Compensation defined for Roth Contribution
I have a client that moved from Canada to the US in 2008 and filed a dual-status return (non-resident for the first part of the year and resident for the remainder). They worked in Canada and earned wages in excess of U$6,000. However, they did not earn any wages in the US nor were any wages taxable in the US because they were excluded on the 1040NR. Two questions: 1. Does foreign earned income qualify as “compensation” for Roth IRA purposes? 2. Do those foreign wages need to be on the US return or just earned in the tax year the Roth was made? Any insights appreciated.
Permalink Submitted by mk foss on Tue, 2010-11-02 03:10
A U.S. citizen residing abroad and excluding the income even though they’re filing a U.S. return does not have compensation for a Roth or other IRA contribution. Your case seems to be the opposite. A U.S. resident has foreign income, not taxable for U.S. purposes – and you get the same answer. If an individual has foreign compensation income reported on a U.S. return and not excluded from U.S. tax, they could do a Roth contribution.
Permalink Submitted by Brian Wruk on Tue, 2010-11-02 16:54
My research showed that the income has to be on a W-2 or 1099-MISC. But what about Schedule C income? Net of expenses, that qualifies as well doesn’t it? Thnx.