Retiring abroad with a Roth IRA? What to know

(NewsNation) — Retiring abroad is a dream for some, but once a reality, it takes a lot of planning.

Americans with a Roth IRA, or individual retirement account, and who plan to retire abroad may want to consider some risks.

With a Roth IRA, you can make after-tax contributions and tax-free withdrawals. But United States citizens living in another country face something called the foreign earned income exclusion.

Americans are taxed on “worldwide income,” according to the Internal Revenue Service, but you may qualify to exclude up to a certain amount of your income from having federal taxes taken out, under the foreign earned income exclusion. This is a tax break for those who earn income while working abroad.

In 2024, up to $126,500 could be exempt from federal taxes. In other words, if you made $127,000 last year and you qualified for the exclusion, you would pay taxes on only $500 of your income.

Some countries may tax Roth IRA withdrawals — the U.S. does not, if you meet certain restrictions — so you should check the tax laws in the country in which you reside.

And there are other factors to consider, such as currency and exchange rates.

“Fluctuations in exchange rates can change the value of your contributions and withdrawals,” according to SmartAsset, a financial technology company. “A Roth IRA might offer some stabilizing effect, as the tax-free withdrawals can provide a hedge against currency devaluation.”

SmartAsset also warns against double taxation, urging Americans abroad to research the rules of their host country.