Hi Keith,


When you work for a company, your ability to save for retirement is limited to the retirement savings options offered by your employer. If your employer offers no options, then you can't set up your own retirement plan and put away any money.

When you are self-employed, you can set up your own retirement plan, such as a SEP IRA, SIMPLE IRA, or Solo 401k, and contribute a certain amount to this account each year based on the net earnings you report on your Schedule C. It sounds as if you aren't self-employed, however.

Not being able to contribute to an employer sponsored retirement plan does not mean you can't save for your retirement. Why not open a brokerage account and start purchasing tax efficient investments such as index mutual funds or ETFs? The benefit of these type investments is that most of the investment returns will be growth within the funds which won't be taxed each year and instead, will be taxed at the lower capital gains tax rates when you begin to draw down this portfolio upon retirement.

Another option is to purchase an annuity where you contribute post-tax dollars that grow tax deferred. You can hold your less tax efficient investments within your annuity. Fidelity and Vanguard offer low cost annuities.

We now have someone in my office who can help you out with investment management if you feel you want professional assistance in this area.

Thanks for reaching out to me. I hope things are going well for you in China.

Zip Code: 01801

Hi Andrew,
Thank you very much for your thoughtful reply. I appreciate your suggestions regarding tax efficient funds and annuities and will look into both of them further.

Regarding self-employment, I currently own two investment properties (and soon, hopefully another) in the US. Is it possible to form a business entity around these investments in order to participate in the self-employed retirement options you mentioned (such as the solo 401K)?

Best,
Keith W.

Zip Code: 02139

Keith, it's my understanding that profits from owning rental properties are generally considered "passive income" and do not allow for retirement plan contributions to be made based on net rental income. There is an exception according to IRS Publication 527 (https://www.irs.gov/pub/irs-pdf/p527.pdf) in situations where the landlord provides substantial services as follows:

Schedule C (Form 1040),
Profit or Loss From Business

Generally, Schedule C is used when you provide substantial services in conjunction with the property or the rental is part of a trade or business as a real estate dealer.

Providing substantial services. If you provide substantial services that are primarily for your tenant's convenience, such as regular cleaning, changing linen, or maid service, you report your rental income and expenses on Schedule C (Form 1040), Profit or Loss From Business. Substantial services do not include the furnishing of heat and light, cleaning of public areas, trash collection, etc.



I've had this issue audited one time since my client was taking business losses on a Schedule C instead of having the rental losses phased-out through the Schedule E, where rental income and losses are generally reported. The IRS agent did allow the losses since the rentals were all for a period of a week or less, and my client did all the work turning the property over each week, and advertising for renters. It was more of a business, therefore, than a rental.

Zip Code: 01801

Andrew, I suspect this would be the case. I suppose that I really have no options for saving pretax income for retirement as long as I work for a non-US based company.
Thanks.
Keith W.

Zip Code: 02139