 am
So if I read all of this correctly, here would be my scenario then. I make $70,000.00 working for a company in Vietnam, I exclude that income via FEIE. All the while I have an art business/website based in the US. Say I travel to the US once a year (would be doing this already regardless of this hypothetical working or not), paint a painting in the US, sell it for $5,500 (the maximum contributions I can make into a Roth IRA) in the US, and then file this income under a Schedule C where I would owe FICA taxes on the $5,500, and not the $70,000.00 as well because as I said the $70,000.00 income is from another company, in another country, and excluded from my taxes via FEIE. If it helps, Vietnam does have a social security scheme I will be paying into but I do not think it is an official "International Social Security Agreement." See link: https://home.kpmg.com/xx/en/home/insigh ... 7-188.html

Is this correct or did I miss something, or read your suggestions wrong? Thank you all by the way for the help!
Sounds generally correct to me, except...

1. You would need to deduct business expenses on your $5,500 gross earnings, so your net SE income would be less than $5,500.

2. Your maximum allowable contribution would not be $5,500, but rather $5,500 minus 1/2 of your SE taxes. So you'd want to earn a bit more in order to contribute the max to your IRA.

Actually, you should just sell a lot more art and then open up a solo 401(k), which will allow you to contribute up to $18,500 plus 20% of your SE net income.
Could you clarify your 2nd point please? I'd have to net $11,000.00 to max out my Roth? And I would prefer the Roth because I will most likely have an ETF and I don't want to pay capital gains on the 401 (k).

CFM300
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Re: Living abroad. Retirement savings options?

Post by CFM300 » Wed Feb 14, 2018 2:03 pm

kermittfrog wrote:
Wed Feb 14, 2018 12:46 pm
I'd have to net $11,000.00 to max out my Roth?
In the case of a Traditional IRA, if your only taxable earned income is from self-employment, then I believe the max contribution cannot be more than SE Net Profit X 92.35% x 15.3% x 1/2. So $5,500 SE net profit would allow a Traditional IRA contribution of $5,111, and an SE net profit of $5,918 would be required to contribute $5,500.

I *think* the same limitations apply to a Roth IRA, but I'm not sure. Someone else will have to weigh in.

To understand the 92.35% x 15.3% x 1/2 bit, follow Schedule SE from top to bottom. That's where you calculate the "Deductible part of self-employment tax," entered on Line 27 of 1040 and used in the IRA Deduction Worksheet, 1040 Line 32 instructions.

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Re: Living abroad. Retirement savings options?

Post by Money Market » Wed Feb 14, 2018 4:23 pm

kermittfrog wrote:
Wed Feb 14, 2018 12:46 pm
Could you clarify your 2nd point please? I'd have to net $11,000.00 to max out my Roth? And I would prefer the Roth because I will most likely have an ETF and I don't want to pay capital gains on the 401 (k).
Your IRA contributions are limited to $5,500 or your mAGI, whichever is lower. In the AGI calculation on Form 1040, one of the deductions include half of the taxes payable on Schedule SE. Thus, if you made exactly $5,500 from your business, and it is the only taxable portion of your earned income, you would only be able to contribute less than the $5,500 (5,500 - 50% * SE Taxes).

As another person has mentioned, you might just want to create your own Individual 401k because it will give you the flexibility to contribute beyond the IRA limits. There may be slightly higher total expense ratios due to the administration overhead, though. Probably a non-material impact if you create one at Vanguard or Schwab.

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Re: Living abroad. Retirement savings options?

Post by kermittfrog » Thu Feb 15, 2018 10:00 am

CFM300 wrote:
Wed Feb 14, 2018 2:03 pm
kermittfrog wrote:
Wed Feb 14, 2018 12:46 pm
I'd have to net $11,000.00 to max out my Roth?
In the case of a Traditional IRA, if your only taxable earned income is from self-employment, then I believe the max contribution cannot be more than SE Net Profit X 92.35% x 15.3% x 1/2. So $5,500 SE net profit would allow a Traditional IRA contribution of $5,111, and an SE net profit of $5,918 would be required to contribute $5,500.

I *think* the same limitations apply to a Roth IRA, but I'm not sure. Someone else will have to weigh in.

