Is a Roth IRA Only for U.S. Citizens? Eligibility Explained

A Roth IRA is a popular retirement savings option in the U.S. because it allows for tax-free withdrawals in retirement. Many wonder whether only U.S. citizens can open and contribute to one.

Understanding who qualifies requires knowing how residency status, income sources, and tax obligations play a role.

Eligibility Criteria

A Roth IRA is not restricted to U.S. citizens. Eligibility depends on taxable compensation and residency status. Anyone earning income in the U.S. and filing a U.S. tax return can generally contribute, including lawful permanent residents (green card holders) and certain non-citizens who meet the substantial presence test. This test requires individuals to be physically present in the U.S. for a specified number of days over a three-year period.

Foreign nationals working in the U.S. on visas such as H-1B, L-1, or TN may qualify if they report earned income to the IRS. However, nonresident aliens typically cannot contribute, as they do not have U.S.-sourced earned income subject to federal taxation. Earned income includes wages, salaries, bonuses, and self-employment earnings but not investment income or foreign-earned income excluded under the Foreign Earned Income Exclusion (FEIE).

Tax Responsibilities

Non-citizens with a Roth IRA must comply with U.S. tax laws while considering tax liabilities in their home country. Contributions are made with after-tax dollars, so there is no immediate deduction, but proper reporting of earnings and withdrawals is necessary to avoid penalties. The IRS requires taxpayers to track qualified distributions to prevent unexpected taxes.

Tax treaties between the U.S. and other countries may impact how Roth IRA earnings are treated. Some treaties prevent double taxation, while others do not recognize Roth IRA withdrawals as tax-free, meaning distributions could be taxed in the account holder’s home country. The U.S. has tax treaties with over 60 nations, including Canada, the U.K., and Germany, but provisions vary. Consulting a tax professional familiar with cross-border retirement taxation can help navigate these complexities.

Foreign account reporting requirements may also apply. While a Roth IRA itself is not considered a foreign financial asset under the Foreign Account Tax Compliance Act (FATCA), non-citizens with other foreign investments may need to file IRS Form 8938 or FinCEN Form 114 (FBAR) if their total foreign assets exceed reporting thresholds. Non-compliance can result in substantial penalties, with FBAR violations carrying fines of up to $10,000 for non-willful failures and even higher for willful omissions.

Contribution Considerations

Maximizing Roth IRA contributions requires planning, as annual limits and income phaseouts affect eligibility. For 2024, the contribution limit is $7,000 for individuals under 50 and $8,000 for those 50 or older through the catch-up provision. Income restrictions based on Modified Adjusted Gross Income (MAGI) determine whether someone can contribute fully, partially, or not at all. Single filers with a MAGI above $161,000 and married couples filing jointly exceeding $240,000 are ineligible for direct contributions.

For those exceeding these limits, the backdoor Roth IRA strategy is an option. This involves making a non-deductible contribution to a traditional IRA and then converting it to a Roth IRA. However, this method triggers the pro-rata rule, which calculates taxable amounts based on the proportion of pre-tax and after-tax funds in all IRAs. Mismanaging this process can lead to unexpected tax liabilities, making precise record-keeping and IRS Form 8606 reporting essential.

Withdrawal Protocols

Withdrawing funds from a Roth IRA follows specific tax rules and timing restrictions. Unlike traditional retirement accounts, Roth IRAs allow account holders to withdraw contributions at any time without tax or penalty, as these funds were already taxed. However, accessing earnings or converted amounts before meeting certain conditions can result in penalties or taxation.

To withdraw earnings tax-free, the account must be open for at least five years, and the distribution must meet a qualifying condition, such as reaching age 59½, a first-time home purchase (up to $10,000), or certain disability conditions. Otherwise, withdrawn earnings are subject to income tax and a 10% early withdrawal penalty unless an exception applies. Common exceptions include medical expenses exceeding 7.5% of adjusted gross income, higher education expenses, or distributions to beneficiaries after the account holder’s death.