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.
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