Can Americans Living Abroad Contribute to a 401(k) or IRA?

Can Americans Living Abroad Contribute to a 401(k)?

The rules for 401(k) contributions are connected directly to employment with a U.S. employer and whether the individual is paid through U.S. payroll.

To contribute to a 401(k), ALL of the following must be true:

1. You must be employed by a company that sponsors a U.S. retirement plan
2. You must receive U.S.-sourced wages paid through U.S. payroll
3. You must receive a W-2 form at year-end
4. You must be classified as an eligible employee per the plan document
5. Your compensation must be considered “eligible plan compensation”

If you leave your U.S. employer:

401(k) contributions stop automatically, regardless of residency.

If you work abroad for a non-U.S. employer:

You generally cannot contribute to a 401(k), even if you maintain U.S. citizenship.

Exceptions (specific and limited):

You may be able to contribute if:

• You are a U.S. citizen working abroad for a U.S. employer, or
• You are on assignment overseas but remain on U.S. payroll, or
• You work for a foreign subsidiary but are considered a U.S. employee under IRS rules (rare), or
• Your U.S. employer chooses to extend plan eligibility abroad (plan-specific, not automatic)

Employer-specific HR policies often determine eligibility.

FEIE and 401(k) Contributions (Important Interaction)

The Foreign Earned Income Exclusion (FEIE) affects retirement contributions in a very specific way:

FEIE-excluded income cannot be used for 401(k) contributions

If your employer pays foreign wages that are excluded under FEIE, those wages are not considered earned income for U.S. retirement plan contribution purposes.

This is because:

• FEIE removes the wages from U.S. taxation
• Only U.S.-taxable wages qualify as “compensation” for 401(k) purposes
• Plan documents typically require U.S. W-2 compensation

Example (hypothetical only):

An employee moves to Singapore and works for a Singaporean company:

• Compensation is foreign-sourced
• FEIE may apply
• Contributions to a U.S. 401(k) are not permitted

The exception:
If an employee moves abroad but stays on U.S. payroll, FEIE is generally not used for that compensation, and contributions may continue if the plan allows.

Can Americans Abroad Contribute to an IRA?

Contributing to an IRA requires meeting earned income rules, which apply regardless of where you live.

To contribute to any IRA (Traditional or Roth):

You must have U.S.-taxable earned income.

Earned income includes:

• wages (reported on a W-2)
• self-employment income
• certain taxable benefits

Earned income does NOT include:

• FEIE-excluded income
• dividends
• interest
• capital gains
• pension income
• rental income
• passive income
• Social Security benefits

Conclusion:

To contribute to an IRA abroad, individuals generally need:

• U.S.-taxable earned income, and
• MAGI (Modified Adjusted Gross Income) within IRS limits (for Roth)

This is where FEIE creates limitations.

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How FEIE Affects IRA Contribution Eligibility

FEIE can significantly affect whether an expat can contribute to an IRA.

If all earned income is excluded under FEIE →

You may have zero eligible compensation, and IRA contributions may not be permitted.

If you elect FTC instead of FEIE →

Your earned income remains U.S.-taxable, which may allow:

• Traditional IRA contributions,
• Roth IRA contributions (subject to income limits).

If you have a mix of income types →

Some earned income may still qualify for contribution purposes.

Example (hypothetical):

An American in France:

• Earns income taxed in France
• Uses FTC, not FEIE
• Earned income remains U.S.-taxable
• IRA contributions may be permitted if MAGI and other rules allow

Key takeaway:

FEIE may restrict IRA contribution eligibility; FTC may preserve it.

Suitability depends on circumstances.

Traditional IRA Contributions While Living Abroad

Traditional IRA contribution rules depend on:

• earned income
• tax filing status
• participation in an employer-sponsored plan
• income thresholds
• FEIE/FTC usage

Traditional IRA contributions require:

• U.S.-taxable earned income
• meeting IRS income rules for deductibility

Contributions may be:

• deductible
• partially deductible
• or non-deductible (still allowed)

Deductibility depends on:

• whether you or your spouse participate in a retirement plan
• MAGI levels
• filing status

If you use FEIE:

Excluding all earned income may result in no eligible compensation.

