What Happens to Your IRA When You Leave the U.S.?

Your IRA can sit quite happily here in the United States while you're abroad. Even if you're a permanent expat living in Dublin or Delhi, moving outside the country doesn't close out your IRA or hit it with extra taxes. You will, however, be playing by a different set of rules, and putting more money in the account may not be doable.

TL;DR (Too Long; Didn't Read)

Leaving the country won't affect the IRA you have in the United States.

Foreign Income

If you make your home in a foreign country for an entire tax year and earn money there, you may not have to pay US tax on it. The IRS allows Americans who live abroad to earn above $90,000 without paying American income tax, provided they meet various tests. The downside is that if you don't have any taxable income to report in a given year, you can't contribute money to your IRA.

Tax Home

You only exclude your foreign income if the foreign location is your tax home for the year. A tax home isn't where your house is, but where your work is based. If you have a house in Florida, but you're working from an office in Canada for two years, your tax home may be in Canada. Coming back to the United States for an occasional visit doesn't change that, unless you're, for instance, commuting back and forth every weekend to be with your family at home.

Withholding to Cover Taxes

If you withdraw money from a traditional IRA while you're abroad, you owe American income tax on it. Depending on where you live, you may owe tax to your expat government too. Your IRA account manager normally takes out withholding to cover your taxes, but if you live in the United States, you can opt out. Overseas, you can't avoid withholding unless you certify that you're not an American citizen or that you're not living abroad to avoid American taxes.

Conversions From Traditional to Roth

You can't contribute to a Roth if you don't have any taxable compensation, but you can roll a traditional IRA into a Roth. You pay income tax on everything you roll over -- after-tax traditional IRA contributions are an exception -- but no tax at all on withdrawals. If conversion sticks you with high overseas taxes, it might be better to postpone doing this until you're home. On the other hand, if your American home is a state with high income taxes, making the conversion when you're not paying state taxes may be the better move.

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