Something for US citizens for a change
I feel bad. Many of the products and services we talk about here on RetireJapan are not available to US citizens and it’s very frustrating sometimes to try and give suggestions or advice.
So I am really happy to introduce something today that is only for US citizens and goes a way towards making up for all the other stuff. We actually featured this on the Facebook page a few weeks ago (like us to get links to random articles and news that don’t make it to the blog) but I’m posting it here to make sure as many people as possible see it.
American Citizens Abroad is a lobby group for US expats living outside the United States. They’ve managed to team up with the State Department Federal Credit Union and get access to diplomat-grade bank and retirement accounts.
Great news for US citizens frozen out of regular bank accounts in the countries they live in (I’m actually a bit jealous, and would love to see something like this for UK citizens too).
Interactive Brokers also offers extremely low-cost investment accounts for US citizens and others, including IRA and Roth IRA accounts.
Anyone have an account with ACA? Any other advice for US citizens?
I had a look at the Interactive Brokers site. They do indeed say you can open an IRA while overseas. They offer no explanation how they are getting around federal tax laws. As far as I understand it is 100% impossible to invest in an IRA unless make (and declare) US earned income. Trust me I know first hand because I was investing in one while in Japan and I shouldn’t have been and had to pay the IRS a steep fine. Luckily it was only 3 years worth and I was able to un-do 2 of those years and only had to pay a fine based on 1 years worth of investments. I am skimming their 50 page IRA booklet and they list a dozen rules to contributing but mention NOTHING about US earned income. I find that curious that they don’t even mention that since that is the number 1 hurdle for American Ex-pats and they are marketing this service to american ex-pats.
Good point. I am neither American nor knowledgeable about this, so hopefully someone better informed will chime in, but I think you could open or contribute to an IRA if your income was higher than the foreign earned income exclusion or if you chose not to claim it.
I’m with Bob. My understanding is also that US citizens CANNOT make contributions to Roth nor Tradidional IRAs without having payed some US Federal Income Tax.
Can anyone else with experience earning over the FEIE chime in?
I have happily done so the past few years and have still never had to pay US Federal Income Tax due to the “Foreign Tax Credit” by US-CPA always uses on my behalf. I had a some hypothetical questions for this guy (popular with some APAC expats doing their personal filing in the US), and he made it sound like even if you earned $1,000,000 in Japan you wouldn’t have to pay tax in the US because of the comparable tax rates of the two countries (maybe because in US you’re not paying state taxes, which would normally combine with the federal income tax levels to probably exceed Japanese income tax rates) thanks to the Foreign Tax Credit.
Obviously tax deferred investments are great, but probably better than that is a strategy of paying only the necessary tax in Japan and then trying to invest that money in Vanguard ETFs and whatever one figures out here in Japan. Maybe?