IRA Rules

Posts Tagged ‘irs’

Question: Foreign Earned Income and Roth IRAs and Roth 401k?

Hi. I am an expatriate. I file Form 2555 (Foreign Earned Income) and am able to exclude the maximum from my pay. My pay is above that threshold. I also have dividends, capital gains, and a military pension as my sources of income.

I’ve searched the IRS.gov website and can’t find the answer to my questions, keep in mind I file Form 2555 with our joint Form 1040:

1. Am I allowed to contribute to a Roth IRA (yes or no) according to the IRS rules?

2. Am I allowed to contribute to a Roth 401k (yes or no) (my employer offers it along with a traditional 401k) according to the IRS rules?

3. Am I allowed to open and contribute to a spousal Roth IRA for my wife (yes or no) according to the IRS rules?

If you have the answers, please, would you also share the reference (title, chapter, page, and paragraph number(s)) so I can research it and have it for reference?

Again, please keep in mind I file Form 2555 and a joint Form 1040.

Thanks.

Answer: I am going to assume that you have over $10,000 in nonexcluded wages and that you and your spouse are under 50. Add $1,000 for each spouse age 50 or older. I am also assuming that your modified AGI is under $166,000 (which includes the excluded income).

1. Yes
2. Maybe
3. Yes

Answers to 1 and 3 are specifically addressed in IRS Pub 590. If you do not meet my assumptions, this publication details all other cases as well.

http://www.irs.gov/pub/irs-pdf/p590.pdf

To answer 2 you need to contact your HR Department. If you meet the rules for participation established by your employer, you may participate.

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Question: Retirement: Social Security and IRAs?

1. PRESUMPTION: My Social Security. Once I start receiving SS, what taxes will I owe out of each month’s check?

2. CURIOSITY: Using today’s US tax rules/laws. When I truly retire at 63, may I continue to contribute to my Traditional IRA using my military retirement pay as my source of income? The US Government classifies military retirement pay as “reduced compensation for reduced services”; it is not a pension”.

Thanks.
Thanks NewJersey! That helps me plan my IRA.
Thanks Custiz20 for the useful info!

Answer: There is a “Social Security Benefits Worksheet” to calculate your taxes from SS. You can find it on page 25 of the 1040 instructions:

http://www.irs.gov/pub/irs-pdf/i1040.pdf

If SS is the bulk of your income you will probably not owe taxes on it, but use the worksheet to be sure.

As for the IRA, some people get very part time jobs simply to have earned income so they qualify to put money into an IRA or Roth IRA. It might be worth your while to make $5,000 just to qualify to contribute $5,000.

Best of luck in your retirement ventures!!

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