One common question we’re faced with, is, can I contribute to a Roth IRA from New Zealand?

In short, yes you can.

But, should you? That comes down to a few different issues, but lets start below with the basics.

Can I contribute to my Roth IRA from NZ, with only NZ income?

As above, you certainly can.

Many articles and discussions online point to a roadblock, that indeed doesn’t actually apply for many people. The roadblock in question is that, to contribute to a Roth IRA, you must have taxable income on your US tax return each year.

Many US taxpayers overseas use the Foreign Earned Income Exclusion (FEIE) on Form 2555 each year on their US tax return, to reduce their taxable income to zero and ensure that they are not subject to US tax on their overseas earnings.

As a basic explainer, FEIE for 2024 is $126,500 USD, meaning you can exclude up to this amount from taxation on your US return.

This directly reduces your taxable income down to zero.

The side affect of this however, is that it can affect your ability to contribute to a Roth account.

Can I contribute to a Roth IRA with no taxable income?

No, you can’t. In order to contribute to a Roth, you must have taxable income.

In essence, the IRS wants to make sure that any money that is contributed to a Roth, has had tax paid on it first.

By using FEIE, you may reduce your taxable income down to $0, and at this point, you no longer are able to contribute to a Roth.

Is there a solution?

Yes, there are other methods of filing which can be used, which still leave you with a reportable taxable income on your US tax return, but still prevent double taxation.

The usual method used here would be to claim Foreign Tax Credits instead of FEIE. 

Under the Foreign Tax Credit system, your income is still reported in full to the IRS, however a credit is allowed for NZ tax paid. This does in most cases, eliminate US tax entirely, but still enable you to contribute to a Roth.

Should I have a Roth IRA if I am living in New Zealand?

This of course is a whole different discussion, and can depend on whether you intend to retire in NZ, or whether your account will be taxable by IRD.

Indeed, retirement planning for NZ based US citizens can be complex, and it is wise to obtain US tax advice to ensure that you plan ahead effectively. Many types of NZ and US retirement accounts can have complex implications, and in some cases, more costly than beneficial.

At the US Tax Team, our consultant David Tzimenakis assists a large number of US citizens in New Zealand with efficient retirement planning from a tax perspective. If you’re looking for further information, reach out to New Zealand's US tax specialist advisors at info@usatax.nz or 09-242-3445