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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.

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