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!
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.
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.
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?
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.
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.