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U.S. EXPAT TAX GUIDE โ€“ INDIA

Can US citizens in India contribute to a US IRA?

Yes, US citizens and dual nationals living in India can contribute to a Traditional IRA or Roth IRA in the US. These accounts allow you to save for retirement with tax benefits, but there are important rules and income limits to keep in mind.

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The contribution rules depend on factors like your income, filing status, and whether you use the Foreign Earned Income Exclusion (FEIE).

For 2024, the maximum contribution limit is US$7,000 (or US$8,000 if you are 50 or older). To contribute, you must have earned income.

How do income limits affect IRA contributions?

Income limits can complicate contributions for US expats. If you exclude all your foreign income using the FEIE, you might not have enough earned income left to qualify for an IRA contribution.ย 

The FEIE lets you exclude up to US$130,000 of foreign income in 2025. While this exclusion reduces your taxable income, it also reduces the amount of income that can be used to meet IRA contribution requirements.

Here are some scenarios:

  • Using the FEIE Fully: If all your income is excluded under the FEIE, you may not have earned income to support IRA contributions.
  • Using the FEIE Partially or Not at All: If you only exclude part of your income or choose not to use the FEIE, your remaining MAGI will determine your eligibility for IRA contributions.
  • Traditional IRA: Contributions may not be fully deductible if your MAGI exceeds certain levels.
  • Roth IRA: Contributions are phased out at higher MAGI levels. If your income is too high, you may need to consider a backdoor Roth IRA strategy.

What should US expats working in India know about IRAs?

If youโ€™re working temporarily in India for a US-based company, contributing to an IRA may still be possible. However, moving to an Indian payroll or becoming self-employed could change your situation:

  • Working for a US Company: You might still qualify for IRA contributions while earning US Social Security credits.
  • Switching to an Indian Payroll: This can affect your eligibility for US Social Security benefits and IRA contributions. Youโ€™ll need to assess how your income is reported to ensure compliance.
  • Self-Employment in India: If youโ€™re self-employed, paying US self-employment tax ensures you continue earning Social Security credits. These credits count as earned income, which can support IRA contributions.

Can expats contribute to a Roth IRA while living in India?

Yes, Roth IRA contributions are possible if your MAGI falls within the allowed limits. If your income is too high, you can consider a backdoor Roth IRA.ย 

This strategy involves making a non-deductible contribution to a Traditional IRA and then converting it to a Roth IRA. Itโ€™s a practical option for high-income earners who exceed the Roth IRA income limits.

Why is professional advice helpful for expats managing IRAs?

  • Determine your eligibility for IRA contributions based on income and exclusions.
  • Decide between a Traditional IRA and a Roth IRA based on your retirement plans and current tax situation.
  • Ensure compliance with IRS rules to avoid penalties and unnecessary complications.

What are the advantages of contributing to an IRA while living overseas?

  • Tax-Deferred Growth: Traditional IRA contributions grow without being taxed until you withdraw them in retirement, allowing your savings to grow faster.
  • Tax-Free Withdrawals: Roth IRA contributions are made after taxes, but qualified withdrawals in retirement are entirely tax-free.
  • Flexibility for Retirement Plans: IRAs provide additional savings options, whether you plan to retire in the US, India, or split time between the two countries.

Why partner with a specialist Expat accountant?

Living outside of the US can make your tax filing requirements complicated. To ensure you pay the minimum amount of taxes, it’s critical to work with an accountant who understands every aspect and avenue for reducing your tax liability. We have a dedicated team of tax accountants who work exclusively with US expats earning and investing in Germany. Partnering with a specialist expat accountant can help you navigate complex tax regulations and optimize your tax situation.

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