missionary funding a Roth IRA
friend who is a missionary in Bulgaria. He wants to fund his Roth IRA every year.
This is how he gets paid from International Teams, which is his employer; (IT stands for International Teams)
***( 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)
Since he gets a W-2 from their US entity but has been a missionary in Bulgaria the whole time for 19yrs, Is he allowed to fund Roth IRA?
or…
Even though he gets paid by US entity, since he is a missionary in Bulgaria, which is outside the US, he can not fund a Roth?
Thank you,
Douglas
Permalink Submitted by Alan - IRA critic on Tue, 2016-09-20 21:30
He could if his salary was high enough, but not using income excluded on Form 2555. Good chance all his income is excluded.
Permalink Submitted by Douglas Bauerband on Fri, 2016-09-23 21:43
He has always excluded 100% of his income, which was about 25k per year. Since his advisor gave him bad advice for the past 10yrs, how does he back out of it?He can’t turn it back into an Trad IRA since that has to be funded with earned income too.a. Do we contact the IRS and let them know he was given wrong advice by his advisor for the past 10yrs?b. do we just withdrawal all the money and put in something esle he can invest in?c. any suggestions on how to handle this?Thank you.Douglas
Permalink Submitted by Alan - IRA critic on Sat, 2016-09-24 00:13
Did he also have a housing allowance that was excluded? He has the option to exclude earnings but not the a housing allowance, and the housing could be included in income. That could protect his contributions since 2013, but he would have to amend his returns. Even if this is possible, he should withdraw the total contributions he was not eligible to make. He can still withdraw his 2015 contribution plus allocated earnings up till 10/17. For earlier contributions he would just withdraw the amount contributed, no earnings. If these withdrawals are completed by year end, there will be no excise tax for 2016. At least the withdrawal of the older contributions will be tax free because they come from regular Roth contributions. But he will owe a 6% excise tax for each year an excess amount remained in the Roth through 2014, and that will be costly. Note that there is no statute of limitations for excess IRA contributions. Hopefully, he has records of the contribution amounts made for each year. He gets a 5498 each year in May reporting his contribution for the prior year. If he did not keep these, he might get help from his IRA custodian who could research his contribution amount for each year.