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alex904
Returning Member

All of my income is foreign earned. getting an error on the ira contribution saying that i need to pay a penalty because it's greater than my earned income. what do i do?

 
4 Replies
macuser_22
Level 15

All of my income is foreign earned. getting an error on the ira contribution saying that i need to pay a penalty because it's greater than my earned income. what do i do?

Foreign excluded income is not eligible for IRA contributions.

See IRS Pub 590A:

https://www.irs.gov/publications/p590a#en_US_2019_publink1000230355

 

What Isn’t Compensation?

Any amounts (other than combat pay) you exclude from income, such as foreign earned income and housing costs.

 

I assume that this was a 2019 contribution so the deadline to remove it without penalty has passed and you will owe a 6% penalty on the 2019 excess that REPEATS each year until the excess is removed with a normal distribution.    That means the excess must be removed before Dec 31, 2020 or there will be ANOTHER 2020 6% penalty.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
alex904
Returning Member

All of my income is foreign earned. getting an error on the ira contribution saying that i need to pay a penalty because it's greater than my earned income. what do i do?

You are partially right and this is something I didn't realize before. However, if I go in and not include the amount I contributed into the IRA into the FEIE, I am still getting an error telling me there is an excess contribution. As I understand it, this is not supposed to happen since the amount of my income outside of the FEIE is equal to the amount of my contribution. Any thoughts? Thanks.

macuser_22
Level 15

All of my income is foreign earned. getting an error on the ira contribution saying that i need to pay a penalty because it's greater than my earned income. what do i do?

You are posing from the self-employed  edition so according to the IRS link I posted, the eligible self-employed income is the *net* income (schedule 1 line 3) *minus* the deductible part of the SE tax (schedule 1 line 14).

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
alex904
Returning Member

All of my income is foreign earned. getting an error on the ira contribution saying that i need to pay a penalty because it's greater than my earned income. what do i do?

Where do I find those numbers? I can't see any of the forms before I fix the IRA contribution error.

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