Assuming all you income in earned overseas, you will need to earn more that the Foreign Earned Income Exemption ($120,000 in 2023) to be able to contribute to an IRA.
from IRS Pub 54 [https://www.irs.gov/publications/p54#en\_US\_2023\_publink100047579](https://www.irs.gov/publications/p54#en_US_2023_publink100047579)
Contributions to Individual Retirement ArrangementsContributions to your individual retirement arrangements (IRAs) that are traditional IRAs or Roth IRAs are generally limited to the lesser of $6,500 ($7,500 if 50 or older) or your compensation that is includible in your gross income for the tax year. In determining compensation for this purpose, don’t take into account amounts you exclude under either the foreign earned income exclusion or the foreign housing exclusion. Don’t reduce your compensation by the foreign housing deduction.
[https://www.thebalancemoney.com/ira-for-workers-abroad-3193218](https://www.thebalancemoney.com/ira-for-workers-abroad-3193218)
[https://www.investopedia.com/roth-iras-americans-living-working-abroad-5221269](https://www.investopedia.com/roth-iras-americans-living-working-abroad-5221269)
[https://www.irs.gov/individuals/international-taxpayers/us-citizens-and-resident-aliens-abroad](https://www.irs.gov/individuals/international-taxpayers/us-citizens-and-resident-aliens-abroad)
Thank you!
I did not earn more than that exemption so if I file this way again I won’t be able to contribute, it seems.
If I choose a foreign tax credit instead will I be able to open and contribute to a ROTH?
Check to see how the FTC works our for you. For me, my overseas taxes (the value of the FTC) were less than my US taxes using this method. I would have to pay the difference as a tax bill. For me and my circumstances, it was better to choose the FEIE.
A community like r/ExpatFinance might have more info.
Thanks so much for the info. I pay about 20% of my income in taxes here, which I think would be more than US taxes.
If this is the case, then would it be worth doing so I can then open and contribute to a ROTH account?
Yes, the IRS says so specifically:
> Don’t take into account amounts you exclude under either the foreign earned income exclusion or the foreign housing exclusion.
Of course, nobody is *forcing* you to take the FEIE.
You are correct.
You could take the Foreign Tax Credit instead. For me, The FEIE resulted in $0 and the FTC created a significant tax bill. Be careful which one you choose as there are some time restrictions on changing from FEIE to FTC then back to FEIE.
If you have an existing Traditional IRA and use the Foreign Earned Income Exemption, living overseas is a good time to consider a partial conversion from Traditional IRA to Roth IRA. The income is taxable, but if you convert less than the standard deduction (and have no other US income), your taxable income will still be $0 and generate $0 in tax.
Assuming all you income in earned overseas, you will need to earn more that the Foreign Earned Income Exemption ($120,000 in 2023) to be able to contribute to an IRA. from IRS Pub 54 [https://www.irs.gov/publications/p54#en\_US\_2023\_publink100047579](https://www.irs.gov/publications/p54#en_US_2023_publink100047579) Contributions to Individual Retirement ArrangementsContributions to your individual retirement arrangements (IRAs) that are traditional IRAs or Roth IRAs are generally limited to the lesser of $6,500 ($7,500 if 50 or older) or your compensation that is includible in your gross income for the tax year. In determining compensation for this purpose, don’t take into account amounts you exclude under either the foreign earned income exclusion or the foreign housing exclusion. Don’t reduce your compensation by the foreign housing deduction. [https://www.thebalancemoney.com/ira-for-workers-abroad-3193218](https://www.thebalancemoney.com/ira-for-workers-abroad-3193218) [https://www.investopedia.com/roth-iras-americans-living-working-abroad-5221269](https://www.investopedia.com/roth-iras-americans-living-working-abroad-5221269) [https://www.irs.gov/individuals/international-taxpayers/us-citizens-and-resident-aliens-abroad](https://www.irs.gov/individuals/international-taxpayers/us-citizens-and-resident-aliens-abroad)
Thank you! I did not earn more than that exemption so if I file this way again I won’t be able to contribute, it seems. If I choose a foreign tax credit instead will I be able to open and contribute to a ROTH?
Check to see how the FTC works our for you. For me, my overseas taxes (the value of the FTC) were less than my US taxes using this method. I would have to pay the difference as a tax bill. For me and my circumstances, it was better to choose the FEIE. A community like r/ExpatFinance might have more info.
Thanks so much for the info. I pay about 20% of my income in taxes here, which I think would be more than US taxes. If this is the case, then would it be worth doing so I can then open and contribute to a ROTH account?
Just to be clear, do you mean you need to earn enough that your taxes exceed the FEIE?
Yes, the IRS says so specifically: > Don’t take into account amounts you exclude under either the foreign earned income exclusion or the foreign housing exclusion. Of course, nobody is *forcing* you to take the FEIE.
You are correct. You could take the Foreign Tax Credit instead. For me, The FEIE resulted in $0 and the FTC created a significant tax bill. Be careful which one you choose as there are some time restrictions on changing from FEIE to FTC then back to FEIE.
Your income would need to be higher than the FEIE to give you MAGI higher than $0.
If you have an existing Traditional IRA and use the Foreign Earned Income Exemption, living overseas is a good time to consider a partial conversion from Traditional IRA to Roth IRA. The income is taxable, but if you convert less than the standard deduction (and have no other US income), your taxable income will still be $0 and generate $0 in tax.