IRAs for non-citizens

I received an email from a reader about my earlier post about withdrawals from 401(k) accounts for non-citizens. I mentioned there that if a non-citizen leaves America, he/she should be able to roll over his/her 401(k) balance to an IRA. It turns out that things may be more complicated than that.

This is what I found out about IRAs for non-citizens at leading IRA providers. Since I am a customer of both Vanguard and Fidelity, I just sent emails to their customer service. For others, I have summarized what I found at their websites.

Vanguard
From Vanguard's email response:

Only foreign investors who have permanent residence in the United States and are not considered a nonresident alien (NRA) are able to invest in Vanguard funds.
Now, I opened an IRA with Vanguard back when I was a non-resident alien, so this response puzzled me. I checked their electronic application form, and sure enough, it allows "US citizens, Resident aliens, and Nonresident aliens" to apply. I think their customer service may be a little behind the times.

Fidelity
Fidelity's response was much clearer. They have no problems with non-resident aliens opening IRAs. Regarding distributions, this is what they had to say:

When a non-resident alien takes a distribution from a Fidelity Roth or Traditional IRA account, we will withhold foreign taxes in accordance with the treaty between the US and the country of residence. The highest rate of withholding for foreign taxes is 30%.
This response seems correct, except that it is not "foreign taxes" but federal taxes that are withheld.

T.Rowe Price
T.Rowe Price's application form allows only "US Citizens and US Resident Aliens" to apply. I guess they have no problems if a US Resident Alien who opens an IRA then leaves the country and stops being a Resident Alien.

TD Ameritrade
TD Ameritrade's online application form allows non-resident aliens to apply as long as they specify their "visa type".

E*Trade Financial
E*Trade allows "US residents with a Social Security Number" to open an IRA. This seems to follow IRS's definition of a US resident, so I guess most non-citizens will qualify.

If anybody has additional information about these IRA providers, or about any others, please let me know. I will add the information to this page.


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10 comments:

Anonymous said...

Any idea if a person on EAD or H1 can open a brokerage account and trade in the stock market ?

Nigel said...

In general, to open a brokerage account, you just have to be a U.S. resident (i.e. living in the US - not necessarily a permanent resident) with a Social Security Number. So an H1-holder would certainly qualify. Check with the particular brokerage firm you want to open the account with to see if they have any special requirements.

VENKATAKRISHNAN said...

Worse. Charles Schwab allows only US Citizens to apply for an IRA. Their customer service personnel do not know how to tackle this. I sent a personal email on this. Will let you know once i get response. I guess, i can open account by mailing application forms instead of opening an account online.

Harinder said...

Opening an IRA is the easy part. Almost all banks and investment firms let you open an IRA (whether you are on H1 visa, EAD, green card or citizen).
The difficult question is when a temporary work visa holder (H1-B), goes back to India permanently long before retirement age (may be in his 30s, just to give an eg), would he be eligible to maintain the IRA?
Ideal situation would be to do rollover of 401K with previous US employer to a Roth IRA (have to pay interest obviously because of pre-tax vs post-tax) and let the money grow tax-free. At the retirement age, take out small amounts every year. The question that bothers again is "Is there any taxation on the money grown in Roth IRA?"

Nigel said...

Harinder,
As I noted in the post, many firms will withhold 30% as taxes on withdrawals made by non-resident aliens. You can check with your investment firm on their policy on withdrawals by non-resident aliens.
Please note that most of the articles on this site are geared towards US citizens who wish to retire to India. For those who are returning to work in India, a forum like r2iclubforums.com would be more relevant.

Anonymous said...

Nigel,

Thanks for sharing these very informative posts.

From your various posts, was trying to find an answer to the following question:

If I return back to India b4 my GC is obtained, since I'll be considered a non-resident alien in US, and I convert my 401(k) to Roth IRA spreading the conversion amounts over several years so that I don't end up paying federal taxes (know I'll be liable to the 10% penalty on earnings), if I take distributions of only the contribution parts (not the earnings) when in India after waiting out the 5-year period, will I still be taxed 30% on the contribution withdrawals since I'm considered a NRA by the US govt?

Appreciate your guidance. Thank you.

Anonymous said...

Here is my pick on it:
Being a Non-immigrant status, you are just getting screwed by Uncle SAM from all sides:
1. You can't put money in retirement account OR Face higher taxes (30%) on withdrawal
2. As you can not do #1, you will pay higher taxes every year
3. You have to contribute to Social Security and Medicare but will not get any benefits out of it

So just plain and simple, they will take out maximum money from you, while you are here thinking you are making money in dollars.

Anonymous said...

I am a 40-year old US citizen who moved back to India 4 years ago and am currently retired. My sizable retirement holdings are in an IRA in the U.S. The tough part for me is to manage these funds for maximum growth while being based in India. Performance of the U.S. stock market has been dismal in the last 10 years (e.g. DJIA is at about the same level today in 2000!) and the dollar will decline further in the long term. India on the other hand offers higher returns in general, and it is easier to manage your money if it were in India. Also consider the higher inflation levels in India, we need to find out if the U.S. IRA funds can somehow be moved to India without the tax + penalty burden (e.g. Fidelity-US --> Fidelity-India?). Would like to hear from other who may be facing this issue.

Anonymous said...

Yes,True..The law should be made to move U.S. IRA funds can somehow be moved to India without the tax + penalty burden (e.g. Retiremtn plans-US --> Retirment Plans -India?).

shesh said...

I am on H1B. How can I transfer my IRA from previous employer to current?