[Sparky McGhee]

I have a job offer from an American company that does business in Saudi Arabia. The salary is low 60s in USD. The only taxes I have to pay are FICA. I have been living in working abroad for 12 years, and I'm thinking that it might be a good idea to start working for an American company so that I can make Social Security contributions through FICA. Does this make sense? I'm 54 years old. I have enough SS contributions to make the minimum requirements, but not much more.

My question is how do I figure out what the advantage would be, Social Security-wise, and whether I should even be worrying about it at all, rather than just making as much cash abroad and not contributing anything to Social Security. As it stands now old. I have abou $120,000 saved for retirement, and because food and housing are included with the Saudi job, it looks like I might be able to save $150,000 if I can last 3 Years in the KSA.
Will five years of FICA contributions with a decent salary increase my Social Security enough to make a difference? How do I figure out the numbers?

 

[Stevesolar]

Hi,
Just forgetting the tax bit for now - have you ever visited Saudi Arabia?
It's not an easy country to live in - especially on low wages.
Cheers
Steve

 

[Sparky McGhee]

I live next door in Oman. I'll be okay. Free food and housing in a reasonably comfortable place.

 

[Bevdeforges]

I'd ask lots of questions about this one, since I'm not entirely sure on what basis you'd be paying US FICA if you're living and working outside the US. Granted, I doubt you'd be covered under any sort of Saudi "social security" system anyhow - and I kind of doubt there is a US-Saudi social security policy - but do make sure this is going to be regular social security and not "self-employment tax" (which is twice as much as SS for an employee).

Frankly, once you have your 10 years in to qualify for social security, it's a toss up whether the extra credits will benefit you or not. Depends on a couple of factors, including any entitlement you might have (or acquire) for foreign pensions, salary level and a few other things. If you think you may be able to make it to 25 years or so of SS payments, you could manage to avoid the WEP (windfall elimination provision) altogether, which would be useful.

And don't forget, you'll owe US taxes on the interest from those retirement savings (assuming you're earning much in these days of meagre interest). You can't contribute to an IRA back home if you're excluding all of your salary with the FEIE.

I wouldn't do it exclusively for the SS credits, but rather if it's something you think will enhance your career and make for an interesting experience for yourself.
Cheers,
Bev

 

[Sparky McGhee]

The FICA is legit. It has something to do with the HEART ACT, which affects military and related payrolls. I'm gonna be working for a defense contractor. Basically, it means I don't have to pay state or federal but I still have to pay FICA.

My understanding is that the amount of Social Security I get each month will depend on the average of how much I made divided over the number of years that I contributed or was eligible to contribute. Since I haven't contributed anything in the last 12 years, I thought it might be helpful to start contributing now.

I don't really understand the WEP thing. I estimate I have roughly 20 years logged into the Social Security system but I'm not sure about that. Is there a way that I can look it up online? I've heard something about that but I don't know how to do it.

I contribute $6000 to an IRA every year, and as far as I know I'm in compliance. Am I not doing it right? I have been excluding all of my foreign salary from US taxes. Nobody ever told me I couldn't contribute to an IRA.

 

[Bevdeforges]

If you're working for a military contractor, then yeah, the FICA is legit.

My understanding is that the amount of Social Security I get each month will depend on the average of how much I made divided over the number of years that I contributed or was eligible to contribute. Since I haven't contributed anything in the last 12 years, I thought it might be helpful to start contributing now.

Basically, that's how it works, however if you've been working abroad in a country which has a social security treaty with the US, the years you worked may count, even if they don't take your wages into account. The formula is actually quite a bit more complicated, especially if you have years of 0 contributions in addition to your 10 years of qualifying time.

I don't really understand the WEP thing. I estimate I have roughly 20 years logged into the Social Security system but I'm not sure about that. Is there a way that I can look it up online? I've heard something about that but I don't know how to do it.

I'm not sure anyone understands the WEP thing - but basically, it's a reduction to whatever they calculate your SS benefit to be initially if you are entitled to a government pension (state, local or foreign) that involved work for which you did not pay US FICA. From what I am told the reduction is limited to no more than half the amount of whatever pension you receive.

There is, however, an exception to the WEP thing if you have a certain number of years of "substantial contributions" to FICA. Last I knew, the magic number was 30 years (of substantial contributions), though someone recently said they think that has been reduced to 25.

There is (or used to be) a page on the Social Security website where you could pull up your salary record according to SS records, however I think that has been put into the "MySocialSecurity" account area now. To set up a MySocialSecurity account online, you must have a US mailing address. But on the Social Security site I think you can request a salary record be mailed to you (even outside the US). It may take a bit of hunting around.

I contribute $6000 to an IRA every year, and as far as I know I'm in compliance. Am I not doing it right? I have been excluding all of my foreign salary from US taxes. Nobody ever told me I couldn't contribute to an IRA.

Last time I checked the rules, you could only contribute to an IRA if you have earned income that is subject to taxes (which you don't if you exclude your salary using the FEIE). I don't know if that applies to those Roth IRA things, but it does (or certainly always did) for a traditional IRA. However, if you're showing that IRA contribution on your tax returns and no one has said anything to you about it, I wouldn't rock the boat at this point. You may want to check the IRS publication on IRAs just to make sure. - 590-A is for IRA contributions, while 590-B is about IRA distributions.
Cheers,
Bev

 

[Sparky McGhee]

I googled the treaty with one of the countries I have worked in (Korea). It says the following:

"If you already have enough credits under the U.S. system to qualify for a benefit, the U.S. cannot count your Korean credits."

So it seems that foreign credits can boost you up to minimum, but will not count towards making a calculation of higher earnings based on foreign income.

I have contributed to Roth for 2016 and 2017. I contributed at the end of 2016 and then a month later in early 2017. I have not yet reported it on a return. That comes when I file in October....

What do you s'pose?

 

[Bevdeforges]

Oh no, the foreign credits never count for your income - only if you need the quarters to reach the 10 year point. But at the same time, your US time worked usually counts (time only, not salary) toward whatever the Korean (or other) pension requires.

I worked 15 years in the US and another 15 in France. In the US, I'm fully qualified for US SS. France counted both my French time and salary level, plus gave me credit for the 15 years in the US, so I get a "half pension" (France requires more work credit for a full pension). Still, don't knock the idea of a couple hundred extra $$ a month on top of whatever other resources you have at retirement!

On the Roth I really don't know. Those came into being after I left the US and for the first several years of the plan, you couldn't have a Roth if you filed "married, filing separately" (which I do because I'm married to an NRA). I'm told that has changed, but it seems kind of pointless to pay all that tax to convert. Haven't contributed to the IRA for years - but it's certainly nice to have that source to draw down, now that I'm retired.
Cheers,
Bev