To understand the 92.35% x 15.3% x 1/2 bit, follow Schedule SE from top to bottom. That's where you calculate the "Deductible part of self-employment tax," entered on Line 27 of 1040 and used in the IRA Deduction Worksheet, 1040 Line 32 instructions.
Phew, that is a lot to digest but it has helped me better find the answer as to how much I need to make, and if my new found talent of making art is legal in regards to earning income domestically to qualify me to have a Roth IRA. I guess what it comes down to now is would I be better off financially by putting that extra $5500.00 into an ETF or mutual fund (which would have capital gains tax) that I will create on the side, or if I go with the above plan and deal with FICA/self-employment taxes just to have domestic income. What do you think?

On another note, my foray into the art creation field will only be for a few years until I have enough to put a nice down payment on a house in the US and rent it out. Then I can just deal with filing taxes on that income and retire my paints and brush.
Money Market wrote:
Wed Feb 14, 2018 4:23 pm
kermittfrog wrote:
Wed Feb 14, 2018 12:46 pm
Could you clarify your 2nd point please? I'd have to net $11,000.00 to max out my Roth? And I would prefer the Roth because I will most likely have an ETF and I don't want to pay capital gains on the 401 (k).
Your IRA contributions are limited to $5,500 or your mAGI, whichever is lower. In the AGI calculation on Form 1040, one of the deductions include half of the taxes payable on Schedule SE. Thus, if you made exactly $5,500 from your business, and it is the only taxable portion of your earned income, you would only be able to contribute less than the $5,500 (5,500 - 50% * SE Taxes).

As another person has mentioned, you might just want to create your own Individual 401k because it will give you the flexibility to contribute beyond the IRA limits. There may be slightly higher total expense ratios due to the administration overhead, though. Probably a non-material impact if you create one at Vanguard or Schwab.
Oh ok, so sort of in the same vain of logic as CFM300. What do you think though, would I be better off financially by putting that extra $5500.00 into an ETF or mutual fund (which would have capital gains tax) that I will create on the side, or if I go with the above plan and deal with FICA/self-employment taxes just to have domestic income?

And my understanding was that if you can have both a 401k and Roth IRA you should, however I am trying to see if I can have a Roth IRA now and it being financially sound. I will have another retirement account such as an ETF on the side though regardless.

Thank you all again for the help!

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Re: Living abroad. Retirement savings options?

Post by Money Market » Thu Feb 15, 2018 11:21 am

kermittfrog wrote:
Thu Feb 15, 2018 10:00 am
Oh ok, so sort of in the same vain of logic as CFM300. What do you think though, would I be better off financially by putting that extra $5500.00 into an ETF or mutual fund (which would have capital gains tax) that I will create on the side, or if I go with the above plan and deal with FICA/self-employment taxes just to have domestic income?

And my understanding was that if you can have both a 401k and Roth IRA you should, however I am trying to see if I can have a Roth IRA now and it being financially sound. I will have another retirement account such as an ETF on the side though regardless.

Thank you all again for the help!
If I were in your position and I was confident that I could make in excess of $5,500 from the business, say, enough to max out both a Roth IRA and Solo 401k, I'd do it. On the other hand, you might just want to take the foreign tax credit instead of the FEIE to have taxable income to contribute to an IRA. If your foreign income has higher tax rates than the US, you'll probably owe little to no US taxes.

Also, your foreign income that is excluded still counts towards the Roth IRA contribution limits, so you may need to do a backdoor if you go that route.

CFM300
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Re: Living abroad. Retirement savings options?

Post by CFM300 » Thu Feb 15, 2018 11:26 am

kermittfrog wrote:
Thu Feb 15, 2018 10:00 am
would I be better off financially by putting that extra $5500.00 into an ETF or mutual fund (which would have capital gains tax) that I will create on the side, or if I go with the above plan and deal with FICA/self-employment taxes just to have domestic income?
Where is this $5,500 coming from? If it's coming from self-employment, then you HAVE to file Schedule C, and then Schedule SE, and thus pay SE tax. Note that this applies EVEN IF the income is earned overseas and can be excluded via FEIE. This was mentioned upthread, and someone also pointed out that there are exceptions if you're also participating in the retirement schemes of certain countries.

See "Effect of Foreign Earned Income" and "International Social Security Agreements" here:

https://www.irs.gov/individuals/interna ... ses-abroad

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Re: Living abroad. Retirement savings options?

Post by kermittfrog » Thu Feb 15, 2018 12:57 pm

Money Market wrote:
Thu Feb 15, 2018 11:21 am
kermittfrog wrote:
Thu Feb 15, 2018 10:00 am
Oh ok, so sort of in the same vain of logic as CFM300. What do you think though, would I be better off financially by putting that extra $5500.00 into an ETF or mutual fund (which would have capital gains tax) that I will create on the side, or if I go with the above plan and deal with FICA/self-employment taxes just to have domestic income?

