How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask jgordosea Your Own Question

jgordosea
jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3000
Experience:  I've prepared all types of taxes since 1987.
Type Your Tax Question Here...
jgordosea is online now
A new question is answered every 9 seconds

Puerto Rico -- Retirement/Investments Plans

Resolved Question:

Puerto Rico -- Retirement/Investments Plans Hi. I'm wondering about taxes I will eventually face when I reach the distribution age on my employer's dual qualified retirement plan (I am transferring to P.R. beginning in 2014)... Will I be subject to taxes both in the U.S. and P.R.? Also, I currently have an IRA in the U.S. What tax liabilities will I face with this instrument in the future (since I will be a resident of P.R.)? Lastly, while in P.R., will I be able to contribute to my U.S. IRA, or will I need to have a P.R. equivalent for myself and wife? Thank you for your expertise!

Submitted: 11 months ago.
Category: Tax
Expert:  jgordosea replied 11 months ago.

Greetings,

 

Perhaps it is useful to think of the Puerto Rica income tax as being similar to a state income tax as the US federal tax and the Puerto Rica tax are two separate systems and have different rules as to what will be taxed.

You will be subject to both Puerto Rico and US taxes just as residents of most states are subject to state and US income taxes.

 

For Puerto Rico tax return a bona fide resident of Puerto Rico, generally, reports your worldwide income excluding your US income (as that is not subject to Puerto Rico tax).

So, that Puerto Rican return will not include your IRA distributions but would include your wages from Puerto Rico.

Note that in April of 2013 the territory eliminated its taxes on interest and dividend income (that was 33 percent), and also cut the capital gains tax rate to zero. That might want to be considered as you decide to contribute to an IRA.

 

As a U.S. citizen or a resident alien, in addition to filing a Puerto Rico tax return, you will file a U.S. tax return reporting your worldwide income with the exception of Puerto Rico income. So, the US return would include your IRA distributions but would not include your wages from Puerto Rico.

More information is available at http://www.irs.gov/publications/p570/ch03.html#en_US_2012_publink1000221281

 

Note that someone with only Puerto Rico income will not usually be required to file a US tax return since Puerto Rico income is not part of the US income. If you are a bona fide resident of Puerto Rico and qualify to exclude your Puerto Rican source income on your U.S. tax return, you determine your adjusted filing requirement based on the filing thresholds. See http://www.irs.gov/publications/p570/ch04.html#en_US_2012_publink1000221364

 

There are special rules for government workers and those in the armed services.

See http://www.irs.gov/publications/p570/ch03.html#en_US_2012_publink1000221281

 

There are separate IRA and pension plans for US and Puerto Rico so it is not usually possible to contribute to the US IRA based on the Puerto Rico wages.

There are some plans like that mentioned for your employer that qualify under both set of rules.

 

Please ask if you need more information.

Thank you.

 

 

 

Customer: replied 11 months ago.

Good info...just need a couple of items clarified:


 


"There are separate IRA and pension plans for US and Puerto Rico so it is not usually possible to contribute to the US IRA based on the Puerto Rico wages."


 


1. Will the above mentioned apply to Roth IRA's held in the U.S. as well?


In other words, do both tax entities permit me to contribute after tax proceeds from P.R. into a U.S. held Roth IRA? (Remember, I would be a resident in P.R.)


 


2. Since I would not be able to contribute to my traditional IRA in the U.S., would I also be permitted to open and contribute into an IRA in P.R.? My wife?


 


Thanks again!

Expert:  jgordosea replied 11 months ago.
Hello again,

For US traditional and Roth IRA you will not be able to take contributions based on your Puerto Rico earnings and would have to have earnings from within the US.
Remember that the Puerto Rico income will not be subject to US tax.

Puerto Rico tax rules do have Roth IRAs.
"Non Deductible Individual Retirement Accounts (Roth IRA) are
an investment instrument under which, contrary to regular IRA’s,
annual contributions to the same cannot be claimed as a deduction
on the income tax return for the particular taxable year."

IRA rules for contributions and spouses in Puerto Rico are similar to those in the US.
"In case of married taxpayers filing a joint return, including those
who choose the optional computation of tax (Schedule CO
Individual), each one may establish, individually, his/her own
IRA, or one of the spouses may establish an IRA for himself/
herself and another IRA in the name of the other spouse, without
considering if he/she receives income. The contribution cannot
exceed $10,000 or the aggregate adjusted gross income from
salaries and the earnings attributable to professions or business,
whichever is smaller. However, the deduction for each spouse
cannot exceed $5,000.
No deduction is allowed for the taxable year in which the
individual has reached 75 years of age or more at the end of
the taxable year. Also, no deduction will be allowed if the
income received during the year is from pensions or
annuities.
The taxpayer will have until the due date established by the
Code to file the return, or until the due date of any extension of
time granted by the Secretary to file the return to make a
contribution to his/her IRA."

See http://www.hacienda.gobierno.pr/downloads/pdf/planillas/INST_LONG_2012.pdf

If you need clarification on these additional questions please continue to ask.
Thank you.


jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3000
Experience: I've prepared all types of taxes since 1987.
jgordosea and 3 other Tax Specialists are ready to help you
Customer: replied 10 months ago.
Hi.
Please see message received from Fidelity and advise.
Thanks.
Manuel Vazquez.


To: XXXXXX X Vazquez
Topic: Guidance with an investment decision
Subject: Current Roth IRA <>
Date: 08/18/2013 2:40 PM
Dear Mr. Vazquez:

Thank you for contacting us regarding contributing to your ROTH IRA. I am happy to help.

Because Puerto Rico is a United States territory, you may continue to contribute to your ROTH IRA while living there. There will be no restrictions placed on your account.

Thank you for choosing Fidelity for your investment needs. Have a nice day!

Sincerely,

Danielle Klock
Fidelity Brokerage Services LLC, Member NYSE, SIPC

Expert:  jgordosea replied 10 months ago.

Hello again,

 

Indeed you can contribute without restriction (for being a foreign investor or other reason)

 

But, that is not saying that you can use the earnings in Puerto Rico to be eligible for a contribution. Similarly, Fidelity will accept a contribution from a US citizen that had zero earnings for the year; but that would be an excess contribution that the taxpayer would either pay the additional tax for an excess contribution or withdraw by the due date of the return.

 

In my experience, the fact that the trustee will accept a contribution does not in any manner determine if that contribution is allowed by the tax rules and regulations.

 

Hope this helps.

 

Customer: replied 10 months ago.
So in English.... :)
As a resident of Puerto Rico,
I will not be able to contribute to a simple IRA in the US, but a Roth is fine (and taxes will apply once funds are taken in distribution), whether or not the Roth is in the US or Puerto Rico.
Expert:  jgordosea replied 10 months ago.

Hello again,

 

In order to make a contribution to the Roth in the US you will need to have earned income in the US. You can do this whether or not you are resident in Puerto Rico if you have US source earnings.

 

The Puerto Rico earnings will only be able to be qualify for a contribution to the Puerto Rico IRA or retirement plan.

 

The United States earnings will only be able to be used to qualify for a contribution to the United States IRA or retirement plan.

 

There are some retirement plans that do qualify for either or both Puerto Rico and the US but unless this is new there is not any IRA that can qualify using either type of earnings.

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.