Solo 401(k) Retirement Plan for Self-Employed Expats
Many Americans living and working abroad don’t realize they can still use U.S. retirement plans to save for the future. If you’re self-employed and earning income overseas, you have access to the same options as someone living back home.
One of the best tools available is the Solo 401(k). It’s built for business owners who don’t have full-time employees and allows you to save much more than a regular IRA. It can also help you lower your U.S. taxes while building a strong foundation for retirement.
Many self-employed Americans living abroad haven’t started saving yet. In fact, about one in five have no retirement plan in place. If you’re in the same situation, setting up a Solo 401(k) is a simple way to get back on track and start building real security for your future.
Here’s how it works and why it might be a great fit for you.
What Is a Solo 401 (k)?
A Solo 401(k) is a retirement plan designed for individuals who own and operate their own business and do not have full-time employees, other than a spouse. It works a lot like a regular 401(k) you’d get through an employer, but in this case, you’re setting it up for yourself.
One big advantage is that you can contribute both as the employee and the employer. This lets you save more each year than you could with most other retirement accounts.
You can contribute up to $69,000 if you’re under 50 and up to $76,500 if you’re 50 or older. That’s a lot more room to save compared to a regular IRA.
Why Self-Employed Expats Should Consider a Solo 401 (k)
Living abroad can make retirement planning feel complicated, but a Solo 401(k) keeps it simple. Here’s why it’s a smart move for many self-employed expats:
Higher contribution limits
You can save a lot more than with a traditional or Roth IRA. You can contribute up to $23,000 as the employee, plus up to 25% of your business income as the employer.
Tax benefits
Solo 401(k) contributions usually reduce your taxable U.S. income. This is a great way to shrink your tax bill while saving for the future.
Roth option
Many Solo 401(k) plans allow you to make Roth contributions, where you pay taxes now but withdraw the money tax-free in retirement. This can be a wise choice if you’re currently in a low tax bracket.
Investment control
You decide how to invest your money, whether it’s stocks, mutual funds, ETFs, or even real estate. Some plans also let you borrow against your savings if you need money in the future.
Portability
You can keep contributing even if you move from country to country, as long as you’re still filing U.S. taxes.
A Big Rule: Contributions Must Come from Taxable Income
One important thing to keep in mind:
If you exclude all your foreign income using the Foreign Earned Income Exclusion (FEIE), you won’t have taxable income left to fund a Solo 401(k).
That’s why some expats choose to use the Foreign Tax Credit instead of the FEIE. If you pay a lot of taxes to your country of residence, the Foreign Tax Credit might cover your U.S. tax bill and still let you make Solo 401(k) contributions.
Before switching from the FEIE to the Foreign Tax Credit, make sure to talk to a tax professional. Once you give up the FEIE, you usually can’t go back for five years without IRS approval.
Running Your Business Through an Offshore Corporation
If you’re operating your business through a foreign corporation (like an IBC), you can still set up a Solo 401(k).
However, you need to pay yourself a salary from the corporation. That salary becomes your earned income for retirement plan purposes.
Only you (and possibly your spouse) can participate in the plan. If you have U.S. employees, you’ll need a different retirement setup.
Also, remember that profits stuck inside your corporation can eventually get taxed heavily when you distribute them. A Solo 401(k) gives you a way to pull out profits in a tax-advantaged way instead.
How to Set Up a Solo 401 (k) for Self-employed expats
Setting up a Solo 401(k) as a self-employed expat isn’t complicated, but there are a few important steps to follow:
1. Choose a provider
Start by picking a U.S. financial institution that offers Solo 401(k) plans. Companies like Vanguard, Fidelity, and Schwab usually have low-cost options. Before opening an account, make sure they allow expats to set up plans while living outside the U.S. Most do, but it’s good to double-check.
2. Get your paperwork ready
You’ll need to complete a few forms, including a plan adoption agreement and basic account documents. If you run your business through an offshore corporation, the corporation will technically be the one setting up the plan. You’ll also need an Employer Identification Number (EIN), which you can request online through the IRS.
3. Fund your account
You can start making contributions as soon as your plan is set up. Just be sure to complete them by your tax filing deadline, including extensions if you take one.
You’ll also have the option to choose between making traditional (tax-deductible) contributions or Roth (after-tax) contributions, depending on what fits your tax strategy better.
4. File Form 5500-EZ if required
Once your Solo 401(k) grows past $250,000 in assets, you’ll need to file Form 5500-EZ with the IRS each year. It’s a short filing, and your provider can usually help with it.
5. Talk to a tax professional
Setting up a Solo 401(k) correctly while living abroad often means balancing the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC). A tax advisor who understands expat tax rules can help you avoid common mistakes and stay compliant with both U.S. and local tax laws.
Is a Solo 401 (k) Right for You?
If you’re a self-employed expat with no full-time employees and you have taxable income above the Foreign Earned Income Exclusion, a Solo 401(k) could be one of the best ways to save for retirement.
For example, let’s say you earn $200,000 from your business. After excluding $130,000 under the FEIE, you’d still have $70,000 of taxable income left, and that’s the amount you could use to make Solo 401(k) contributions.
A Solo 401(k) is a great fit if you have strong earnings and want to save more than what an IRA allows. But if your income is fully excluded under the FEIE, or if you’re not filing U.S. taxes, it might make more sense to look at other options like a Roth IRA or a local pension plan. Just keep in mind that most foreign pensions can’t be rolled into a Solo 401(k) later on.
The important thing is to get started. Even small contributions now can grow over time and give you a lot more freedom later.
If you’re ready to set up a Solo 401(k) or have questions about your best options, we’re here to help.
Call Tax Samaritan at 775-305-1040 for a FREE 30-minute no-obligation consultation. Let’s make sure your future is just as strong as the life you’re building today!
