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I have a tax question. I realize I need to see a tax person, but most don't seem to get my situation at all.

My company was sold, so I can roll my 401k to an IRA….yay! I plan to do that. I have two questions and I hope I state them clearly and correctly below:

My income is foreign earned, so it pretty much all falls under the FEIE. I live overseas all year. I am single. I have no property in USA.

1) I roll my 401K to an IRA and say its value is 30k. I then want to convert my IRA to a ROTH with paying as little of my own money as I can. I believe I can do this over a period of years by using my standard deductions (roughly $5,800 can’t remember the amount) each year. Essentially I use my deductions for the taxes I would have to pay for this conversion. Is this allowed?

2) Ignoring question 1. As I currently understand it I cannot put money into a ROTH each year because my wages are FEIE and not seen as taxed income. Is this statement true? Is there a way in which I can put any money into a ROTH?

Any help would be appreciated. Let me know if more information is needed. I have a number of different answers for these questions and am all confused.

Thanks,
Ser
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My income is foreign earned, so it pretty much all falls under the FEIE. I live overseas all year. I am single. I have no property in USA.

1) I roll my 401K to an IRA and say its value is 30k. I then want to convert my IRA to a ROTH with paying as little of my own money as I can. I believe I can do this over a period of years by using my standard deductions (roughly $5,800 can’t remember the amount) each year. Essentially I use my deductions for the taxes I would have to pay for this conversion. Is this allowed?


Conversion is allowed, but the tax calculation isn't what you think it is. (It used to be, but Congress caught on.) You can see how the tax calculation works on page 40 of the 1040 instructions.

2) Ignoring question 1. As I currently understand it I cannot put money into a ROTH each year because my wages are FEIE and not seen as taxed income. Is this statement true?

Yes.

Is there a way in which I can put any money into a ROTH?

Move back to the States or make enough money that you have taxable compensation after the FEIE.

Phil
Rule Your Retirement Home Fool
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Thank you for the reply.

Can I clarify. This is my page 40, is this correct one you were referring to?


"Foreign Earned Income Tax Worksheet—Line 44 Keep for Your Records
CAUTION
!
If Form 1040, line 43, is zero, do not complete this worksheet.
1. Enter the amount from Form 1040, line 43 ................................................ 1.
2. Enter the amount from your (and your spouse's, if filing jointly) Form 2555, lines 45 and 50, or
Form 2555-EZ, line 18 ................................................................. 2.
3. Add lines 1 and 2 ...................................................................... 3.
4. Tax on the amount on line 3. Use the Tax Table, Tax Computation Worksheet, Qualified
Dividends and Capital Gain Tax Worksheet*, Schedule D Tax Worksheet*, or Form 8615,
whichever applies. See the instructions for line 44 to see which tax computation method applies.
(Do not use a second Foreign Earned Income Tax Worksheet to figure the tax on this line) ........ 4.
5. Tax on the amount on line 2. If the amount on line 2 is less than $100,000, use the Tax Table to
figure this tax. If the amount on line 2 is $100,000 or more, use the Tax Computation
Worksheet ........................................................................... 5.
6. Subtract line 5 from line 4. Enter the result. If zero or less, enter -0-. Also include this amount on
Form 1040, line 44 .................................................................... 6.
*Enter the amount from line 3 above on line 1 of the Qualified Dividends and Capital Gain Tax Worksheet or Schedule D Tax Worksheet if you
use either of those worksheets to figure the tax on line 4 above. Complete the rest of that worksheet through line 6 (line 10 if you use the
Schedule D Tax Worksheet). Next, you must determine if you have a capital gain excess. To find out if you have a capital gain excess, subtract
Form 1040, line 43, from line 6 of your Qualified Dividends and Capital Gain Tax Worksheet (line 10 of your Schedule D Tax Worksheet). If
the result is more than zero, that amount is your capital gain excess.
If you do not have a capital gain excess, complete the rest of either of those worksheets according to the worksheet's instructions. Then
complete lines 5 and 6 above.
If you have a capital gain excess, complete a second Qualified Dividends and Capital Gain Tax Worksheet or Schedule D Tax Worksheet
(whichever applies) as instructed above but in its entirety and with the following additional modifications. Then complete lines 5 and 6 above.
These modifications are to be made only for purposes of filling out the Foreign Earned Income Tax Worksheet above.
1. Reduce (but not below zero) the amount you would otherwise enter on line 3 of your Qualified Dividends and Capital Gain Tax
Worksheet or line 9 of your Schedule D Tax Worksheet by your capital gain excess.
2. Reduce (but not below zero) the amount you would otherwise enter on line 2 of your Qualified Dividends and Capital Gain Tax
Worksheet or line 6 of your Schedule D Tax Worksheet by any of your capital gain excess not used in (1) above.
3. Reduce (but not below zero) the amount on your Schedule D (Form 1040), line 18, by your capital gain excess.
4. Include your capital gain excess as a loss on line 16 of your Unrecaptured Section 1250 Gain Worksheet in the Instructions for
Schedule D (Form 1040)."
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This is my page 40, is this correct one you were referring to?


"Foreign Earned Income Tax Worksheet—Line 44 Keep for Your Records


Yes

Phil
Rule Your Retirement Home Fool
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Thanks, I will look into that and see if I can make sense of it :)
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Here's the Cliff notes version.

In the good old days, you used to subtract off the FEIE, then figure your tax on whatever income was left.

Now you figure your tax without the FEIE, then subtract off the tax on just the FEIE.

That effectively puts the taxable part of your income on top of the excluded income instead of under it.

--Peter
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