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If I have a Roth IRA while living in the US and want to contribute to it after I move overseas to work for a few years, how do I do this? Say I make 70k overseas and plan to take the foreign earned income deduction. Can I choose to only deduct $64,500 (instead of all my foreign earned income) and pay taxes on the remaining 5.5k and contribute that to my Roth IRA?

  • please re-read my answer again, as it appears my original interpretation was incorrect. – littleadv Mar 5 '15 at 16:35
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You can contribute to Roth IRA regardless of the foreign income exclusion. You can contribute to Roth IRA only for amounts in excess to FEIE. However, the MAGI limit for Roth IRA contributions ignores the FEIE.

So in your case, if you exclude your income, you would not be able to contribute to the IRA.

You cannot partially exclude the income. You either take the full exclusion, or none. So instead of exclusion, what you can do is chose to take a Foreign Tax Credit to reduce your US tax liability, and then you'll be able to contribute to the IRA as you wish.

  • Your link clearly states that the foreign income exclusion applies when determining a contribution. – Eric Mar 5 '15 at 9:22
  • @Eric you'll have to quote because it doesn't seem to be so clear to me – littleadv Mar 5 '15 at 9:57
  • The excluded foreign earned income is included when determining your maximum contribution limit. If you are over $129K, you cannot contribute. However, the minimum amount you can contribute is based on your taxable income. Your taxable income is reduced by the foreign income exclusion. So basically you can contribute to your Roth IRA if your income is greater than the foreign income exclusion limit ($99,200) but less than $129,000 if filing singly. The OP's question is about whether you can opt to reduce your exclusion to qualify to contribute if earning less than $99k. – Eric Mar 5 '15 at 15:07
  • @Eric I couldn't find any IRS source for that. IRA is based on income that is considered "earned", and the limits are based on MAGI, but the IRA contribution limits (the $5500) is not dependent on the AGI, only on the earned income. The income is reported on 1040, thus taxable, and may be excluded, but I couldn't find any IRS source saying that the exclusion makes the income no longer earned. – littleadv Mar 5 '15 at 15:41
  • In your link, Worksheet 2-1 has a "Roth IRAs only" note that says the contribution is the lesser of $5500 and your taxable income. Worksheet 2-2 has the calculation for the contribution limit. Table 1-1 defines what compensation is and the "What is NOT Compensation?" section underneath it states: "Any amounts (other than combat pay) you exclude from income, such as foreign earned income and housing costs." So your taxable compensation is reduced by exluded foreign income. – Eric Mar 5 '15 at 16:35
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Here is an article explaining that you can contribute to your Roth or Traditional IRA by taking a Partial Foreign Earned Income Exclusion:

http://clarionbridge.com/ira-contribution-for-us-expatriates/

@littleadv says, "You cannot partially exclude the income" but someone has take enough time to author the article I have referenced and I am seeing logic in a partially excluded income filing. When would the IRS ever prevent you from claiming income? Also, a TurboTax algorithm not allowing that kind of nuanced tax form entry is not an authority on the situation either possibly...

However, here is another article that supports @littleadv's answer: http://www.crevelingandcreveling.com/blog/62-american-expats-and-iras-a-how-to-guide.html

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    This is not correct, in spite of what your first link says. The instructions on Forms 2555 and Forms 2555 EZ do not leave you with a choice on how much income to exclude. Your second link makes this statement: "In general, if all earned income is foreign earned and below the total of the FEIE and FHE, then you will not able to contribute." so it also does not support your claim. – Eric Oct 16 '15 at 16:37
  • The second article is a counter to my THOUGHT, just didn't word very well – Brian Ogden Oct 16 '15 at 22:12

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