What is Roth IRA?
A retirement account funded with after-tax dollars where qualified withdrawals of contributions and earnings are tax-free.
Definition
A Roth IRA is an individual retirement account where contributions are made with after-tax dollars, but qualified withdrawals (after age 59½ and 5-year holding period) are completely tax-free, including all investment growth. Income limits apply for direct contributions. For US expats, Roth IRAs present unique opportunities: if the FEIE reduces your AGI below the income limit, you may be able to contribute. However, many foreign countries do not recognize Roth IRA tax-free status and may tax the growth.
Who Needs to Know This?
US taxpayers seeking tax-free retirement income. Expats should consider whether their host country recognizes Roth IRA benefits.
Key Deadline
Contributions for prior year due April 15
Potential Penalties
10% early withdrawal penalty on earnings before age 59½ (contributions can be withdrawn tax-free anytime)
Related Forms
Common Mistakes to Avoid
- 1Expats not knowing their host country may tax Roth growth
- 2Contributing when income exceeds Roth IRA limits
- 3Not understanding the 5-year rule for tax-free withdrawals
- 4Confusing Roth IRA with Roth 401(k) rules
Related Terms
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