What is IRA (Individual Retirement Account)?
A tax-advantaged retirement savings account with traditional (tax-deductible) and Roth (tax-free growth) options.
Definition
An Individual Retirement Account (IRA) is a tax-advantaged account for retirement savings. Traditional IRAs offer tax-deductible contributions with taxable withdrawals; Roth IRAs offer after-tax contributions with tax-free qualified withdrawals. For US expats, IRA contributions require earned income, and the FEIE can reduce or eliminate the earned income available for IRA contributions. Cross-border issues arise when moving between the US and countries that don't recognize IRA tax advantages.
Who Needs to Know This?
US taxpayers saving for retirement. Expats must understand how the FEIE affects their ability to make IRA contributions.
Key Deadline
Contributions for the prior year due April 15
Potential Penalties
6% excise tax on excess contributions; 10% early withdrawal penalty before age 59½
Related Forms
Common Mistakes to Avoid
- 1Expats making IRA contributions when FEIE eliminates qualifying earned income
- 2Not understanding Roth conversion strategies for expats
- 3Confusing traditional and Roth IRA tax treatment
- 4Not knowing that some countries tax IRA withdrawals differently
Related Terms
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