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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 12007
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Income Tax Law: Is "Foreign Earned Income" eligible as the

Customer Question

Income Tax Law:
Is "Foreign Earned Income" eligible as the basis of Domestic Retirement Plans or IRAs?
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

I hold a JD (Juris Doctorate, a doctoral degree in the law), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in finance & tax, as well as CFP® and CRPS designations. - I’ve been providing financial & tax advice since 1986.

Hi, I can help here!

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Sorry, no.

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See this from IRS Publication 590-A

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What Is Not Compensation?

Compensation does not include any of the following items.

  • Earnings and profits from property, such as rental income, interest income, and dividend income.

  • Pension or annuity income.

  • Deferred compensation received (compensation payments postponed from a past year).

  • Income from a partnership for which you do not provide services that are a material income-producing factor.

  • Conservation Reserve Program (CRP) payments reported on Schedule SE (Form 1040), line 1b.

  • Any amounts (other than combat pay) you exclude from income, such as foreign earned income and housing costs.

Expert:  Lane replied 1 year ago.

I hope you'll rate me, using the stars or the ratings request on your screen, (that's the only way we get credit for the work here) based on thoroughness and accuracy, rather than any good news/bad news content ... But if there's something you don't understand, or if you have other questions about this, please let me know....

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Lane

Customer: replied 1 year ago.
But, if the foreign earned income exceeded the exclusion amounts, would that excess be available as a basis for a retirement plan or IRA?
Expert:  Lane replied 1 year ago.

Yes... only the amounts excluded cannot be used, but we also need to distinguish between an IRA and a workplace 401(K).

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Many overseas Americans cannot contribute to IRAs, because they have no earned income after their foreign-earned salaries are excluded using the Foreign-Earned Income Exclusion. (One's IRA contribution cannot exceed his earned income. No earned income (after exclusion) = no IRA contribution.)

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But see this from Pub 54

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If you are covered by an employer retirement plan at work, your deduction for your contribution is generally limited based on your modified adjusted gross income. This is your adjusted gross income figured without taking into account the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction

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Lane

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Expert:  Lane replied 1 year ago.

Now, in the 401(k) scenario, if you've already excluded all but say 10,000 of income and you defer 18000 into the 401(k), the the TAX EFFECT will be that you only reduced your taxable income by another $8000.

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Make sense?

Expert:  Lane replied 1 year ago.

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I sincerely ***** ***** has helped!

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Please let me know if you have any questions at all.

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If this HAS given you enough info, I'd really appreciate a positive rating (using that rating request or the stars on your screen)

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That's the only way I'll be credited for the work here.

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Thank you!

Lane

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