You need taxable compensation to be able to make IRA contributions. The foreign income excluded won't count.
If you are self-employed (a sole proprietor or a partner), taxable compensation is the net earnings from your trade or business reduced by the total of:
- The deduction for contributions made on your behalf to retirement plans, and
- The deduction allowed for the deductible part of your self-employment taxes.
To avoid the 6% tax on excess contributions, you must withdraw:
- the excess contributions from your IRA by the due date of your individual income tax return (including extensions); and
- any income earned on the excess contribution.
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