Roth IRA with Foreign income
Have a friend who is a missionary in Bulgaria. His income comes through “International teams” and then goes to him in Bulgaria.
The IRS states you can not fund a Roth IRA with foreign earned income.
a. If he is a missionary through International teams, USA, would the IRS consider the money they send him Foreign Income since it is outside the US?
or…
b. Can he still fund a Roth IRA since the Mission is US based?
Thank you,
Douglas
Permalink Submitted by Alan - IRA critic on Fri, 2016-09-02 19:07
A person can use foreign earned income to fund an IRA contribution, just not income that is excluded under the foreign earned income exclusion. He must elect the exclusion, but cannot choose to elect a partial exclusion. For example, if his earnings are 50k, he cannot exclude 44.5 k and use the remaining 5.5 k for a Roth contribution. It is more important for him to know that this income is foreign earned so he can exclude it on his US return rather than if he can make an IRA contribution. Since he is working overseas, his income is probably foreign earned income eligible for the exclusion up to the exclusion limit, but cannot make a contribution using excluded income.
Permalink Submitted by Douglas Bauerband on Fri, 2016-09-02 20:31
With his statment below, is his income foreign earned or US earned?Doug, thanks for the answers and explanation. yes, I am an employee of ITUSA and I receive a W-2 from their US entity based in IL. I don’t pay federal withholding due to the exemptions of the form 2555. IT does have a European entity (as well as others) that oversees us, but we are employees of and receive our salary via the US entity.