Top 5 Tax-free Investment Options for American Expats

Eligibility. Ensure you meet the income eligibility requirements. For 2024, single filers must have a modified adjusted gross income (MAGI) of less than $153,000, and married couples filing jointly must have a MAGI of less than $228,000.

Contribution Limits. The contribution limit for 2024 is $6,500, or $7,500 if you are aged 50 or older.

Open an Account. Open a Roth IRA with a financial institution, such as a bank, brokerage firm, or online investment platform.

Funding the Account. You can contribute directly to your Roth IRA from your foreign-earned income. Consider using backdoor Roth IRA conversions if your income exceeds the eligibility threshold.

Eligibility. You must be enrolled in a high-deductible health plan (HDHP). Check if your international health insurance qualifies as an HDHP.

Contribution Limits. For 2024, the contribution limit is $3,650 for individuals and $7,300 for families, with an additional $1,000 catch-up contribution allowed for those aged 55 and older.

Open an Account. Open an HSA with a qualified HSA trustee, such as a bank, credit union, or other financial institution.

Fund the Account. Make contributions through direct deposits or transfers from your bank account. Ensure you retain records of qualified medical expenses for tax-free withdrawals.

Research Bonds. Identify municipal bonds that meet your investment criteria, considering factors like credit ratings, yields, and maturity dates.

Brokerage Account. Open a brokerage account if you don't already have one. Most major brokerages offer access to municipal bonds.

Purchase Bonds. Buy municipal bonds through your brokerage account. Consider laddering your bonds to manage interest rate risk and liquidity needs.

Monitor Investments. Regularly review your bond portfolio to ensure it aligns with your financial goals and market conditions.

TreasuryDirect Account. Open a TreasuryDirect account, the U.S. government’s online platform for purchasing Treasury securities.

Select Securities. Choose from a variety of Treasury securities based on your investment horizon and risk tolerance. Options include Treasury bills (short-term), notes (medium-term), and bonds (long-term).

Purchase Securities. Buy Treasury securities through your TreasuryDirect account or a brokerage account. Regularly reinvest interest payments to maximize growth.

Stay Informed. Keep track of interest rates and economic conditions that may affect your investment strategy.

Qualify for FEIE. Ensure you meet the residency requirements. You must either be a bona fide resident of a foreign country for an entire tax year or physically present in a foreign country for at least 330 full days during a 12-month period.

File Form 2555. Include Form 2555 with your U.S. tax return to claim the FEIE and housing exclusion. This will allow you to exclude up to $120,000 of foreign-earned income for 2024 (adjusted annually for inflation).

Allocate Savings. Use the tax savings from the FEIE and housing exclusion to fund other tax-free investment vehicles, such as Roth IRAs, HSAs, and municipal bonds.

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