Foreign Earned Income and Traditional IRA Contribution

Submitted by Karen Elise Kilbride on Mon, 2017-05-29 21:30

Client has NZ earned income from wages which will account for all the wages earned in 2017. Income to be claimed on 1040 with credit for taxes paid in NZ offset to Fed tax. Income will be $100K for married taxpayer. It looks like they may contribute to IRA for both spouses and take deduction even though wages are all foreign. Check me please. TX



Submitted by Alan - IRA critic on Mon, 2017-05-29 23:01

Yes, if they elect the foreign tax credit instead of the foreign income exclusion, they will have taxable compensation to fund an IRA contribution. Roth contributions may be more beneficial in this scenario even if TIRA contributions can be deducted.

Submitted by John Peterson on Tue, 2017-05-30 17:43

Point of clarification- if their earned income exceeds the foreign earned income exclusion they can claim the exclusion and still make a TIRA or Roth IRA contribution to the extent of the excess (or the IRA limit if lower), correct?

Submitted by Alan - IRA critic on Tue, 2017-05-30 18:23

Yes, that is correct. If a foreign housing exclusion is involved the taxpayer could also elect the income exclusion but not the housing exclusion.

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