Advanced Underwriting Consultants

Ask the Experts – January 31

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax questions posed by producers.  Here’s the question of the day.

Question: Can a resident alien contribute to an IRA? What about a nonresident alien?

Answer: Yes, a resident alien can contribute to an IRA and deduct the contributed amount, just as an ordinary resident citizen would.

A nonresident alien (NRA) may also contribute to an IRA, but the NRA must have taxable compensation effectively connected with a U.S. trade or business to be able to take an IRA deduction. A NRA is engaged in a U.S. trade or business when, for example, he performs personal services or operates a business in the United States.

If a NRA does not have taxable compensation effectively connected with a U.S. trade or business, he may still make nondeductible contributions to a traditional IRA and must report them on Form 8606, Nondeductible IRAs. However, some custodians do not allow NRAs to open or contribute to IRAs, so the choice may be limited.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.