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Author: kse4 Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76420  
Subject: Re: expat and an ira Date: 12/3/1999 2:37 AM
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Hi, kobegirl. You wrote:

<<i have lived in japan for 12 years and started an ira in '94. i was recently told that ex-pats can't have iras. i tried calling the irs
and they were useless.
does anyone know?>>

and TMFPixy replied:

"To contribute to an IRA you must have earned income taxable in the United States. If you use the foreign income exclusion to avoid
taxation, then you may not contribute to an IRA."


I think TMFPixy's short-version reply needs a bit of fleshing out. (I'm an expat too, living in HK and yes, I have an IRA.) Here's what I understand:

If you have taxable income after the maximum foreign income exclusion is subtracted (that is, for 1998 your AGI was greater than $72,000 before the exclusion; for '99, greater than $74,000), then you are entitled to an IRA to the extent that your income allows and assuming you're not covered by another retirement plan. That is, the usual U.S. resident IRA rules apply.

If you have at least $2000 TAXABLE compensation (above & beyond your excluded income), you can have an IRA, either Roth or traditional.

If your AGI BEFORE the exclusion, however, exceeds the Roth IRA income restrictions--that is, if you file jointly and together your AGI is more than $160,000 USD before you subtract whatever foreign exclusion(s) you're entitled to--then you can't have a Roth. But you can still have a traditional IRA, if you're not covered by an employer-sponsored retirement plan.

Again, the U.S. resident restrictions apply, with the notable difference that your eligibility is determined by your AGI as shown on Form 1040 WITH THE FOREIGN EXCLUSION AND WHATEVER HOUSING ALLOWANCE YOU CAN CLAIM AND THE FOREIGN TAX CREDIT ADDED BACK IN. Killer.

But if you're living in Japan and enjoying the kind of income that would make living in Japan possible, which assumes income above and beyond the exclusion, why would you want an IRA? Unless it's a Roth, I mean. I'm thinking one could do a good deal better with a well-chosen, low-income portfolio, 'way longterm, so that at the end one pays only longterm capital gains taxes--assuming those still apply when you retire.

Think about it.

On a different note, if you've been contributing to an IRA since '94 using EXCLUDED income as the basis, you owe penalties. Talk to a U.S tax person there--I'm sure they advertise. The embassy may be able to point you toward someone but they can't help you. I'm betting there's an American Chamber of Commerce affiliate there, and tax reps overseas are always members. :-)

Here in HK, the consulate brings in someone from the IRS once a year, usually in early March, to hold seminars and answer questions. Very helpful. Barring that, ask other expats to recommend someone.

Hope this helps,

kse

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