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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121095  
Subject: Re: International employee 401K's and IRA's Date: 2/21/2000 10:26 AM
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<<I currently work for an American Company on international assignment. My income is not taxable due to the $75K income exclusion.>>


Well...it's actually $76,000 for year 2000

<< When I file taxes I file a 2555 or 2555ez along with a 1040. My income is in the $30K to $50K range so I am not even close to the $75K limit.>>

Right...you must file Form 2555 (or 2555EZ) in order to claim the foreign earned income credit.

<<I have a company sponsored 401K plan where I contribute 4% (After Tax) contributions.>>

Ok....

<<My questions are:

What will be the tax liabilities for the 401K since I contributed After Tax (even though I don't pay taxes on my income)when I retire and start pulling from the account?>>

You'll pay taxes on the distributions...at ordinary income rates. This is one reason that a number of ex-pats shun 401k plans in favor of "taxable" investments during their time out of the country. Why convert non-taxable income now into taxable income in the future??

<<My company was just sold and the new company has a 401K also. All of my future contributions will now go to the new companies 401K. Can I roll my old companies 401K into a Triditional IRA or Roth IRA?>>

You'll have to check with your plan administrator. You will likely have the option of pulling your 401k money out. Then you could move it to a traditional IRA...and then to a Roth IRA should you desire. And, depending upon the amount involved, it might be fairly tax-painless. But remember that any conversion income (from a traditional IRA to a Roth IRA) will not be covered under the foreign earned income exclusion. So it might be subject to taxes.

<<Can I contribute to a Roth IRA in conjunction to my 401K? Remember that my income is excluded form Taxation.>>

Nope...not without earned income. And Uncle Sammy says that if you "shelter" your foreign earned income with the exclusion, you have no earned income for IRA testing purposes. I believe that you can elect to exclude all but $2k of your earned income, and then use that $2k to fund an IRA account (either traditional or Roth). But other tax pros disagree with me. Take it for what you paid for it.

<<I really have a bucket full of worms here. I am just curious if anyone has seen this type of situtation before.>>

More than once... :-)

TMF Taxes
Roy

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