Accidental Americans (perhaps born in the US but never lived or worked there) are still required to file U.S. tax returns in perpetuity.

One of the many problems with this is that tax deferred investment options in a U.S. citizens' resident country (i.e. outside the US) are not considered as such by the IRS.

Can a US citizen who lives and works abroad (and plans never to live or retire in the USA) therefore make sensible retirement planning decisions, and if so, how?

For example, could they contribute to a US-based tax deferred scheme like a 401K or an IRA without being resident in the USA or are there any other options available?

  • 3
    If you have no intention of returning to the US, you could renounce your US citizenship. – BrenBarn Jan 19 '16 at 19:31
  • "tax deferred investment options in a U.S. citizens' resident country (i.e. outside the US) are not considered as such by the IRS" What exactly does the OP mean by this...? – gef05 Jan 20 '16 at 19:25
  • I'll use the UK as an example which I am familiar with. There you have two common forms of investment option; a pension, or an ISA. Pensions can be contributed to from pre-tax income. The investments held within are managed by the pension provider and can not be withdrawn until retirement age. When they are withdraw, tax is applied at the prevailing rates. On the other hand, an ISA is contributed to from after tax income. Gains made in that vehicle can be withdrawn at any time and are tax free in the eyes of the UK government. No so when filing the US tax return... – CedricP Jan 20 '16 at 21:06

You could definitely contribute to IRA if you have qualifying income.

You can also participate in local pension programs. Some countries (like Canada) have agreements that allow the same treatment to local tax deferral schemes as if they were a US qualified plan. Others don't. You'll need to check your country's tax treaty with the US. In any case, with proper planning you can still have tax deferred savings (even if the contribution itself is after-tax).

Talk to a local tax adviser who's familiar with the US tax law for expats (preferably a US-licensed CPA/EA).

You can, as mentioned in the comments, renounce your citizenship.

Or call your Congressman.

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