An interesting idea came up in this comment exchange.
For Americans planning to retire in Japan or those already in Japan who have the ability to contribute to Roth IRAs (for example, those with sufficient income to make backdoor Roth contributions via taxable traditional IRA contributions or entrepreneurs who can contribute to a Roth SEP IRA), do we see an advantage in forming and contributing to several Roth IRAs for maximum flexibility?
Theoretically, the benefits might look something like this:
- Most Japanese tax professionals familiar with the issue seem to advise that growth/dividends within US retirement accounts are tax-free in Japan prior to distribution. Additionally, some (most?) tax professionals take the position that these retirement accounts are not subject to the Japanese exit tax. So in theory you could get NISA-style tax-free growth.
- After retirement, it seems you would theoretically have the ability to break Japan tax residence, relocate to the US, withdraw the Roth IRA tax-free, and later return to Japan.
- You might also have the ability to withdraw the entire amount of one of the Roth IRAs in a lump sum while keeping Japan tax residence, characterizing the distribution as temporary income. This could provide a favorable tax consequence, especially if your total income is not too high in the year of the withdrawal. However, I'm not sure if the characterization as temporary income would be an aggressive position and to what extent the NTA would be likely to challenge it.
Any other thoughts on downsides/risks or benefits?
by stakes_are