SIMPLE IRA Planning for Expats

Expats may be able to use, hold or contribute to a SIMPLE IRA depending on their employment, business, tax and eligibility position.

A review should usually consider:

• whether the SIMPLE IRA is from a current or former employer
• whether the person is an employee
• whether the person is self-employed
• whether the person owns a business
• whether the employer is eligible to maintain a SIMPLE IRA plan
• whether the employer has eligible employees
• whether the person has eligible compensation
• whether foreign earned income is involved
• whether the foreign earned income exclusion is used
• whether foreign tax credits are used
• whether self-employment tax applies
• whether salary deferral contributions are allowed
• whether employer matching contributions are required
• whether nonelective employer contributions are required
• whether contribution limits are met
• whether rollover restrictions apply
• whether the provider accepts a foreign address
• whether investments are suitable
• whether local tax recognises the account
• whether the person may return to the United States later

The IRS says a SIMPLE IRA plan allows employees and employers to contribute to traditional IRAs set up for employees.

The IRS also says eligible employers are generally employers that had no more than 100 employees who received at least $5,000 of compensation from the employer during the preceding calendar year.

That means SIMPLE IRA planning can be useful for small employers, but expats should not assume the account works the same way across countries, business structures and tax systems.

A SIMPLE IRA is not just an individual investment account.

It is connected to an employer plan.

That means the planning should consider the business context.

For expats, this can be especially important if you:

• own a US business while living abroad
• work for a US-connected small employer
• are self-employed
• hire employees
• employ family members
• operate through a foreign company
• earn foreign income
• claim the foreign earned income exclusion
• use foreign tax credits
• move between countries
• expect to return to the United States

The right decision may depend on:

• whether the business is eligible
• whether employees must be included
• whether salary deferrals can be made
• whether employer matching contributions apply
• whether nonelective contributions apply
• whether payroll can administer the plan correctly
• whether a SEP IRA would be simpler
• whether a Solo 401(k) would be more flexible
• whether a taxable account is more practical
• whether the SIMPLE IRA provider can support foreign residence
• whether local tax recognises the account
• whether withdrawals will be taxed differently abroad

A SIMPLE IRA may be a good fit where the business is small, administration needs to be simple and employees need access to a retirement plan.

It may be a poor fit where the owner wants more flexibility, has no employees, has a foreign company structure or needs more advanced retirement planning.

The key is to review the account within the business, tax and retirement strategy.

This page is for general information only and does not constitute personalised financial, tax, legal, pension, retirement, investment, business, payroll, SIMPLE IRA, SEP IRA, Solo 401(k), FEIE, US tax, local tax or currency advice.

SIMPLE IRA eligibility, employee salary deferrals, employer matching contributions, employer nonelective contributions, compensation, self-employment income, foreign earned income exclusion, foreign tax credits, employees, business structure, foreign company ownership, provider access, investments, rollovers, local tax, retirement account rules, currency and future residence depend on personal circumstances and may change.

US tax advice should be taken from a suitably qualified US tax adviser or CPA. Local tax, legal, business structuring, payroll and retirement plan advice should also be taken where relevant.

Financial planning should be coordinated with tax, legal, pension, investment, business owner and retirement planning advice where appropriate.

Do not open, fund, amend, roll over or close a SIMPLE IRA without reviewing tax, contribution, business structure, provider, investment and retirement planning implications.

Investing involves risk. Retirement account and investment values can fall as well as rise, and you may get back less than you invest.

Currency movements can affect the value of retirement accounts, contributions, withdrawals, tax liabilities and future spending.