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Author: belvedere0493 Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 667  
Subject: Retiree with Foreign Earned Income Roth IRA Date: 12/23/2007 3:22 PM
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I'm new to these Boards, but I've done some reading on this topic including IRS Publication 54, and I haven’t been able to find a solution to our situation. I sure would appreciate any and all input. Here goes.

We’d like to start a Roth IRA, make the maximum contribution of $10,000 with spousal benefit, and fund it with other than earned income. It is our eligibility that poses some questions.

First, some details:
Husband A64, wife A65, both taking Social Security benefits starting at A62. We are US citizens living abroad the entire year 2007, but we could come up with 30 days out of France if that served any purpose, such as meeting exclusion criteria. Husband is retired for US purposes, but working part-time as a self-employed person (1st year), with a registered business in France, paying all required taxes on his earnings in France. This work has generated 20,000 EUR (say, $28,000 USD) and this sum is our only earned income. We do have other income in the form of Social Security benefits of $27,000, and perhaps $15,000 in interest and dividends for 2007.

With regard to the Roth IRA, our questions pertaining to our US tax return are:
1. Are we better off taking the foreign Earned Income Exclusion, or a foreign tax credit?
2. Are we correct in assuming that if we take the Foreign Earned Income Exclusion, then we cannot open a Roth IRA? Or, can we do one or the other in some portion ie, claim earned income of $17,000 and put $10,000 contribution in a Roth IRA?
3. If we took a credit of a certain amount, do we have to pay US self-employed taxes & Medicare on the balance?
4. How do we report the foreign earned income so as not to jeopardize our Social Security benefit?
5. Can we open a Roth IRA??
6. Finally, can we convert existing IRAs to Roth IRAs?

See, we need help...thanks for any and all insight or direction.

BB
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Author: SkyeQ Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 603 of 667
Subject: Re: Retiree with Foreign Earned Income Roth IRA Date: 1/9/2008 7:29 AM
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Don't know the answers to your other questions, but I was under the impression that you can not open a Roth unless you have US-based earned income for the year in question. US Social Sec income or French earned income probably does not count.

Skye

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Author: charmatica One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 604 of 667
Subject: Re: Retiree with Foreign Earned Income Roth IRA Date: 1/9/2008 8:43 AM
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Don't know the answers to your other questions, but I was under the impression that you can not open a Roth unless you have US-based earned income for the year in question. US Social Sec income or French earned income probably does not count.

Hmm, do you have a source for this, because I have continued contributing to my Roth since coming abroad, even though it isn't US earned income, I still file taxes in the US every year, but am given an exemption. I have never heard it was not allowed.

Thanks,

Charm~

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Author: SkyeQ Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 605 of 667
Subject: Re: Retiree with Foreign Earned Income Roth IRA Date: 1/9/2008 5:15 PM
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Hi Charm,

I went to look for a source, and here is the deal. It appears that if you have reduced your gross income by the foreign income exclusion and nothing is left (ie, if your earned income is <80,000 or so) then you can not contribute to the Roth. If you have taken the foreign income exclusion, and you still have a positive adjusted gross income, then it is still possible to contribute to the Roth. Correct me if I'm wrong.

http://www.irs.gov/publications/p590/ch05.html

Adjusted gross income.

This is generally the amount on line 38 of your 2006 Form 1040; line 22 of your 2006 Form 1040A; or line 36 of your 2006 Form 1040NR. However, you must add to that amount any exclusion or deduction claimed for the year for:

Foreign earned income,...


Skye

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Author: jensiv Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 649 of 667
Subject: Re: Retiree with Foreign Earned Income Roth IRA Date: 6/24/2009 8:28 AM
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I'm receiving loan forgiveness from my law school, I'm abroad and have no normal taxable income because of the living abroad exemption, but I'm interested in saving for retirement. I'm wondering if I can claim the loan forgiveness as income not covered by the living abroad exemption and save in a Roth IRA.

If not, is there some other IRA I should consider? Is there a point if it's not a deduction? Is there some global pension that can be recommended for expats?

Simply put, how should I save for retirement in my circumstance?

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