Topic · US expat tax
IRA, Roth & 401(k) Contributions While Living Abroad
Why the FEIE can leave you with no eligible compensation to fund an IRA, how the FEIE-vs-FTC choice affects eligibility, and why a foreign pension isn't a U.S. retirement account.
Living abroad doesn't stop you from having U.S. retirement accounts, but it can quietly affect how much you're allowed to contribute. The key is that IRA contributions generally require eligible compensation (broadly, earned income) — and the way you handle your foreign income can reduce or eliminate it.
The FEIE trap for IRA contributions
An IRA (traditional or Roth) contribution generally has to be backed by eligible compensation. If you exclude your earned income with the FEIE (Form 2555), that excluded income generally can't count as compensation for IRA purposes. An expat who excludes all of their salary can end up with no eligible compensation left to contribute — even though they clearly earned wages.
FEIE vs FTC and IRA eligibility
Because the Foreign Tax Credit (Form 1116) doesn't exclude the income, choosing the FTC can leave earned income in place to support an IRA — whereas the FEIE can remove it. Roth IRAs add a separate income-limit layer on top. As orientation:
| Choice | Effect on eligible compensation | IRA effect |
|---|---|---|
| Exclude all earned income via FEIE | Little or no compensation remains | Often little or no room to contribute |
| Exclude part of income via FEIE | Some compensation may remain | Possible partial contribution room — fact-specific |
| Use the Foreign Tax Credit instead | Earned income remains countable | Compensation generally supports a contribution (subject to limits) |
A foreign pension is not a U.S. retirement account
A local foreign pension or employer scheme is generally not the same as a U.S. IRA, Roth, or 401(k) for U.S. tax purposes. It can have its own treatment — possibly raising foreign-trust or PFIC questions depending on how it's structured — and contributions to it don't create U.S. IRA room. Treaty provisions sometimes affect foreign-pension treatment, but that's a separate analysis from U.S. retirement-account rules.
Contributing to a US retirement account from abroad?
The free Tax Risk Check helps you think through whether the FEIE leaves room for an IRA and how a foreign pension fits in. Atamatax provides preparation support; this is not individualized tax or legal advice.
Atamatax provides tax preparation support and educational resources. This website does not constitute legal or tax advice.