Roth eligibility for income in excess of the foreign earned income exclusion
We have a client who is a US citizen living and working in Austria. Her employer is also an Austrian company. She will be able to claim the “foreign earned income exclusion” on her tax return, and I believe this affects the amount of contribution she can make to a Roth
If her earned income from a foreign employer is $117,000 (she is single), and she is allowed 101,300 foreign earned income exclusion (the maximum), leaving $15,700 earned income not excluded- can she make the maximum contribution of $5,500?
Or is she not allowed to make the contribution at all because earned income is 100% foreign sourced, whether or not it was allowed the tax exclusion?
Thank you!!!
Permalink Submitted by Alan - IRA critic on Thu, 2017-03-16 00:38
The MAGI limit for single taxpayer Roth contributions is the 118,000 to 133,000 range. The FEIE amount must be added to 1040 AGI to determine the MAGI for Roth contribution purposes. Therefore, if your figures are the only income amounts, she is at 117,000 and is barely able to make a full 5500 Roth contribution. If her earnings were under 101,300 she would not have any earned income and if under 106,800 she would not have enough earned income to make a full contribuiton of 5500, and if her earnings were over 118,000 she would enter the MAGI phaseout range. Therefore, she is squeezed into a restricted earned income range of only 11,200 which would allow a full Roth contribution. Fortuneately, she DOES fall into this limited range. I hope there is no other income to report such as investment income.