What is an Individual Retirement Account?

An Individual Retirement Account (IRA) is a US tax-advantaged account used to save and invest for retirement. Traditional IRAs generally offer tax-deferred growth and may allow deductible contributions, while Roth IRAs use after-tax contributions and can provide tax-free qualified withdrawals.

For Americans abroad, the tax treatment of an IRA can vary by country. Some tax treaties recognize certain US retirement-account benefits, while others offer little or no protection. This can make Individual Retirement Accounts more complicated for US expats than for taxpayers living in the United States.

Last updated October 12, 2026
Written by: Clark Stott

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In this article

How does an Individual Retirement Account work?

An IRA works by allowing you to contribute money to a retirement account and invest it for the future. The IRS sets annual contribution limits and rules on when money can be withdrawn, while the tax treatment depends on whether you hold a Traditional IRA, Roth IRA or another IRA arrangement.

Money held in an IRA can generally be invested in stocks, bonds, mutual funds, ETFs and other permitted investments. Investment earnings remain within the account until they are reinvested or withdrawn.

You can buy and sell investments within the IRA without treating each transaction as a separate withdrawal. Tax generally becomes relevant when contributions are made or money is taken out, depending on the type of IRA and the withdrawal rules that apply.

What types of Individual Retirement Accounts and IRA-based plans are available?

Traditional and Roth IRAs are the main personal options, while the IRS also recognizes several IRA-based arrangements for employees, businesses and self-employed people.

Types of IRAs and IRA-based arrangements

IRA type	Who is it mainly for?	How it works
Traditional IRA	Individuals saving for retirement	Contributions may be deductible. Tax is generally deferred until taxable amounts are withdrawn.
Roth IRA	Individuals seeking tax-free qualified withdrawals later	Contributions use after-tax money. Qualified withdrawals can generally be tax-free.
Payroll Deduction IRA	Employees whose workplace offers payroll savings	The employee establishes a Traditional or Roth IRA and directs part of their pay into it.
SEP IRA	Self-employed people and business owners	Employers contribute to IRAs established for eligible employees, including themselves if self-employed.
SIMPLE IRA	Employees and owners of eligible small businesses	Employees can contribute from salary, and the employer makes matching or nonelective contributions.
SARSEP	Employees in older SEP arrangements	A legacy SEP arrangement established before 1997 that allows salary-reduction contributions.
Trump Account	Eligible children under age 18	A type of Traditional IRA designed for children. Special contribution and withdrawal rules apply until age 18, including a separate $5,000 annual contribution limit for most contributions.

Payroll Deduction IRAs are worth distinguishing from employer-funded plans. The employee contributes the money, while the employer mainly handles the payroll transfer.

What is the difference between a Traditional IRA and a Roth IRA?

The main difference between a Traditional IRA and a Roth IRA is when you receive the tax benefit. A deductible Traditional IRA contribution can reduce your taxable income for the year, while a nondeductible contribution can still grow tax-deferred. With a Roth IRA, the tax benefit generally comes later through tax-free qualified withdrawals.

Here’s a closer look at how each type works:

Traditional IRA. Contribution deductibility can depend on income and workplace retirement-plan coverage. Required minimum distributions generally apply later in life.
Roth IRA. Contributions are subject to income limits. Roth IRA owners are not required to take minimum distributions during their lifetime.

Also read: Traditional IRA or Roth IRA?

What are the IRA contribution limits for 2026?

For 2026, you can contribute up to US$7,500 in total to your Traditional and Roth IRAs, or US$8,600 if you are age 50 or older. Roth IRA contributions are also subject to income limits based on your modified adjusted gross income (MAGI) and filing status.

IRA contribution and Roth IRA income limits (2026)

2026 rule	Amount
IRA contribution limit if under 50	US$7,500
Age 50+ catch-up contribution	US$1,100
Total IRA limit if age 50+	US$8,600
Roth phase-out: Single or Head of Household	US$153,000-US$168,000
Roth phase-out: Married Filing Jointly	US$242,000-US$252,000
Roth phase-out: Married Filing Separately and lived with spouse	US$0-US$10,000

Your contribution generally cannot exceed your taxable compensation for the year.

Within the Roth IRA phase-out range, your contribution limit is reduced. Once your MAGI reaches the upper limit, you generally cannot make a direct Roth IRA contribution.

Who can contribute to an Individual Retirement Account?

You can generally contribute to an IRA if you have taxable compensation, such as wages, salary, commissions, or net self-employment income. If you file jointly, a spouse without compensation may also contribute to a separate IRA based on the other spouse’s compensation, subject to the annual contribution limits.

Interest, dividends, pension or annuity income, and most rental income generally do not count as compensation for IRA purposes.

For Americans abroad, foreign earnings can also affect how IRA contribution eligibility is calculated, particularly when foreign-income exclusions are involved.

Can US expats contribute to an IRA while living abroad?

Yes. US expats can generally contribute to an IRA while living abroad if they have eligible compensation. However, the Foreign Earned Income Exclusion (FEIE) can affect how much income counts for IRA contribution purposes.

Foreign Earned Income Exclusion (FEIE). IRS guidance is currently inconsistent on how income excluded under the FEIE or foreign housing exclusion should be treated when calculating how much you can contribute to an IRA. If you claim either exclusion, confirm your individual IRA contribution limit before contributing.
Foreign Tax Credit (FTC). Claiming the FTC does not exclude foreign earnings from income. As a result, qualifying earnings generally remain available when determining IRA compensation.

