By Yann Kostic from the April 2017 Edition
Americans expats hear a lot these days about the importance of saving for retirement, but what is equally important is how to manage their IRA’s once they have retired. Individual retirement accounts (IRAs) and 401(k) are one way to build a nest egg, but the variety of these investments can be confusing, and you may need your advisor’s help to select the one that is right for you, especially of you reside overseas. For example:
With a traditional IRA, you contribute pretax money, and it grows tax-deferred; you do not pay taxes on it until you with- draw it, at which time it is taxed as ordinary income. However, after age seventy, you must stop contributing and start taking required minimum distributions (RMD).
On the other hand, with a Roth IRA, you contribute after-tax money. It still grows tax-deferred, and withdrawals are tax-free in retirement. Moreover, you do not have to take RMD’s after you reach seventy.
With both traditional and Roth IRAs, you can contribute $5,500 if you are under age 50, and $6,500 if you are older than age
- Generally, you would choose a traditional IRA if you think you will be in a lower tax bracket in retirement and a Roth IRA if you think you will be in a higher tax bracket.
The SEP IRA is available to individuals who are self-employed or operate a small business. As with the traditional IRA, you contribute pretax funds, and withdrawals are taxed as ordinary income. The difference: the annual contribution limit is much higher. In 2017, you can contribute up to 25% of your income, to a $54,000 ceiling.
Also geared toward the self-employed and small-business owner is the SIMPLE IRA. You contribute pretax funds, and withdrawals are taxed as ordinary income, but the contribution limits are lower. They are $12,500 if you are under age 50, and $15,500 if you are 50 or older.
As a small-business owner, you can set up a SIMPLE IRA for your employees, who can elect to contribute. You’ll match their contributions according to one of two formulas. And if you’re self-employed with staff, you can contribute as both employer and employee.
When you retire overseas, you may also have different considerations and making changes to your IRA or 401(k) (such as consolidations and/or rollovers) become as imperative as they become delicate with important tax implications.
Tommy Clarkson is a bit of a renaissance man. He’s lived and worked in locales as disparate as the 1.2 square mile island of Kwajalein to war-torn Iraq, from aboard he and Patty’s boat berthed out of Sea Bright, NJ to Thailand, Germany, Hawaii and Viet Nam; He’s taught classes and courses on creative writing and mass communications from the elementary grades to graduate level; He’s spoken to a wide array of meetings, conferences and assemblages on topics as varied as Buddhism, strategic marketing and tropical plants; In the latter category he and Patty’s recently book, “The Civilized Jungle” – written for the lay gardener – has been heralded as “the best tropical plant book in the last ten years”; And, according to Trip Advisor, their spectacular tropical creation - Ola Brisa Gardens – is the “Number One Tour destination in Manzanillo”.