An IRA is an account set up at a financial institution that allows an individual to save money for retirement. Unlike 401(k)’s, which are set up by employers for their employees, IRAs are accounts that you open on your own.

There are limits and other rules that affect the amount that can be contributed to an IRA. For 2015, the most that can be contributed to your IRA is $5,500 (or $6,500 if you are age 50 or older), or your taxable compensation, whichever is smaller. This means that, if you live and work abroad, you cannot make a contribution to your IRA if you have used the foreign earned income exclusion (FEIE, IRS Form 2555) to exclude all your foreign earned income (thus reducing your taxable compensation to zero). If the FEIE does not exclude all of your foreign earned income, you can make a contribution to your IRA up to the limit mentioned above.