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[El Macho]

In 2011 I started a Roth IRA. It seemed like a smart thing to do – I'm not getting any younger (retirement is now a mere 40 years away…minimum) and I got married. So that's the right choice, right? Save for the future!

Now I'm working with a CPA to get my 2011 taxes done and it turns out that I'm not eligible to contribute to an IRA because, if I take the FEIE (Foreign Earned Income Exemption), I don't have any income on which to pay tax, and IRAs (or, at least, a Roth IRA) are for after-tax dollars. So I'm going to have to either pay a fine or withdraw all that money and pay tax on the earnings. Christ.

If we're not able to contribute to IRAs, and since I don't (yet) work for a school with a 401k plan, my only thought is to continue to buy CDs or make fixed deposits. A two year fixed deposit is paying over 4% now, which really isn't that bad. Shorter-term deposits are paying 3% and up.

So now my question for you Americans out there who aren't fortunate enough to work for employers with retirement plans: What do you do to save for retirement? If you invest abroad (which I would imagine you do), what are the best ways to do this so to avoid (heavy) tax burdens?

(If anyone's interested: I invested in a Vanguard target retirement fun. Low, low expenses.)

[Fozzwaldus]

holy crap, that post both scared and baffled me.

I feel like the monkey at the start of 2001 A Space Odyssey who is confronted with the alien monolith - I know it's something big and important, but by golly my little monkey mind is nowhere near comprehending it. Think I'll just pick up a nearby bone instead. ooh-ooh ahh-ahh.

[El Macho]

Oh god, I still don't know what I'm talking about. I spent so much time reading about it that I decided I either needed to go back to school for a degree in accountancy or stop and hire a CPA. Hiring a CPA was the easiest option.

[zero]

In the case of working abroad, you're probably going to have to invest in taxable accounts.

Another possibility is, if you have private lessons or the like, reporting and paying taxes on that money as self-employment income. Then perhaps you can put it in a Roth IRA. Ask your CPA. The problem is that on the self-employment income, you'll pay both sides of the Social Security tax, for a total of 12 or 13 percent or so. But, you'll be earning quarters toward an eventual Social Security check, which is good. (And yes, Social Security will still be around when you retire, no matter what the cool cynical kids are saying.)

I have a Roth IRA, and I consider it to be the best type of account out there for Americans.

[El Macho]

Thanks for that, zero –– interesting idea about reporting outside income, paying social security (which I also believe will be around when I retire), and then putting that money in the IRA. I'l ask the CPA about it and report back with what she says.

[CWL]

Another possibility is, if you have private lessons or the like, reporting and paying taxes on that money as self-employment income.....

In my opinion, it is worth it. When you really think about it, it is not as bad as it sounds. 

I have had my Roth with Vanguard since '98.

[Nolefan]

the Roth IRA setup was never intended for people living out of the country.. Such a thing doesn't enter legislators' thought when drafting beautiful proposals (can you smell the sarcasm?).
There is no real easy way to get around the tax side if you want to contribute. However, that also means there is no way around paying extra taxes to uncle sam unless... unles...unles... wait for it, your income manages somehow to match the amount of the standard deduction.

2 ways to accomplish this:

Interest earned of bank deposits which you would need to report.
Income earned...

hopefully this gets you on the right track... there are plenty of ways around your problem if that problem is funding your roth IRA...

I'm of the opinion that the roth IRA is a problem on its own and that one is better off investing in bonds/stock market/real estate for their retirement.

[Escaped Lunatic]

Check the annual % change in the exchange rate on the RMB vs the dollar for the last few years before you decide if a particular rate of interest in a US account is good enough or not.

One BIG warning to US citizens - don't have more that $10,000 total in all foreign bank or investment accounts unless you are willing to give all the details to the Treasury Department every year.  If your balance hits the magic number even once, you must report the information on all of your accounts.  The penalties for not reporting are severe.   This rule doesn't apply to cash in a safe deposit box.

If you want something a little more portable than a big wad of RMB, gold is available from many Chinese banks at very little markup.  New rules in the USA make any single sale of more than $600 of precious metals reportable, so if you don't want to spend your life doing paperwork to make Uncle Sam happy, you can go for the smaller sizes of coins.

If the thought of seeing 10,000 RMB turned into less than 1 ounce of gold is a little too worrisome, you can buy a kilo of silver and have plenty of change left over.

[zero]

Nolefan, the account is just a vehicle. How you invest it within the account is up to you. Stocks, bonds ... all up to you.

[Borkya]

While I think a roth IRA is better for most people, I myself have just a normal IRA. You pay taxes at the end. While it is going to suck to pay all those taxes someday in the future, I'm sure I'll be in America then so I won't have to worry about it.

I just started one and use vanguard too. Their online systme makes it easy to do it all over the computer. I'm of the mind that just because we are in China doesn't mean we shouldn't save for retirement. Even just a little begins to add up over the years. 

[El Macho]

Are you going to claim the foreign tax credit rather than using the foreign earned income exemption?

[DC@54055]

I'd like to see an answer to El Macho's question.

Two additional questions of my own.

Are there any versions of IRAs, CD or something similar that are available to us expats in china - American or otherwise?

Other questions - does anyone know tax implications for those of us using Etrade or Scottrade etc, while abroad and filing taxes?

Looks like I'm going to have to consult a tax professional / CPA for more detailed information..

[Crippler]

While answers here may be helpful at time, I would not recommend them when using for legal issues. If you really want to get the right answer in important legal issues go to the professional expert. Well, meaning does not mean accurate!

[naturegirl321]

I'm going to be buying all kinds of stuff through Vanguard. Know nothing about stocks, bonds, mutual funds, etc, other than to diversify.

So I will.

US and foreign.
Stocks, bonds, mutual funds, CDs, etc

Figure buy a couple every year and re-evaluate stuff in ten.

[A-Train]

Other questions - does anyone know tax implications for those of us using Etrade or Scottrade etc, while abroad and filing taxes?

Those are capital gain, (unearned income), sources.  If you're a U.S. citizen, you have to declare these like anyone who still lives there.  However, they are already taxed at the low, 15% rate so I wouldn't be too upset about that.