The Roth Individual Retirement Account (IRA) is a versatile retirement tool. Contributions can be taken out at any time without penalty. Your earnings grow tax-free and can be withdrawn tax-free in retirement. Additionally, you can always contribute to a Roth IRA when you live or work abroad, provided you meet certain criteria.

What is a Roth IRA?

A Roth IRA is a type of retirement savings account which has tax advantages and distinct differences from other retirement accounts. For example, a Traditional IRA offer an advance tax deduction of the amount of your contribution, thus reducing your taxable income in the year of the contribution. However, you pay taxes on your withdrawals in retirement.

Roth IRA Tax Treatment

Vice versa, Roth IRA do not offer an upfront tax deduction. Instead, the money grows tax-free over the years, and you can withdraw the funds tax-free once you reach age 59½.

Since you did not receive an upfront tax deduction, contributions to Roth IRA accounts can be withdrawn at any time tax-free, and ride on contributions can be withdrawn tax-free after five years. However, your investment income or your gains on these contributions cannot be withdrawn before age 59 and a half without a heavy tax penalty of the Internal Revenue Service (IRS).

Roth IRAs can also be tax-free for an heir, which can make your contributions a form of life insurance for your family.

Roth contribution limits

Roth and traditional IRA Contribution Limits for 2024, $7,000 for people under 50. People aged 50 and over can contribute an additional $1,000 as a contribution. catch-up contribution.

Roth Income Limits

You cannot contribute to a Roth IRA for 2024 if you earn more than the individual income limit of $161,000 or, for a couple filing jointly, income above $240,000.

Can you contribute to a Roth IRA if you live or work abroad?

If you are a U.S. citizen or permanent resident living or working abroad, you can contribute to a Roth or traditional IRA as long as you meet certain requirements. There are income limits for eligibility for a Roth IRA.

Income earned

You must have earned income to contribute to a Roth or traditional IRA. To determine whether you have enough income to contribute to a Roth IRA, the Internal Revenue Service (IRS) will review your modified adjusted gross income (MAGI).

Expats who earn income from working in the United States, whether from pre-departure employment, business travel to the United States, or compensation from the U.S. government, typically have incomes close to of their MAGI.

For the purposes of MAGI, many expatriates or citizens living abroad will take the accommodation abroad And exclusions from income earned abroad. These exclusions generally significantly reduce MAGI and could make some ineligible to contribute to a Roth IRA. For 2024, the foreign earned income exclusion applies to the first $126,500 earned in a foreign country. This amount increases to $130,000 for 2025.

Consult your tax return preparer to see if a partial exclusion would be possible or advisable in your situation.

The essentials

You can contribute to a Roth IRA if you’re a U.S. citizen or permanent resident living or working abroad, as long as you have enough earned income after all. tax exemptions and you do not earn more than the earned income limit.

Roth IRA are a powerful tool for saving for retirement and for dealing with worst-case emergencies. If you don’t have one yet, you may want to seriously consider opening one if you are eligible.