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ozzy032
Level 1

If I qualify for the FEIE, can I still participate in my employer's Roth 401(k)?

The rules and phase outs for Roth IRAs are based on a modified AGIs and specifically reference FEIE excluded income. The rules for 401(k)s seem to be based only on "compensation", and I can't find anything that requires income excluded using the FEIE to be excluded from "compensation" for contributing to a Roth 401(k). For that matter, I can't find anything that distinguishes between traditional 401(k)s and Roth 401(k)s as far as eligibility requirements or allowable compensation rules go.
6 Replies
macuser_22
Level 15

If I qualify for the FEIE, can I still participate in my employer's Roth 401(k)?

Compensation for IRA's is defined in IRS Pub 590A and I assume that the rules for a 401(k) Roth are the same.
<a rel="nofollow" target="_blank" href="https://www.irs.gov/publications/p590a#en_US_2017_publink1000230355">https://www.irs.gov/publication...>

"What Isn’t Compensation?"

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

Roth contributions whether an IRA or Designated Roth are always *after-tax* money.
**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.**
Critter
Level 15

If I qualify for the FEIE, can I still participate in my employer's Roth 401(k)?

What Are the Similarities Between a Traditional 401(k) and a Roth 401(k)? Let’s start with what a traditional 401(k) and a Roth 401(k) have in common. First, these are both workplace retirement savings options. With either type of 401(k) plan, you can enjoy the convenience of having the contribution drafted out of your paycheck. Second, both a traditional 401(k) and a Roth 401(k) have the ability to include a company match. Nearly 80% of companies who offer a 401(k) or similar product offer a match on employee contributions.(3) If you work at a place that offers a match, take it. Your employer is giving you free money! Third, both types have the same contribution limit. In 2018, the contribution limit is $18,500 per year or $24,500 if you’re over 50. The opportunity to invest that much every year is a huge perk of traditional and Roth 401(k)s, especially when compared to the Roth IRA’s contribution limit of $5,500 per year. <a rel="nofollow" target="_blank" href="https://www.daveramsey.com/blog/traditional-401k-vs-roth-401k">https://www.daveramsey.com/blog/tradi...>
dmertz
Level 15

If I qualify for the FEIE, can I still participate in my employer's Roth 401(k)?

I don't think that the definition of compensation for a IRA contribution applies.  It's instead covered by CFR 1.415(c)-2 which indicates that compensation for the purpose of contributions to a qualified retirement plan does not exclude income that is exempt from tax under the Foreign Earned Income Exclusion (section 911 as well as a few others).  See 1.415(c)-2(g)(5)

<a rel="nofollow" target="_blank" href="https://www.law.cornell.edu/cfr/text/26/1.415(c)-2">https://www.law.cornell.edu/cfr/text/26/1.415(c)...>
ozzy032
Level 1

If I qualify for the FEIE, can I still participate in my employer's Roth 401(k)?

That’s exactly what I was looking for dmertz. Thank you. I’ll check those code references.
Hal_Al
Level 15

If I qualify for the FEIE, can I still participate in my employer's Roth 401(k)?

Answered in the comments

ExpatLife1
Level 1

If I qualify for the FEIE, can I still participate in my employer's Roth 401(k)?

Sorry folks coming to this a bit late. I do not believe the above advice is correct. Income excluded under the FEIE cannot be contributed to employment retirement plans that are formed under Internal Revenue Code 401.

 

Sources: 
https://www.crevelingandcreveling.com/blog/expat-financial-planning-why-americans-should-consider-so...

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