And my understanding was that if you can have both a 401k and Roth IRA you should, however I am trying to see if I can have a Roth IRA now and it being financially sound. I will have another retirement account such as an ETF on the side though regardless.

Thank you all again for the help!
If I were in your position and I was confident that I could make in excess of $5,500 from the business, say, enough to max out both a Roth IRA and Solo 401k, I'd do it. On the other hand, you might just want to take the foreign tax credit instead of the FEIE to have taxable income to contribute to an IRA. If your foreign income has higher tax rates than the US, you'll probably owe little to no US taxes.

Also, your foreign income that is excluded still counts towards the Roth IRA contribution limits, so you may need to do a backdoor if you go that route.
That my friend would be a lot of money moving around. haha I would just want enough to max out the Roth IRA, but I appreciate your opinion. But I am interested in your foreign tax credit idea, I was thinking on this and thought my new found art talent would be easier, but looking into this topic more it seems that perhaps I should take the foreign tax credit in lieu of the FEIE. Do you mind teasing out a scenario for me?

>Income earned in Vietnam is $70k.
>They tax me via an income tax at 27%.
>I then pay Vietnam $18,900.
>If I take the foreign tax credit do I then have what I paid Vietnam deducted from what I would owe the US? (25% on the tax bracket I believe.)
>Would this then mean I do not owe the US government any money?
>>If that is the case, would this then also allow me to have a Roth IRA?

And I don't think I will earn enough to bar me from a Roth IRA that would make me need to do a backdoor route to get it. (At least not this point in my life. :P)
CFM300 wrote:
Thu Feb 15, 2018 11:26 am
kermittfrog wrote:
Thu Feb 15, 2018 10:00 am
would I be better off financially by putting that extra $5500.00 into an ETF or mutual fund (which would have capital gains tax) that I will create on the side, or if I go with the above plan and deal with FICA/self-employment taxes just to have domestic income?
Where is this $5,500 coming from? If it's coming from self-employment, then you HAVE to file Schedule C, and then Schedule SE, and thus pay SE tax. Note that this applies EVEN IF the income is earned overseas and can be excluded via FEIE. This was mentioned upthread, and someone also pointed out that there are exceptions if you're also participating in the retirement schemes of certain countries.

See "Effect of Foreign Earned Income" and "International Social Security Agreements" here:

https://www.irs.gov/individuals/interna ... ses-abroad
The $5,500.00 will come from people that really support my vision and talent, as an artist. :P But yes, it would be under self-employment so I believe I understand the basics now as to how I would maneuver that financial circus. And yes I have been looking into whether Vietnam is in a Totalization Agreement with the US, the answer is no unfortunately. Good news is that it is not compulsory for me to pay into Vietnam's program though so I'm happy. haha

Your insight has been super helpful!

CFM300
Posts: 1353
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Re: Living abroad. Retirement savings options?

Post by CFM300 » Thu Feb 15, 2018 2:04 pm

kermittfrog wrote:
Thu Feb 15, 2018 12:57 pm
Money Market wrote:
Thu Feb 15, 2018 11:21 am
kermittfrog wrote:
Thu Feb 15, 2018 10:00 am
>Income earned in Vietnam is $70k.
>They tax me via an income tax at 27%.
>I then pay Vietnam $18,900.
>If I take the foreign tax credit do I then have what I paid Vietnam deducted from what I would owe the US? (25% on the tax bracket I believe.)
>Would this then mean I do not owe the US government any money? CORRECT
>>If that is the case, would this then also allow me to have a Roth IRA? YES
Another consideration, which I believe someone mentioned above, is that if you take the FEIE in one year and then forgo it in the next, you're barred from taking it again for (I believe) five years. So let me ask you...

How long have you been in Vietnam and how long do you intend to stay? Are you planning to stay overseas, but possibly switch countries? How are you currently qualifying for the FEIE? Bona vide residence or physical presence test?

You can read up on the decision between FEIE and FTC by simple googling.

Money Market
Posts: 87
Joined: Thu Mar 16, 2017 10:36 am

Re: Living abroad. Retirement savings options?