What happens to your IRA when you move abroad?

You can generally keep an existing US IRA after moving abroad. However, your brokerage or financial institution may place restrictions on accounts held by customers who live outside the United States.

Restrictions vary by provider and country of residence. Some firms may limit new investments, certain trades, or the opening of additional accounts.

Before moving, check whether your provider services clients in your new country and what restrictions may apply.

When can you withdraw money from an IRA?

You can withdraw money from an IRA at any age, but whether you owe tax or an additional tax depends on the type of IRA, your age, and what kind of money you are withdrawing.

Traditional IRA. Most withdrawals are taxable as ordinary income. If you withdraw taxable amounts before age 59½, a 10% additional tax may apply unless you qualify for an exception.
Roth IRA. Your regular contributions generally come out first and can be withdrawn tax-free. Different rules apply to money added through Roth conversions or rollovers, including separate five-year rules in some cases. Earnings are generally tax-free once the five-year rule and another qualifying condition, such as reaching age 59½, are met.

For US expats, the country where you live may also tax IRA withdrawals. Local rules and any applicable US tax treaty determine how the distribution is treated outside the US.

Note: Required minimum distributions (RMDs) are separate from voluntary withdrawals. Traditional IRA owners generally start RMDs at age 73 or 75, depending on their birth year. Original Roth IRA owners do not have RMDs during their lifetime, although beneficiaries may have distribution requirements after the owner’s death.

How are US Individual Retirement Accounts taxed in the UK?

The US-UK tax treaty can protect certain US IRA tax benefits in the UK. How an IRA is treated depends on the type of account, whether a withdrawal is taxable in the US, and whether the treaty’s conditions are met.

Roth IRA. A distribution that is tax-free in the US can generally receive the same tax-free treatment in the UK under the treaty. This is particularly relevant to qualified Roth IRA withdrawals.
Traditional IRA. Regular taxable distributions are treated separately from amounts that represent nondeductible contributions. If part of a withdrawal is a return of a nondeductible contribution and is tax-free in the US, that portion may also be exempt from UK tax under the treaty.
Investment growth. The treaty can protect income and gains building up inside a qualifying US retirement plan from immediate UK tax while the money remains in the account.
Contributions. Treaty relief may be available for contributions to a US retirement plan after moving to the UK for work, but only if specific conditions are met. These include generally having contributed to the plan before the move and the plan corresponding to a UK pension scheme. The treaty does not automatically make new IRA contributions tax-deductible in the UK.

Also read: UK equivalent of a Roth IRA

What is the difference between an IRA, ISA and SIPP?

An IRA is a US retirement account, an ISA is a UK tax-advantaged savings or investment account, and a SIPP is a UK personal pension. They are not direct equivalents, and the tax benefits available in one country may not receive the same treatment in the other.

IRA vs ISA vs SIPP for US expats

Account	Where is it used?	Main local tax advantage	What should US expats consider?
IRA	United States	US retirement tax benefits	UK treatment can depend on the IRA type and the US-UK tax treaty
ISA	United Kingdom	Income and gains are generally tax-free in the UK	The US does not automatically recognise the ISA’s UK tax-free treatment
SIPP	United Kingdom	Contributions may qualify for UK pension tax relief	US tax and reporting treatment may differ from the UK treatment

What should US expats check before contributing to or withdrawing from an IRA?

Before contributing to or withdrawing from an IRA, US expats should confirm that the transaction meets US IRA rules and understand how it will be treated in their country of residence.

Check:

Eligible compensation. Do you have enough compensation to support the contribution?
FEIE. Are you excluding foreign earned income that could affect contribution eligibility?
Roth IRA income limits. Does your MAGI reduce or prevent a direct Roth contribution?
Local tax. How will your country of residence tax the IRA or withdrawal?
Tax treaty. Does a treaty change how the account or distribution is treated?
Provider restrictions. Will your US provider allow the transaction while you live abroad?

Frequently Asked Questions

Can you contribute to an IRA and a 401(k) in the same year?

Yes. You can contribute to both, although workplace-plan coverage may affect whether a Traditional IRA contribution is deductible.

Can you contribute to an IRA after age 73?

Yes. There is no upper age limit for making IRA contributions, provided you have enough eligible compensation.

When is the deadline for making an IRA contribution?

IRA contributions are generally due by the regular US tax return deadline for that year, not including extensions.

What happens if you contribute too much to an IRA?

Excess IRA contributions can trigger a 6% excise tax for each year the excess remains uncorrected. However, you may be able to avoid the 6% tax by correcting the excess by your tax return due date, including extensions.

Generally, this means withdrawing the excess contribution and any earnings associated with it. The earnings may still be taxable.

Can you roll a 401(k) into an IRA while living abroad?

Generally, yes. Eligible 401(k) distributions can often be rolled into an IRA, although expats should also check provider restrictions and local tax consequences.

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Clark Stott has been with Expat Tax Online since 2015. Being a dual national based in the UK, Clark has unique experience helping US citizens (and Accidental Americans) become tax compliant via the Streamlined Tax Amnesty program. Clark likes to help Americans in the UK keep their tax situations as simple as possible to avoid harsh IRS treatment.