401(k)s for Digital Nomads and Global Freelancers

Understanding U.S.-Sourced vs. Foreign-Sourced Income

The IRS doesn’t allow contributions to a Solo 401(k) unless the money comes from earned income subject to U.S. taxation. Here’s how to tell if your income qualifies:

U.S.-Sourced Income (Qualifies):

• You're a U.S. citizen running a U.S.-registered LLC or sole proprietorship

• You invoice U.S.-based clients from your U.S. business

• Your income is effectively connected to the U.S.

Foreign-Sourced Income (Typically Doesn’t Qualify):

• You're paid by foreign clients into a foreign bank account

• You're a dual citizen living full-time abroad and operating under local tax laws

• You claim the Foreign Earned Income Exclusion (FEIE) on your tax return

If you exclude all your income under FEIE, it’s not considered taxable by the U.S.—and you can’t use it to fund a Solo 401(k).

Why the Foreign Earned Income Exclusion Matters

The FEIE allows U.S. citizens living abroad to exclude up to $120,000+ (as of 2023) of foreign-earned income from their taxable income.

That’s great for lowering your tax bill.

But it comes at a cost: if your income is excluded from taxation, you can’t use it to contribute to retirement plans like the Solo 401(k).

So if you want to use a Solo 401(k), you may need to waive part or all of the FEIE and report that income as taxable.

Some digital nomads choose to:

• Mix taxable and excluded income (only contribute from the taxable portion)

• Operate through a U.S. LLC to create eligible business income

• Use the Foreign Tax Credit (FTC) instead of the FEIE

Both FEIE and FTC are tools designed to prevent double taxation, but only FTC preserves eligibility for contributing to retirement plans. This is a subtle yet powerful distinction that many expats overlook. Consulting a tax advisor who specializes in expat finances is often worth the investment.

Example: Freelancer Living in Portugal

Let’s say you’re a U.S. citizen living in Lisbon, freelancing as a copywriter. Your clients are mostly U.S.-based and pay your U.S. LLC. You keep a U.S. business bank account and file taxes with the IRS.

Even though you live in Portugal, your income is:

• U.S.-sourced

• Earned through a U.S. entity

• Reported on your U.S. tax return

Yes, you can contribute to a Solo 401(k)—as long as you don’t exclude all that income under FEIE.

If you work with a CPA familiar with international taxes, they may advise you to use the Foreign Tax Credit instead. This way, you still lower your U.S. tax burden by applying foreign taxes paid as a credit while retaining access to tax-advantaged retirement savings.

What If I Work for Both U.S. and Foreign Clients?

Many global freelancers have a mix of clients. If you earn from both U.S. and international sources:

• You can prorate contributions based on the U.S.-taxable portion

• You must have proper documentation to separate foreign-excluded income from U.S.-taxed income

• Work with a tax advisor who understands expat tax rules

For example, if 60% of your freelance income is from U.S.-based clients and reported as taxable income on your return, you can contribute proportionally to your Solo 401(k). Just keep detailed records to prove the breakdown if the IRS ever inquires.

Can I Still Use a Solo 401(k) if I Move Frequently?

Yes. Your geographic location doesn’t impact your eligibility—only the source of your income does.

So, whether you live in Thailand for six months, then move to Spain, then spend time in Colombia, your ability to contribute depends on:

• Having a U.S.-based business or U.S. self-employment income

• Filing a U.S. tax return

• Keeping good records

Using cloud accounting tools, VPNs, and an expat-friendly CPA can help keep your business streamlined across borders. Solo 401(k)s are managed online, which means they move with you no matter how often your ZIP code (or country code) changes.

Key Benefits for Nomads and Expats

• High Contribution Limits: Save more than with a traditional or Roth IRA

• Tax Deferral or Tax-Free Growth: Choose what works best for your situation

• Business Deductions: Employer contributions are tax-deductible

• Loan Options: Borrow from your plan if needed

• Portability: Take it with you, no matter where in the world you work

Additional perks include the ability to consolidate old 401(k)s from past employers into your Solo 401(k), simplifying your retirement portfolio under one tax-advantaged umbrella.

Getting Started: What You Need

1. Form Your U.S. Business (if you haven’t yet)

   • Sole proprietorship, LLC, or S-Corp

   • Get an EIN from the IRS

2. Choose a Plan Provider

   • Look for ones that support self-directed investing and have expat-friendly options

3. Coordinate with a Tax Advisor

   • Discuss how to structure your income and file properly

4. Make Contributions

   • You can contribute up to $22,500 as an employee (2023)

   • Plus up to 25% of net self-employment income as an employer

Conclusion

The Solo 401(k) isn’t just for people working from a home office in the U.S. It can be an excellent tool for digital nomads and global freelancers, as long as you navigate the IRS rules and structure your business correctly.

With the right planning, you can travel the world, run your business from anywhere, and still build serious retirement savings. Just make sure your income is U.S.-taxable and reported correctly.

In a world where your office can be anywhere, your retirement plan doesn’t have to be left behind.

Explore how a Solo 401(k) can fit into your nomadic lifestyle and future-proof your freedom. Visit www.survival401k.com to learn more.