Post by Money Market » Thu Feb 15, 2018 11:25 pm

kermittfrog wrote:
Thu Feb 15, 2018 12:57 pm
That my friend would be a lot of money moving around. haha I would just want enough to max out the Roth IRA, but I appreciate your opinion. But I am interested in your foreign tax credit idea, I was thinking on this and thought my new found art talent would be easier, but looking into this topic more it seems that perhaps I should take the foreign tax credit in lieu of the FEIE. Do you mind teasing out a scenario for me?

>Income earned in Vietnam is $70k.
>They tax me via an income tax at 27%.
>I then pay Vietnam $18,900.
>If I take the foreign tax credit do I then have what I paid Vietnam deducted from what I would owe the US? (25% on the tax bracket I believe.)
>Would this then mean I do not owe the US government any money?
>>If that is the case, would this then also allow me to have a Roth IRA?

And I don't think I will earn enough to bar me from a Roth IRA that would make me need to do a backdoor route to get it. (At least not this point in my life. :P)
Is that a 27% effective tax rate or your highest marginal tax rate? You have to fill out Form 1116 to see for yourself. Also, if you're the OP and have a foreign spouse, you might want to consider if you want to file as married filing jointly for the increased tax brackets. With a total income of $100,000 and two std deductions and two personal exemptions, your taxable income would be $79,200 in the US, assuming no other deductions. That's a marginal rate of 15%.

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in_reality
Posts: 4529
Joined: Fri Jul 12, 2013 6:13 am

Re: Living abroad. Retirement savings options?

Post by in_reality » Sat Feb 17, 2018 1:52 am

Money Market wrote:
Thu Feb 15, 2018 11:25 pm
kermittfrog wrote:
Thu Feb 15, 2018 12:57 pm
That my friend would be a lot of money moving around. haha I would just want enough to max out the Roth IRA, but I appreciate your opinion. But I am interested in your foreign tax credit idea, I was thinking on this and thought my new found art talent would be easier, but looking into this topic more it seems that perhaps I should take the foreign tax credit in lieu of the FEIE. Do you mind teasing out a scenario for me?

>Income earned in Vietnam is $70k.
>They tax me via an income tax at 27%.
>I then pay Vietnam $18,900.
>If I take the foreign tax credit do I then have what I paid Vietnam deducted from what I would owe the US? (25% on the tax bracket I believe.)
>Would this then mean I do not owe the US government any money?
>>If that is the case, would this then also allow me to have a Roth IRA?

And I don't think I will earn enough to bar me from a Roth IRA that would make me need to do a backdoor route to get it. (At least not this point in my life. :P)
Is that a 27% effective tax rate or your highest marginal tax rate? You have to fill out Form 1116 to see for yourself. Also, if you're the OP and have a foreign spouse, you might want to consider if you want to file as married filing jointly for the increased tax brackets. With a total income of $100,000 and two std deductions and two personal exemptions, your taxable income would be $79,200 in the US, assuming no other deductions. That's a marginal rate of 15%.
I agree you should run a test scenario through a tax program (or do it by hand I guess). I expect you will find that your std deduction gets allocated to foreign income effectively reducing the amount of foreign tax credit you can take. I itemize deductions (high current medical expenses) and see it curtailing my foreign tax credit (on investments) but haven't run it through to see how things would be if I didn't take the FEIE for income.

In any case, if Vietnam taxes residents on global income, then the ROTH may be taxable to Vietnam. So might be your US art income. If you are wiring out significants amounts of money, at some point they may ask about it. Not sure if Vietnam runs audits or what their enforcement might be, but if they tax on global income, then tax sheltered in the US might not be as desirable as it appears.

txranger
Posts: 96
Joined: Sun Jun 11, 2017 9:14 am

Re: Living abroad. Retirement savings options?

Post by txranger » Sat Feb 17, 2018 6:16 am

I m over foreign exclusion limit and been able to contribute to the max to solo 401k and backdoor Roth. Really been not much of a diff if was in US...
I do understand that u can’t contribute to iras etc if u exclude all income but if u r over it, and pay taxes on it, no issues.

txranger
Posts: 96
Joined: Sun Jun 11, 2017 9:14 am

Re: Living abroad. Retirement savings options?

Post by txranger » Sat Feb 17, 2018 6:21 am

Ps. Be very careful w local retirement options of yo host country. IRS May disregard them and u may get screwed w taxes on way leaving the country — Australian Superannuation being an example, what a ripoff! In aus, if y don’t claim super funds when u leave, the govt can seize them after 2 yrs, so u have no choice but to cash in and pay max tax on it... that was not pleasant.

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