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I understand, now let me add a wrinkle. If I were to go back to the U.S, for example, in November 2007 and earn more than $4000 by December 31, 2007, then I could contribute to either Roth or Traditional IRA for 2007, correct?

what i used to do, back when i was an expat with foreign earned income looking to fund a roth IRA, was this:

first, i elected to qualify for the exclusion under the physical presence test, rather than the bona-fide resident test (although i was indeed a bona-fide foreign resident).

then i claimed a number of days' physical presence in the foreign country that would be sufficient to exclude all of my foreign income, except for the then-current maximum contribution to an IRA. you can calculate this by solving x/365 = (max contribution) / (max exclusion).

hey presto.

i think it's probably unnecessary to do this - i don't think there is any law that you must claim the maximum exclusion to which you're entitled, and you can just go ahead & exclude less at will. however, the above method does produce a good documentary trail of what you're doing. ought to help out if you get questions (i never did).

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