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Author: mrlumu One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 667  
Subject: Foreign Income and Roth PT 2 Date: 3/10/2001 12:02 PM
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IRS Pub 54 -- Tax Guide for US Citizens Abroad
has the following:

Individual Retirement Arrangements
Contributions to your individual retirement arrangements (IRAs) that are traditional IRAs or Roth IRAs are generally limited to the lesser of $2,000 or your compensation that is includible in your gross income for the tax year. Therefore, do not take into account compensation up to the amount of your foreign earned income exclusion and foreign housing exclusion, if any. Do not reduce your compensation by the foreign housing deduction.

If you are covered by an employer retirement plan at work, your deduction for your contributions to your traditional IRAs are generally limited based on your modified adjusted gross income. This is your adjusted gross income figured without taking into account the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction. Other modifications are also required. For more information on IRAs, see Publication 590.


My interpetation of this, and I am no expert, is that if I take the foreign income exclusion that unless I exceed that amount I cannot contribute to a Roth. However any portion of my income that does exceed the exclusion limit can then be used as the basis for my Roth contribution.

Example 1:If my MAGI is $76,000 or less then I can either take the exclusion or contribute to a Roth. But not both.

Example 2: If my MAGI is $78,000 then I could take the exclusion and would still have $2,000 more of earned income that would be eligible for a Roth contribution.

I'm sure there are at least a few other factors involved , such as total income affecting a Roth contribution, but I think that I have at least an understanding of where to go with it from here.

Anybody see anything wrong with my reasoning or am I on the right track?

Thanks,

Mr Lumu
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