# American in France: Confused about Tax Return and IRA contribution



## JenniferS

Hi all,
I'm a young professional in her 20s who just moved to Paris in November for a job. I was confused about the tax return while living in the States and I'm even more confused after moving to France . Researching on google and calling my bank has not helped and has left me in a worry about the IRS coming after me in the next year. So a few questions: 

Can I do the following if I'm living in France? And how would this affect my tax return ( if it even does).
- I have money in an IRA and would like to move it to a ROTH IRA. 
- I'd like to contribute to my IRA account from France
- I'd like to invest my money through Vanguard, Betterment, or another firm.

Also, 
Since I moved in November, I was paid for 2 months in Paris and the months before, i was paid by my american employer. What tax return(s) should I fill out?

Exhausted from googling, still confused, and would love some advice,
Jennifer


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## BBCWatcher

JenniferS said:


> Can I do the following if I'm living in France? And how would this affect my tax return ( if it even does).
> - I have money in an IRA and would like to move it to a ROTH IRA.


Yes, you can do that. There are two parts:

1. The U.S. comes first. There are certain IRS rules on converting a Traditional IRA to a Roth IRA, so please make sure you're familiar with those. You'll pay U.S. income tax at ordinary rates on your Traditional IRA (if it's deductible) or only on the gains (if it's nondeductible). It's a really good idea to make a big enough estimated tax payment for the quarter when you convert so that you're not underpaying tax and thus subject to a penalty/interest later on.

Please note that the U.S. tax rate will be determined on a "last dollar" basis, and it's not excludable through the Foreign Earned Income Exclusion. If you're in a low U.S. tax bracket and expect a higher tax bracket in the future, or if you have a nondeductible (after tax) Traditional IRA, then this might be a good time to convert. Also please note that Roth IRAs are somewhat less well protected from foreign taxation than even Traditional IRAs, so if you think you might retire outside the United States then it'd probably be a good idea to diversify a bit.

2. Then comes France. When you're a resident of France the French tax authority has the _opportunity_ to tax that conversion event -- or even to levy wealth taxes without a conversion, for that matter. There are two general provisions that might avoid French taxation:

(a) If the U.S.-France tax treaty protects U.S. IRAs (Traditional and Roth) from French taxation -- something to check.

(b) If the treaty offers no protection, you should still be able to take a foreign tax credit on your French tax return to account for the U.S. income tax paid on the conversion.

You may also have financial reporting obligations even if the foreign (to France) funds are not French taxable, broadly similar to the U.S. FinCEN Form 114, IRS Form 8938, and/or IRS Form 3520 filing requirements.



> - I'd like to contribute to my IRA account from France


You may if both of these conditions hold (plus the usual requirements):

(a) You have enough earned income that is not excluded via the Foreign Earned Income Exclusion;

(b) You fall within the income limits for making contributions, based on your filing status. (Although note that a nondeductible Traditional IRA has no income limit.)



> - I'd like to invest my money through Vanguard, Betterment, or another firm.


That's generally no problem if you can maintain a legitimate U.S. mailing address on the account and have a W-9 on file already. Many IRA custodians are reluctant to open or maintain accounts, especially low value ones, when there's a non-U.S. mailing address. A trusted friend or family member is acceptable, and of course you can sign up for e-statements. Mechanically you will probably need to maintain a U.S. bank account in order to make contributions.


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## Bevdeforges

Just to add a bit on the France side of things.



> 2. Then comes France. When you're a resident of France the French tax authority has the opportunity to tax that conversion event -- or even to levy wealth taxes without a conversion, for that matter. There are two general provisions that might avoid French taxation:
> 
> (a) If the U.S.-France tax treaty protects U.S. IRAs (Traditional and Roth) from French taxation -- something to check.


Traditional IRAs, yes, are protected in the treaty. (Or so I'm told.) Although there is another "angle" of French tax law that exempts foreign retirement funds (like IRAs) as long as they were set up and funded before you became subject to French taxation. How that affects French taxation if you continue to fund an IRA after you have become resident in France is anyone's guess. For sure, contributions are NOT deductible from income for French tax purposes, but it appears that withdrawals from the IRA are not treated as income, either.



> (b) If the treaty offers no protection, you should still be able to take a foreign tax credit on your French tax return to account for the U.S. income tax paid on the conversion.


