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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15442
Experience:  15years with H & R Block. Divisional leader, Instructor
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A taxpayer & his wife, who are both US citizens, moved to the

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A taxpayer & his wife, who are both US citizens, moved to the UAE on 1/1/2013.

They only have income earned in the UAE from UAE employers in 2013.

However, they file their 1040 under a Mercer Island, WA address.

They will be returning to the US in 5-6 years & plan to send their 2 sons to college in the US.

Can they open & fund '529' accounts for their sons in 2013? Also, can they open & fund Roth IRAs in 2013?

Robin D. :

Hello and thank you for using Just Answer,
Most 529 plans are available to any U.S. citizen or resident alien of legal age who wants to open an account. You must have a Social Security number or Tax Identification number and a valid physical address within the United States or Puerto Rico. The student for whom you're saving (the beneficiary) can be anyone (including yourself) and must also have a Social Security number. There are generally no state residency requirements or income restrictions in 529 plans (with the exception of a handful of prepaid plans).

Robin D. :

Generally, compensation is what you earn from working. Any amounts you exclude from income, such as foreign earned income and housing amounts, are specifically identified by the IRS as not being taxable compensation for this purpose. So ROTH contributions would not be allowed if the income earned abroad is excluded from US taxation.

Robin D. :

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Customer: replied 3 years ago.

The earnings of both the husband & wife exceed the maximum allowable Foreign Earned Income Exclusion. Therefore the excess is reported as taxable compensation per line 7 of Form 1040. That said, wouldn't they each be allowed to make Roth IRA contributions? ,

Yes, they would be classified as having earned income under that situation. Of course they would not be allowed to contribute more then the lesser of the yearly limit or the actual earned income.
That said a simpler way would be, if the amount they cannot exclude is less then the limit on ROTH contributions ($5500) they could not contribute more then the earnings amount.
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