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walinski
New Member

I live abroad and take the foreign earned income exclusion. Am I qualified to contribute to a Roth IRA if my 1040 Line 7 is above the limit but my AGI is negative?

 
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DoninGA
Level 15

I live abroad and take the foreign earned income exclusion. Am I qualified to contribute to a Roth IRA if my 1040 Line 7 is above the limit but my AGI is negative?

Foreign earned income is not taxable compensation for IRA contribution purposes.  If you have no other taxable compensation other than the foreign earned income you cannot contribute to an IRA.

See IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs)  - https://www.irs.gov/publications/p590a#en_US_2016_publink1000230366

Go to this IRS website for IRA contributions - https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-li...

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3 Replies
DoninGA
Level 15

I live abroad and take the foreign earned income exclusion. Am I qualified to contribute to a Roth IRA if my 1040 Line 7 is above the limit but my AGI is negative?

Foreign earned income is not taxable compensation for IRA contribution purposes.  If you have no other taxable compensation other than the foreign earned income you cannot contribute to an IRA.

See IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs)  - https://www.irs.gov/publications/p590a#en_US_2016_publink1000230366

Go to this IRS website for IRA contributions - https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-li...

sbwalling
New Member

I live abroad and take the foreign earned income exclusion. Am I qualified to contribute to a Roth IRA if my 1040 Line 7 is above the limit but my AGI is negative?

I disagree with the answer given regarding the ROTH IRA contributions and the Foreign Earned Income Exclusion.    IRS Pub 590; Worksheet 2-1. Modified Adjusted Gross Income for Roth IRA Purposes clearly shows that you add any foreign earned income exclusion and/or housing exclusion from Form 2555, line 45, or Form 2555-EZ, line 18 to generate the Modified AGI for Roth IRA contribution limits.    This makes sense as the Foreign Earned Income exclusion is solely to avoid American expats being double taxed on their income in both the foreign country and the USA.  
DoninGA
Level 15

I live abroad and take the foreign earned income exclusion. Am I qualified to contribute to a Roth IRA if my 1040 Line 7 is above the limit but my AGI is negative?

@sbwalling -
To calculate MAGI the Foreign earned income is included.
However, Foreign earned income is NOT taxable compensation for contributing to an IRA if it has been excluded from income on your tax return.

See IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs) page 6 - <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p590a.pdf#page=6">https://www.irs.gov/pub/irs-pdf/p590a.pdf#page=6</...>
"What Isn’t Compensation?"
"Any amounts (other than combat pay) you exclude from income, such as foreign earned income and housing costs."

See IRS website for IRA contributions - <a rel="nofollow" target="_blank" href="https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-li...>
"For 2015, 2016, 2017 and 2018, your total contributions to all of your traditional and Roth IRAs cannot be more than:
$5,500 ($6,500 if you’re age 50 or older), or
your 'taxable compensation' for the year, if your compensation was less than this dollar limit."
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