That's not quite how French tax law works. They don't do direct tax credits like that. Generally speaking, you may be eligible for a credit on French taxes equal to the French tax generated by the transaction. (But I don't think a conversion generates taxable income for French taxes under the principle mentioned above.)



> You may also have financial reporting obligations even if the foreign (to France) funds are not French taxable, broadly similar to the U.S. FinCEN Form 114, IRS Form 8938, and/or IRS Form 3520 filing requirements.


Much, much simpler. On your French income tax declaration, you are required to list your foreign bank accounts (no balances, just the identifying information for the account) and "foreign assurance vie contracts." Just to be on the safe side, I've reported my US IRA as a "foreign assurance vie contract" for years. (There are advantages when it comes to the wealth tax, and as in most countries, there is no penalty for "over reporting.") Again, the Roth IRA may or may not be subject to similar treatment, though the fact that the Roth is not really a "retirement plan" could change things significantly for French tax purposes.
Cheers,
Bev


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## BBCWatcher

The Roth IRA also has an age 59 1/2 minimum for qualified withdrawals. In that sense it's also a "retirement plan," or at least as much as the Traditional IRA is. In fact, the Roth has _fewer_ allowable exceptions for qualified withdrawals prior to age 59 1/2 than the Traditional IRA. I'm not sure what you meant there, Bev.


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## Bevdeforges

Because the Roth is actually pretty much a sort of "interest free savings account" it may simply be treated as one here in France. If I understand correctly, the contributions are not deductible from US income (as those of a traditional IRA would be) and withdrawals are not considered "income" for US tax purposes. 

I strongly suspect that the French would consider this a regular old "savings account" since the retirement aspect is kind of minimal. Withdrawals would be considered "transfer of capital" pure and simply. 
Cheers,
Bev


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## BBCWatcher

Bevdeforges said:


> I strongly suspect that the French would consider this a regular old "savings account" since the retirement aspect is kind of minimal.


France might consider a Roth IRA to be Thing X or Y, but it is, in fact, a U.S. tax advantaged retirement savings account. If a Roth IRA isn't that, in fact, then a Traditional IRA _certainly_ is not.

I'm missing your point here, Bev. If you're arguing that France can (within the treaty limits) treat a Roth IRA as whatever it wants, sure, I agree with you. But France's rationale won't be because a Roth IRA is less "retirement" than a Traditional IRA. It isn't. It's _more_ retirement-oriented than a Traditional IRA. There are simply fewer pre-age 59 1/2 qualified withdrawals with a Roth IRA than with a Traditional IRA.

There is no pre-tax versus post-tax distinction here either. A Roth IRA is always post-tax, yes, but so is a nondeductible Traditional IRA. Only a deductible Traditional IRA is pre-tax. If France wants to draw a distinction between pre-tax and post-tax, sure, fine, whatever, but that distinction has nothing to do with whether the account is, in fact, "retirement" or not.

A 529 account, on the other hand, is not "retirement." Even though _conceivably_ you could use the proceeds of a 529 account to fund your own higher education expenses while you're retired, that's not its primary purpose.

What does the second "R" in "Roth IRA" stand for?


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## Bevdeforges

France has a specific definition for "retirement accounts" - which includes a minimum duration that the account or the funds must be held before making withdrawals. And in some cases, you must have opened the account before a particular date to take advantage of other tax provisions. The US doesn't recognize tax-free savings accounts that are on offer in most European countries - although oddly enough the FATCA rules specifically exempt those accounts from reporting by the banks. I suppose that means that most other countries have every right to insist that "retirement accounts" meet their own local definitions in order to qualify for preferential tax treatment.
Cheers,
Bev


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## BBCWatcher

Well OK, that's fine. However, if the basis of France's definition is minimum duration (and/or minimum age of withdrawal), then that part of their definition has to treat Roth IRAs the same as Traditional IRAs because those parts of those two different IRAs are either the same (minimum age) or _more strict_ for Roths (5 year minimum holding requirement).

Yes, I absolutely agree that a tax jurisdiction doesn't typically identify another tax jurisdiction's particular account type by name. Instead the tax jurisdiction sets certain rules according to particular facts. But the facts are that Roth IRAs are (in general) _more restrictive_ than Traditional IRAs. That doesn't mean France must like Roth IRAs -- France can do anything it wants, within the treaty anyway. But Roth IRAs really are a bit "tighter" than Traditional IRAs in terms of the facts of how they operate.


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