Retirement Planning for U.S. Expat Entrepreneurs: What You Need to Know 🧐

Why Retirement Savings Matter for Expat Entrepreneurs

For U.S. citizens living abroad, saving for retirement can feel especially complicated. As an expat entrepreneur or self-employed individual, you are responsible for building your own financial future while also navigating U.S. tax rules that continue to apply no matter where you live. Retirement planning is not just about the future… it is also about making smart decisions today that align with both your income and your tax obligations.

Unlike many countries that tax based on residency, the United States taxes its citizens and resident aliens on worldwide income. This means that even if your business operates entirely outside the U.S., your income may still be subject to U.S. tax rules. Understanding how retirement accounts work in this context is essential to staying compliant while maximizing long-term savings.

The good news is that U.S. retirement plans remain available to many expat entrepreneurs. With the right guidance, these tools can still play an important role in your overall financial strategy.

Overview of Retirement Savings Options 🧾

Several U.S. retirement accounts may be available to American entrepreneurs living abroad. Each comes with different eligibility rules, contribution limits, and tax treatments. Understanding the basics of each option is the first step toward choosing the right plan.

Traditional IRAs and Roth IRAs are individual retirement accounts available to many taxpayers with taxable earned income. SEP IRAs and solo 401(k) plans are designed specifically for self-employed individuals and small business owners, making them especially relevant for expat entrepreneurs.

While these accounts can be powerful tools, eligibility often depends on whether your income is subject to U.S. tax. This distinction becomes especially important when the Foreign Earned Income Exclusion is involved.

Traditional and Roth IRAs: Basics and Expat Considerations 📊

Traditional IRA

A Traditional IRA allows individuals with taxable compensation to contribute toward retirement on a tax-deferred basis. For 2025, the contribution limit is $7,000, or $8,000 if you are age 50 or older. Contributions may be deductible, depending on your income level and whether you are covered by another retirement plan.

Withdrawals in retirement are taxed as ordinary income, and required minimum distributions must begin at age 73. For many taxpayers, this structure offers upfront tax savings in exchange for taxable income later in life.

For expats, an important limitation applies. Income excluded under the Foreign Earned Income Exclusion does not count as taxable compensation for IRA purposes. If all of your earned income is excluded under the FEIE, you generally cannot contribute to a Traditional IRA.

Roth IRA

A Roth IRA also requires taxable compensation, but contributions are made with after-tax dollars. The benefit comes later: qualified withdrawals in retirement are tax-free, and there are no required minimum distributions during the account owner’s lifetime.

Roth IRA contributions are subject to income limits. In 2025, contributions begin to phase out for single filers with income between $150,000 and $165,000. For expats, FEIE-excluded income does not count toward eligible compensation, which can significantly limit or eliminate Roth IRA eligibility.

Because of these rules, many expats find that Roth IRAs are only available if they intentionally leave some income subject to U.S. tax. This can be accomplished by using the Foreign Tax Credit rather than the Foreign Earned Income Exclusion.

SEP IRA (Simplified Employee Pension IRA) 🏢

What Is a SEP IRA?

A SEP IRA is a retirement plan designed for self-employed individuals and small business owners. Contributions are made by employers, including sole proprietors and single-member limited liability companies. The plan is relatively simple to set up and administer, making it appealing to many entrepreneurs.

Each eligible employee, including the business owner, receives contributions to their own IRA. The employer decides whether and how much to contribute each year, offering flexibility during periods of fluctuating income.

Eligibility for Expat Entrepreneurs

U.S. citizens living abroad may establish a SEP IRA as long as they have net earnings from self-employment that are subject to U.S. tax. Physical location does not disqualify you, but the tax treatment of your income does.

If your self-employment income is entirely excluded under the FEIE, you are not eligible to contribute. Only income that remains taxable in the U.S. counts for SEP IRA purposes.

Contribution Limits and Tax Treatment

For 2025, contributions may be up to 25 percent of net self-employment earnings, capped at $70,000. Self-employed individuals must use a specific IRS calculation to determine the allowable amount.

Contributions are deductible as a business expense, and earnings grow tax-deferred until withdrawal. Distributions in retirement are taxed as ordinary income.

Special Expat Considerations

The FEIE plays a critical role in SEP IRA eligibility. If all of your income is excluded, contributions are not permitted. This makes careful planning essential for expat entrepreneurs who want to use this type of account.

Solo 401(k) Plans (Individual 401(k)) 📈

What Is a Solo 401(k)?

A solo 401(k) is designed for self-employed individuals with no employees other than a spouse. It allows the business owner to make both employee and employer contributions, often resulting in higher total contribution potential than a SEP IRA.

This structure can be especially attractive for expat entrepreneurs with strong cash flow and U.S.-taxable income.

Eligibility and Contribution Limits

To qualify, you must have self-employment income subject to U.S. tax. For 2025, employee deferrals may reach $23,500, or $31,000 if age 50 or older. Employer contributions may be up to 25 percent of net self-employment income, with total contributions capped at $70,000, or $77,500 with catch-up contributions.

Some plans also allow Roth employee deferrals, providing additional flexibility depending on your tax strategy.

Tax Treatment and Expat Considerations

Contributions are generally deductible, and earnings grow tax-deferred. As with other plans, only U.S.-taxable income counts. Income excluded under the FEIE cannot be used to fund a solo 401(k).

Living abroad does not relieve the obligation to properly administer the plan and comply with U.S. rules, which can add complexity.

The Impact of the Foreign Earned Income Exclusion (FEIE) ⚠️

The Foreign Earned Income Exclusion allows qualifying expats to exclude up to $130,000 of foreign earned income from U.S. taxation in 2025. While this can significantly reduce current tax liability, it also limits retirement contribution options.

Income excluded under the FEIE is not considered “taxable compensation” for Traditional IRAs, Roth IRAs, SEP IRAs, or solo 401(k) plans. Only the portion of income that remains subject to U.S. tax may be used to determine eligibility and contribution limits.

For some expats, this means choosing between minimizing current taxes and preserving access to U.S. retirement plans. This decision should be made carefully and with professional guidance.

SEP IRA vs Solo 401(k) vs Traditional IRA, Roth IRA 📋

Practical Steps for Expat Entrepreneurs 🧠

Start by determining whether you have U.S.-taxable earned or self-employment income after applying the FEIE. This step alone can clarify which retirement options are realistically available to you.

Next, evaluate which plan best aligns with your income level, business structure, and long-term goals. SEP IRAs may offer simplicity, while solo 401(k)s may allow higher contributions for eligible participants.

Finally, work with U.S. financial institutions and tax professionals familiar with expat rules. Proper recordkeeping and awareness of additional reporting requirements, such as FBAR and FATCA, are essential.

Summary and Resources 📚

SEP IRAs and solo 401(k) plans can be powerful tools for expat entrepreneurs, but only when U.S.-taxable income is available. Traditional and Roth IRAs remain options for some expats, though the FEIE often limits eligibility.

Because these rules are complex and deeply interconnected, professional guidance can make a meaningful difference. At Matriarch Expat Tax, we help expat entrepreneurs understand their retirement options, balance tax efficiency with long-term planning, and stay compliant across borders.

If you are unsure how your income, exclusions, and business structure affect your retirement strategy, Matriarch is here to help you move forward with clarity and confidence.