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I am working overseas on a 3 year contract & paid by local government...

My crystal ball sez you're somewhere on the Arabian peninsula...

Can I contribute to my Roth IRA with my non-us earnings? I thought earned income is earned income, but some fellow expats said no only US income counts.

The answer to your first question: 'yes', technically, but 'no' in actuality (see possible exception, below). You have extenuating circumstances. Your fellow expats will get you in nothing but trouble (always the case)--the benchmark is "taxable earned income" and as a U.S. citizen you're taxed on your worldwide income. However...

I expect to be under the $70,000 foreign income limit & will file and pay some Federal income tax. This country has no taxes.

...if you apply for & receive the foreign earned income exclusion (I believe it's $76K for 2000, and don't forget the housing exclusion) such that none of your foreign income is subject to U.S. taxes, then you have no "taxable earned income." So no Roth contribution.

Now, TMFTaxes has expressed the opinion that a person may take a partial foreign income exclusion even if eligible for the whole shebang. That is, you could elect to make $2K of your foreign earned income taxable & thereby qualify for a Roth contribution. (I dunno--it's an idea.)

Can I convert some of my conventional IRAs to Roth while overseas? ...

You're in a great position re: converting. Make the most of it.

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