Confusion on IRAs/investing for an expat

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Livingstone
Posts: 1
Joined: Wed Mar 25, 2020 6:07 pm

Confusion on IRAs/investing for an expat

Post by Livingstone » Wed Mar 25, 2020 6:30 pm

Hey everyone. I've been reading through posts and an array of other guides and such for the past few days, and am learning a lot, but also getting quite lost. Please see below for my info, but feel free to let me know if more info is needed! So, I only recently learned what a IRA is, and that there are different kinds. However, I still don't get the system. I always thought a retirement was just something that you gained automatically through working by giving up part of your wages (I grew up in Africa, and only lived in the US for university, so many of the rules are unknown to me), but you have to open up an IRA yourself, as I understand it? I'm a US citizen, but am currently working in the UK, which I believe makes me an expat. However, I still have a permanent address in the USA (via my wife). My questions are as follows, and mostly center on how I should invest:

1. Can I open an IRA (via Vanguard?) and if so, which one should I do? I understand I have a foreign income exclusion (which I believe due to my married status goes up to $198k, but I still make more than that in AGI), so I believe that means I can still max out my IRA this year? If not, please let me know! And should I opt for a traditional or a Roth IRA?

2. In regards to investing, I understand the way to go is via ETFs and mutual funds (I believe the difference is not massive). Should I only invest in these after maxing out my IRA? I also understand you can fund your IRA with ETFs/mutual funds. Is this recommended, and if so, does that mean that I should only invest my funding my IRA with ETFs/mutual funds? Is there even a way to just invest and not do it via an IRA account?

My apologies if some of these questions are stupid, but honestly the entire system is very new to me. Thanks so much!


Age: 26 years old, US citizen, working and living in the UK. Officially there on an indefinite basis, but plan is to move back to the USA by February 2021 for family reasons, and plan to live there from then on an retire there.
Investments: $100 Vanguard (I opened an account before I left to the UK as I heard it was hard to open up one after moving abroad and deposited it...but no idea if it actually is invested?)
Debt: $100k
Annual gross income: $270,000
Tax filing status: Married filing jointly
Desired asset allocation: as per the Bogle book I read: 26% bonds; 74% stocks
Retirement funds: $0 (I believe?)

typical.investor
Posts: 1447
Joined: Mon Jun 11, 2018 3:17 am

Re: Confusion on IRAs/investing for an expat

Post by typical.investor » Wed Mar 25, 2020 7:17 pm

Livingstone wrote:
Wed Mar 25, 2020 6:30 pm
Hey everyone. I've been reading through posts and an array of other guides and such for the past few days, and am learning a lot, but also getting quite lost. Please see below for my info, but feel free to let me know if more info is needed! So, I only recently learned what a IRA is, and that there are different kinds. However, I still don't get the system. I always thought a retirement was just something that you gained automatically through working by giving up part of your wages (I grew up in Africa, and only lived in the US for university, so many of the rules are unknown to me), but you have to open up an IRA yourself, as I understand it? I'm a US citizen, but am currently working in the UK, which I believe makes me an expat. However, I still have a permanent address in the USA (via my wife). My questions are as follows, and mostly center on how I should invest:
[/quote]

The basic rule is that you need earned US to contribute to an IRA. This means income that is taxable by the IRS. Passive income such as dividends, capital gains or interest doesn't count.
Livingstone wrote:
Wed Mar 25, 2020 6:30 pm
1. Can I open an IRA (via Vanguard?) and if so, which one should I do? I understand I have a foreign income exclusion (which I believe due to my married status goes up to $198k, but I still make more than that in AGI), so I believe that means I can still max out my IRA this year? If not, please let me know! And should I opt for a traditional or a Roth IRA?
If your income exceeds the FEIE, you can contribute to retirement accounts. Most likely a tIRA. You may be eligible for a ROTH, but there is only a small window between the FEIE and the ROTH income limits. Money you exclude via FEIE is included in your income calculation to determine ROTH eligibility.

As for Vanguard, it might be possible if you use a US address. If they learn of your foreign residency, they may freeze your account, but it seems to be related to how long people have been there and what country. So, it's anybody's guess really.

Livingstone wrote:
Wed Mar 25, 2020 6:30 pm
2. In regards to investing, I understand the way to go is via ETFs and mutual funds (I believe the difference is not massive). Should I only invest in these after maxing out my IRA? I also understand you can fund your IRA with ETFs/mutual funds. Is this recommended, and if so, does that mean that I should only invest my funding my IRA with ETFs/mutual funds? Is there even a way to just invest and not do it via an IRA account?
Legally, expats aren't supposed to buy mutual funds. If your broker knows you are an expat, they won't sell you one.

My apologies if some of these questions are stupid, but honestly the entire system is very new to me. Thanks so much!

Yes, you can invest in a taxable account. Many expats only have that choice.

Livingstone wrote:
Wed Mar 25, 2020 6:30 pm
Age: 26 years old, US citizen, working and living in the UK. Officially there on an indefinite basis, but plan is to move back to the USA by February 2021 for family reasons, and plan to live there from then on an retire there.
Investments: $100 Vanguard (I opened an account before I left to the UK as I heard it was hard to open up one after moving abroad and deposited it...but no idea if it actually is invested?)
Debt: $100k
Annual gross income: $270,000
Tax filing status: Married filing jointly
Desired asset allocation: as per the Bogle book I read: 26% bonds; 74% stocks
Retirement funds: $0 (I believe?)
So just try making contributions to your Vanguard account. I wouldn't transfer money in from the UK.

Things are a bit complicated at the moment if you try to invest via a UK broker. They may not be able to sell you US domiciled ETFs which you need for tax purposes. And you need to particular funds that are UK tax reporting for UK tax purposes.

So using a US based broker seems easiest given you quick return. Just be sure to report the income to the UK if they require it. I am not sure about that aspect.

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