Roth IRA on an H-1B: eligibility, and what happens if you leave

The short answer

Nothing in the IRS rules for a Roth IRA asks about citizenship, a green card or a visa. The rules ask about two things: whether you have taxable compensation from work, and whether your income is under the limit for your filing status. An H-1B worker paid a US salary on a W-2 has the first. Whether you clear the second depends on your salary and filing status, and the IRS publishes the current limits on its Roth IRA page each year. If both are true, you can open and fund a Roth IRA like anyone else. The complications are about tax residency and about what happens if you leave, not about permission.

The eligibility rules, in order

• Taxable compensation. Wages, salaries, bonuses and other pay for personal services count. Investment income, rental income and amounts you exclude from income — treaty-exempt wages, for example — do not. Your total IRA contributions for a year cannot exceed your taxable compensation for that year.
• Income under the current IRS limit. The Roth limit is based on modified adjusted gross income and filing status. It phases out over a range: full contribution below the range, a reduced contribution inside it, nothing above. The figures change every year, so check the IRS page rather than a blog post.
• One combined limit. The annual contribution limit is shared between all your traditional and Roth IRAs. It is separate from your 401(k) limit.
• No age limit. You can contribute at any age as long as you have compensation.
• Deadline. Contributions for a year can be made until the due date of that year’s return, not counting extensions.

The residency wrinkle

Here is where visa holders need to read more carefully than the average guide suggests. Roth eligibility is measured on your US tax return, so it matters which return you file. If you are a resident alien filing Form 1040 — which most H-1B and L-1 workers are after roughly six months in the country — the rules work exactly as written above.

If you are a nonresident alien filing Form 1040-NR, two things bite. First, only compensation that is taxable in the US counts, so wages excluded under a tax treaty are not compensation for IRA purposes. Second, filing status: a nonresident alien generally cannot file a joint return unless married to a US citizen or resident who elects to treat them as a resident, so a married nonresident lands in the married filing separately column. For a Roth IRA, married filing separately while living with your spouse at any point in the year means the income phase-out starts at zero and disappears at a very low figure — in practice, no direct contribution. If you did not live with your spouse at any time during the year, the IRS treats you as single for this purpose, and the single limits apply.

Roth vs traditional if you might leave

A traditional IRA may give you a deduction now, and every dollar withdrawn later is taxed as income, with a 10% additional tax before 59½ unless an exception applies. If you take that money out after leaving the US as a nonresident alien, the custodian generally withholds 30% unless a treaty reduces it, and you reconcile on Form 1040-NR — the same mechanics as a 401(k) distribution after you leave.

A Roth IRA gives no deduction; you pay tax on the salary first and contribute what is left. In return, qualified withdrawals — after the account has been open five tax years and you are 59½, or on death, disability or a first-home purchase — are entirely tax-free under US law. More useful for someone who may leave: the IRS ordering rules treat any withdrawal as coming from your regular contributions first, and those come back with no tax and no penalty at any time, at any age, for any reason. Only the earnings, which come out last, are exposed to tax and the 10% additional tax if taken early.

That flexibility is the Roth’s case for temporary workers. Its risk is the mirror image: you are paying US tax now to buy tax-free growth that only US law promises. Whether your eventual country of residence honours it is a separate question, covered below.

The backdoor Roth, briefly

High earners above the Roth income limit sometimes use a two-step route: contribute to a traditional IRA without taking a deduction, then convert that balance to a Roth IRA. Conversions are not subject to the income limit that applies to direct contributions. The catch is that a conversion is taxed on its pre-tax portion, and the IRS looks at all your traditional IRA balances together when working out that portion — so if you have already rolled an old pre-tax 401(k) into an IRA, part of the conversion is taxable. The nondeductible contribution and the conversion are both reported on Form 8606. The mechanics are legitimate and well documented, but sequencing errors are easy to make and hard to unwind, which is a reason to have a preparer check your first one.

What happens if you leave the US

The account can usually stay open. This is a custodian policy, not an IRS rule. Some firms will hold an IRA for a non-US resident indefinitely; some restrict trading to selling; a few close accounts when the address changes. Ask yours in writing before you leave and, if the answer is unsatisfactory, transfer the IRA to a custodian that will while you still have a US address.

Contributions stop. A Roth IRA needs taxable compensation from work that is subject to US tax. Once you are earning abroad as a nonresident alien, you have none, and excluded foreign earnings do not count even for a US resident abroad. Your last eligible contribution is for the year you still had US wages, and you can make it up to that year’s filing deadline.

Your home country may not recognise the Roth. This is the part most guides skip. “Tax-free” is a US concept. Many countries tax their residents on worldwide income and have no category for a Roth IRA, so they may treat the growth or the withdrawals as ordinary taxable income — meaning you paid US tax on the way in and pay local tax on the way out. A few tax treaties protect the tax status of pension arrangements in the other country; many say nothing about Roth accounts specifically. The treaty position varies by country and changes, so this is a question for an adviser in your destination country, asked before you leave rather than after.

The 401(k) match comes first

If your employer matches 401(k) contributions, contribute at least enough to capture the full match before you fund any IRA. The match is an immediate return that no account type or fund can match, and it does not depend on any of the eligibility questions above. Once the match is captured, the IRA decision follows. The one thing to check on the 401(k) side is vesting: matched money that has not vested is forfeited if you leave early, which the H-1B financial guide covers as part of the first-year checklist.

A simple decision list

1. Confirm your tax residency for the year. Resident alien on Form 1040: proceed. Nonresident alien: check filing status and treaty-exempt income before going further.
2. Confirm you have taxable US compensation and that your modified AGI is under the current IRS limit for your filing status.
3. Capture the full 401(k) match first. Then decide how much of the IRA limit you can fund.
4. Ask the custodian, in writing, what happens to the account if you move abroad.
5. If leaving is likely, weigh the Roth’s any-time access to contributions against the chance your destination country taxes the growth anyway.
6. Keep records of every contribution by year. They are your tax-free basis, and you will need them for Form 8606 or a later withdrawal.

Other guides on this site

This page covers one account. These place it in context:

• Investing on a visa — what is allowed, and how tax residency decides what you owe.
• What happens to your 401(k) if you leave the US — the four options and how each is taxed after departure.
• H-1B taxes explained — withholding, FICA and state tax, which set the income the Roth limit is measured against.