IRA Rules for American Expats
When it comes to moving abroad, one of the many decisions that American expats face is what to do with their individual retirement account (IRA). The good news is that you can continue making IRA contributions while living abroad, but there are certain rules to be aware of.
For instance, an American expat can hold onto their traditional or Roth IRA while living abroad, but they’ll need to make sure their broker maintains IRA accounts for non-residents. The IRA contribution limit for 2026 is $7,500, or $8,600 for those over 50.
Traditional IRA vs. Roth IRA
A traditional IRA is funded with pre-tax dollars, which can lower your current tax bill. Investments grow tax-deferred, and you pay ordinary income tax when you withdraw money in retirement. On the other hand, a Roth IRA is funded with after-tax dollars, and investments grow tax-free and withdrawals are tax-free in retirement.
To make the full contribution to a Roth IRA, your modified adjusted gross income (MAGI) must be below $153,000 for single filers or $242,000 for married couples filing jointly. These rules still apply when you move abroad, but tax exclusions and credits, as well as local tax laws, make this much more complicated to calculate.
FEIE vs. FTC
If you have an existing traditional or Roth IRA, you can continue contributing to it when you move abroad, so long as the income you earn isn’t excluded by the Foreign Earned Income Exclusion (FEIE). FEIE allows you to exclude earned income on your U.S. tax return, up to the annual limit, so long as you spend most of the year overseas. The FEIE limit for the 2026 tax year (for taxes filed in 2027) is $132,900.
For example, if you earn an annual salary of $165,000 in London, you can claim the full FEIE of $132,900 for the 2026 tax year. That leaves you with $32,100 in earned income, which allows you to make IRA contributions from overseas. If you make less than $132,900, you’ll have $0 in earned income, meaning you won’t be eligible to make an IRA contribution because you technically have nothing to report.
Another way to preserve IRA eligibility is to use the Foreign Tax Credit (FTC) instead of FEIE. This means your foreign earnings are considered taxable earned income in the U.S. The FTC provides a dollar-for-dollar credit to taxes you’ve already paid abroad (so you’re not double-taxed) and you’re still eligible to make IRA contributions.
Whether FEIE or FTC is best for you depends on if the country you’re moving to has a tax treaty with the U.S. You’ll need to understand its specific provisions before making a decision between FEIE or FTC.
Retire in the U.S. or Abroad
While you can make IRA contributions while living abroad, that doesn’t necessarily mean you should. It’s essential to understand how contributions and distributions are reported in your country of residence, so you don’t end up facing double taxation – especially if you plan to retire there.
For instance, an American expat with a traditional IRA is still required to follow required minimum distribution (RMD) rules. And not all countries recognize the tax-free status of Roth IRAs, so you could end up paying local taxes on withdrawals in retirement.
For someone who plans to return to the U.S. after a few years or when they retire, it may be a matter of deciding whether FEIE or FTC works better for your particular situation. But if you’re planning a permanent move abroad – or, like many expats, you’re not sure – then it becomes a much more complex decision.
Each situation, and each country’s tax laws, are different, so it’s a good idea to get the help of a tax expert who specializes in advisory services for expats.
