Investing Retirement Planning IRAs IRAs for Americans Working Abroad By William Perez William Perez Twitter William Perez is a tax expert with 20+ years of experience advising on individual and small business tax. He has written hundreds of articles covering topics including filing taxes, solving tax issues, tax credits and deductions, tax planning, and taxable income. He previously worked for the IRS and holds an enrolled agent certification. learn about our editorial policies Updated on December 24, 2021 Reviewed by Janet Berry-Johnson Reviewed by Janet Berry-Johnson Twitter Janet Berry-Johnson is an expert in taxes and accounting whose expertise is based in a 10-year career as a certified public accountant. learn about our financial review board Fact checked by Emily Ernsberger Fact checked by Emily Ernsberger Twitter Emily Ernsberger is a fact-checker and award-winning former newspaper reporter with experience covering local government and court cases. She also served as an editor for a weekly print publication. Her stint as a legal assistant at a law firm equipped her to track down legal, policy and financial information. learn about our editorial policies In This Article View All In This Article Foreign Earned Income and Housing Exclusions Coordinating With Roth IRAs Coordinating With Traditional IRAs Roth IRAs vs. Traditional IRAs Use the Foreign Tax Credit Instead Frequently Asked Questions (FAQs) Photo: funky data / Getty Images Some Americans working in foreign countries are able to set money aside in individual retirement accounts or IRAs, but technical rules call for close scrutiny to make sure their savings achieve the best tax result. The foreign earned income exclusion coordinates with the rules for IRA eligibility, and this creates a very narrow range of options for Americans who are living and working abroad. Foreign Earned Income and Housing Exclusions Many Americans who live and work abroad qualify for the foreign earned income exclusion, which provides that the first $108,700 of foreign wages or self-employed income is excluded from U.S. federal income taxes as of the 2021 tax year (or up to $112,000 in 2022). This threshold is indexed for inflation, so it can increase periodically to keep pace with the economic climate. People working abroad might also be eligible for the foreign housing exclusion, allowing them to deduct certain housing expenses from their gross incomes. There are limits to the exclusion based on where the expenses are incurred. Any income that's excluded from taxation as a result of either of these two tax breaks can't be contributed to an individual retirement account. Income that's not excluded from income tax can potentially be contributed to an IRA, however. Coordinating the Exclusion With Roth IRAs Roth IRAs have income limitations. A single taxpayer is eligible to fund a Roth IRA up to the full contribution limit if their modified adjusted gross income (MAGI) is under $129,000 as of 2022 (up from $125,000 in 2021). The amount that can be contributed to a Roth is gradually reduced for a single filer whose income falls between $129,000 to $144,00 in 2022 (up from $125,000 and $140,000 in 2021). No Roth IRA contribution is allowed if your MAGI is more than $144,000 in 2022 (up from $140,000 in 2021). These thresholds increase to $204,000 and $214,000 for taxpayers who are married and file a joint tax return (up from $198,000 to $208,000 in 2021). They're also indexed for inflation, so they tend to increase somewhat from year to year. Note The limit plunges to just $10,000 for taxpayers who are married but who elect to file separate tax returns from their spouses. A taxpayer's AGI is modified to add back any foreign earned income exclusion and/or foreign housing exclusion that they might have claimed. This creates a very narrow range of income possibilities for funding a Roth IRA if you live and work abroad. Note As a practical example: In 2021, a single filer claiming the full $108,700 foreign earned income exclusion would have to have foreign wages over $108,700, and modified adjusted gross income not more than $140,000, to be eligible to contribute some money to a Roth IRA. Coordinating the Exclusion With Traditional IRAs Traditional IRAs are coordinated with the foreign exclusion in two ways. First, like the Roth IRA, an individual can't contribute excluded income to a traditional IRA. Second, a deduction for a traditional IRA contribution might be limited or eliminated entirely if the individual is covered by their employer's retirement plan. A traditional IRA would be available only on foreign wages or net self-employed income in excess of the foreign earned income exclusion amount if a taxpayer isn't eligible to participate in a group retirement plan. Roth IRAs vs. Traditional IRAs These distinctions can be important because taxation of funds contributed to a Roth or traditional IRA is very different. Contributions to a traditional IRA are tax-deductible in the year they're made, while contributions to a Roth are not. But taxation will occur eventually: Distributions taken from a traditional IRA are subject to income tax at the time they're taken, while distributions from a Roth are not. And earnings in a Roth IRA can be tax-free as well if they're qualified. Consider Using the Foreign Tax Credit Instead Americans working abroad might find that the foreign tax credit yields more advantageous results than the foreign earned income exclusion in certain situations. You'll have taxable wages or net self-employment income that will provide you with an opportunity to fund an IRA in the United States if you claim the foreign tax credit instead. The credit also provides a tax reduction in the United States based on taxes paid to the country where you work. You're taxed on this income so it's not excluded and you can therefore receive the full benefit of contributing it to an IRA. Frequently Asked Questions (FAQs) What happens to my Roth IRA if I move to another country? Nothing happens to your Roth IRA if you move abroad. The funds will still grow tax-free, and all the same required minimum distribution rules apply once you reach retirement age. The only thing that could change when you move abroad is your ability to contribute more money to a Roth IRA. When do I have to file taxes by if I'm a U.S. citizen living abroad? U.S. citizens living abroad are automatically given a two-month extension if they don't file their returns by Tax Day. In other words, the deadline for U.S. citizens filing returns from abroad is June 15. You can request an additional extension to push back the due date until October 15, but only the first extension will happen automatically. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Internal Revenue Service. “IRS Provides Tax Inflation Adjustments for Tax Year 2022.” Internal Revenue Service. "Foreign Earned Income Exclusion." Internal Revenue Service. "Foreign Housing Exclusion or Deduction." Internal Revenue Service. "Amount of Roth IRA Contributions That You Can Make for 2021." Internal Revenue Service. "Amount of Roth IRA Contributions That You Can Make for 2022." Internal Revenue Service. "Traditional and Roth IRAs." Internal Revenue Service. "Publication 54 (2020), Tax Guide for U.S. Citizens and Resident Aliens Abroad." Internal Revenue Service. "U.S. Citizens and Resident Aliens Abroad."