Looking ahead (as I am wont to do), I’ve been thinking about the problem of continuing my retirement savings if I were to move abroad next year.
While abroad, I will be paid in foreign currency. I will not contribute the foreign income I receive to retirement funds. However, I will continue to freelance with US-based entities and be paid for those assignments in dollars.
My question is: Can I contribute the income earned under US assignments to the Roth IRA? So, for example, if I made $5,000 in 2010 from freelancing assignments with US-based companies, can I contribute that amount to the Roth IRA even though I was physically in another country?
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I am studying for my tax CPA test right now…so maybe I can help. Yes, I think you can. If you don’t already know, you won’t be taxed on your foreign earned income (up to $97K or something)…but yes, I think you can contribute U.S. earned money to your Roth. Always good to check the tax code on the IRS website though! How exciting!
@Carrie – thanks for that! That was my initial understanding as well.. I wish the IRS website was easier to navigate!
And I definitely won’t be making over the foreign earned income exclusion amount. I’d be living like a queen if I were.
I think your IRA contribution is limited to the amount of US-earned income, so if you only earn $1,000 you can’t max out your Roth next year.
I *think* somewhere that I read that you had to make over a certain amount of US dollars to contribute to the Roth, as I was hoping to make enough money through ChaCha and other ‘freelance contractor’ survey work to contribute from NZ.
I have no links to back that up, however, and I’m not a CPA. Something to investigate, though.
Ah, OK…after thinking about it I remember a little bit. Your Roth contributions have to be ‘taxable.’
As I understood my ex-BF’s tax attorney cousin, by taking the foreign income exclusion, my net US income becomes $0. Any US $$ I made would need to be reported, for sure, but would accumulate from $0. I never made more than a couple hundred bucks from ChaCha and surveys.
Therefore, when I went to pay taxes on my earned US income, my standard deduction and other tax breaks wiped my AGI back down to (less than) $0. And voila, I had no ‘taxable income’ with which to contribute to my Roth.
This means that your US income has to be over the standard tax deductions and tax breaks, $7500+ or whatever it is for a single payer, in order to contribute. Therefore, to contribute $5000 to your Roth, you would have to make $5000 MORE than the standard deduction and all those other tax breaks that reduce your AGI on your tax returns.
It does make sense, if you think about it–you aren’t paying taxes on the standard deduction portion of your income so therefore that $$ isn’t eligible for your Roth, which only houses post-taxed income.
Again, I canNOT for the life of me find links to this info but I went through this exact same rigamarole a year ago and ended up making this conclusion based on research and my boyfriend’s tax attorney cousin’s advice.
{disclaimer: i am NOT a tax professional!! please talk to someone to back this up…I could be totally wrong here. If so, please post about it and let me know!!}
Thanks for the detailed comments, Sense. Really appreciate it. I’m thinking about the Traditional IRA route then.. that only requires “earned income” and not “taxable income.” Still doing research.
I poked around a bit more tonight and I think I’m completely wrong now!! Which has positive consequences–I may be able to contribute to my own Roth in that case. D’oh. I really don’t get taxes. I can’t figure out a way to delete my comments now…don’t want someone thinking what I wrote is true.
Your income in a foreign country is not taxable as long as you stay out of the US 330 days of the year. If you are in the more than 35 days in a given year, you have to pay tax. You also still have to file. You just get an exclusion. I am staying abroad for an extra couple of weeks for this reason. Also the income can be from June to June or otherwise (doesn’t have to be from Jan to Dec to count for the 330 days in case you start work midyear. )
I would ask a tax advisor about this. I am a US citizen living and working abroad for 5 years and my tax advisor said that i can contribute since the US has a tax whateveritiscalled agreement with Norway. I pay taxes in Norway on the money I earn in Norwegian currency-so esentially the income is after tax.
Don't have any links to back this up, just the emaisl I've received from my tax guy.