bpp wrote:The FEIE reduces earned income.
I have never used the Foreign Housing Exclusion, so not sure, but believe it works like the FEIE.
The Personal Exemption and Standard Deduction do NOT reduce earned income as far as Roth contributions are concerned.
I have never had a 401k, so don't know how those work.
Excluding the two bits I am unfamiliar with, here is a simple case assuming just the FEIE and the Personal Exemption and Standard Deduction:
Earned income: $99,000
Other income (interest, etc.): $10,000
Total income: $109,000
Earned income minus FEIE: $3,900
Total income minus FEIE: $13,900
In this case, your total income of $109,000 is below the $110,000 phase-out starting level for a Roth contribution (single filer), and you can contribute up to $3,900 (earned income minus FEIE) to a Roth.
Of the $13,900 in taxable income, $9750 falls within your Personal Exemption and Standard Deduction, leaving $4150 that will actually be taxed. Note, however, that this $4150 will be taxed at the marginal rate that would apply without the FEIE.
I think I have that right -- corrections welcome.
Compensation does not include any of the following items.
Any amounts (other than combat pay) you exclude from income, such as foreign earned income and housing costs.
Contributions on your behalf to a traditional IRA reduce your limit for contributions to a Roth IRA.
If contributions are made to both Roth IRAs and traditional IRAs established for your benefit, your contribution limit for Roth IRAs generally is the same as your limit would be if contributions were made only to Roth IRAs, but then reduced by all contributions for the year to all IRAs other than Roth IRAs. Employer contributions under a SEP or SIMPLE IRA plan do not affect this limit.
This means that your contribution limit is the lesser of:
$5,000 ($6,000 if you are age 50 or older) minus all contributions (other than employer contributions under a SEP or SIMPLE IRA plan) for the year to all IRAs other than Roth IRAs, or
Your taxable compensation minus all contributions (other than employer contributions under a SEP or SIMPLE IRA plan) for the year to all IRAs other than Roth IRAs.
Add the following deductions and exclusions:
Traditional IRA deduction,
Foreign earned income exclusion,
Foreign housing exclusion or deduction,
If you file Form 1040, refigure the amount on the page 1 “adjusted gross income” line without taking into account any of the following amounts.
Foreign earned income exclusion.
Foreign housing exclusion or deduction.
This is your modified AGI.
canga wrote:I live overseas and utilize the foreign earned income exclusion (FEIE). I came into some unexpected earned income for 2012 and as a result I am trying to determine if I have enough earned income to contribute to a Roth IRA.
IRS Numbers from 2012:
Foreign Earned Income Exclusion (FEIE): $95,100
Foreign Housing Exclusion: $15,216 (or actual housing cost, whichever is less)
Personal Exemption: $3,800
Standard Deduction: $5,950 (Single)
401k contributions: $17,000
1. Do all of the above reduce earned income? This would mean a minimum earned income of $137,066 is required, which is beyond the MAGI for Roth IRA contributions. Or just FEIE and Foreign Housing Exclusion ($110,316)? Or is it some other combination of the above? All of the above appear to exclude income for tax purposes.
2. Which is first applied to the standard deduction and personal exemption: earned or unearned income? For example, can I use dividends and capital gains to use up the personal exemption and standard deduction?
Appreciate your help, thanks.
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