Roth IRA Contributions While Living Abroad

Roth IRA contributions depend on:

• earned income (must be U.S.-taxable)
• MAGI thresholds (adjusted annually)

Contributions may be allowed if:

• the individual earns U.S.-taxable income (FTC instead of FEIE)
• MAGI falls within IRS limits

Contributions may not be allowed if:

• all earned income is excluded using FEIE
• income exceeds Roth thresholds
• income is non-earned income

Common misconception:

Some individuals believe living abroad affects Roth eligibility.
In reality, the determining factor is taxable earned income, not residency.

Backdoor Roth Contributions for U.S. Expats

A “backdoor Roth” involves:

1. Contributing to a Traditional IRA (non-deductible),
2. Converting those funds to a Roth IRA.

This method is used by individuals with high income levels.

Important considerations for expats:

• Backdoor Roth contributions still require U.S.-taxable earned income
• FEIE-excluded income cannot fund the initial Traditional IRA step
• Pro-rata rules may apply
• Foreign residency does not eliminate IRS conversion rules

Suitability depends on the individual’s full tax picture.

Contributing to a 401(k) While Self-Employed Abroad

Self-employed U.S. citizens abroad may consider:

• Solo 401(k)
• SEP IRA
• SIMPLE IRA

Eligibility depends on:

• self-employment income
• net earnings
• plan adoption rules
• FEIE/FTC usage

FEIE and self-employment tax:

FEIE excludes earned income from income tax, but not self-employment tax.

Contribution eligibility:

If FEIE excludes all earned income, eligible compensation for contributions may be limited.

Self-employment income that is U.S.-taxable may permit contributions.

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Country-Level Illustrative Examples

These examples do not represent actual clients or outcomes.

Example 1 - U.S. Expat in the UAE

• No local tax
• Income excluded via FEIE
• No eligible compensation for IRA or Roth IRA
• 401(k) contributions not permitted unless on U.S. payroll

Example 2 - U.S. Expat in France

• Earns wages taxed in France
• Uses FTC, not FEIE
• U.S.-taxable income remains
• IRA or Roth contributions may be possible

Example 3 - Contractor Living in Asia

• Self-employed
• Uses FEIE
• Still pays U.S. self-employment tax
• IRA contributions may be limited if earned income fully excluded

Example 4 - U.S. Employee Working Abroad for U.S. Company

• Remains on U.S. payroll
• W-2 issued
• 401(k) contributions may continue if plan allows

Summary of Rules

401(k) Contributions

Allowed only when on U.S. payroll
FEIE-excluded income usually does not qualify
Foreign employer = generally no 401(k) availability

Traditional IRA Contributions

Require U.S.-taxable earned income
FEIE may remove eligibility
FTC may preserve eligibility

Roth IRA Contributions

Require U.S.-taxable earned income
Subject to MAGI limits
FEIE may eliminate eligibility

Backdoor Roth

Still requires earned income
Pro-rata rules apply
FEIE interactions matter

Self-Employed Expats

Eligibility depends on net earnings
FEIE interacts with contribution limits

FEIE vs FTC

Key determinant for IRA and Roth eligibility

Checklist for U.S. Expats Evaluating Contributions

How Skybound Wealth USA Supports Individuals

Skybound Wealth USA assists individuals with:

• understanding eligibility rules for 401(k), IRA, and Roth IRA contributions,
• reviewing FEIE vs FTC considerations in coordination with tax professionals,
• planning around long-term residency and income structure,
• evaluating rollover options (consistent with ADV disclosures),
• constructing U.S.-domiciled, PFIC-aware investment portfolios,
• integrating global financial planning considerations,
• modelling long-term outcomes with MoneyMap.

Conflict Disclosure:
Skybound Wealth USA may receive compensation for advisory services involving assets under management.
Individuals should evaluate all available options before making decisions.

Next Steps

If you would like to understand how 401(k) or IRA contribution rules apply to your situation while living abroad, you may schedule a discussion with Skybound Wealth USA to review your circumstances in detail.