ROTH / IRA eligibility question

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mcdave
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ROTH / IRA eligibility question

Post by mcdave »

I have examined IRS pub 590 on this issue and cannot find what I am looking for:

Specifically: my daughter is a US citizen living in Europe who has income from various part time jobs. She has sent me some funds to invest for her here in the US. Is she eligible for a ROTH? She does not pay US income taxes! She is also a citizen in the country where she lives, works, and pays taxes (at a high rate!). The money I invest for her is taxed before she sends it to me. If I set up an account for her under my name, I am willing to pay the tax myself, but would prefer not to, hence I am wondering about a ROTH for her. If she qualifies for her own account, I can send the paper work overseas for her to sign and return to me. I would forward it into whatever investments she chooses.

Does anyone know the answer to this? :?:

HELP PLEASE :!:
mcdave
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Rick
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Post by Rick »

This is a tax question, and I am not an expert on Tax, however it seems to me that if she files a US Tax form (yearly) and owes no tax (following US Rules) then perhaps she is eligble for the Roth.

How about an accountant or EA to advise on this one?

Rick
"Money doesn't grow on fees." "Money in motion-costs money"
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mcdave
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Not sure if she has been filing

Post by mcdave »

Not sure if she has been filing each year, but I will ask her!
Dave
mcdave
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LH2004
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Post by LH2004 »

I think it will depend on why she has not paid U.S. tax.

If the income was U.S.-taxable, but her liability is just wiped out by her FTC (as would be the case if the foreign rates were just higher than the U.S. rates), or her U.S.-taxable income was just covered by deductions and personal exemptions, then she should be eligible, up to the amount of her taxable compensation.

It sounds more likely, though, that she's using the exclusion for foreign earned income for nonresidents. In that case she has no taxable compensation and can't contribute to an IRA.
adrift
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Post by adrift »

In order to be eligible to contribute to an IRA, she needs to have earned income (i.e. from a job, not passive income from investments). Furthermore, foreign earned income does not count.

So, she's not eligible.
bnath001
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Question about max amount to save

Post by bnath001 »

Howdy folks,

What is the max amount that can be saved in tax deferred accounts (all together).
we have solo 401k for my wife and I guess we can save about 38K for 2007 in that account. can we open an sep ira or roth ira (ofcourse its taxed not deferred) or ira accounts?

thanks
nath
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mcdave
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That's what always thought.

Post by mcdave »

adrift wrote:In order to be eligible to contribute to an IRA, she needs to have earned income (i.e. from a job, not passive income from investments). Furthermore, foreign earned income does not count.

So, she's not eligible.
That is what I have always understood and thought!

But can anybody find that in Pub 590?
Dave
mcdave
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Spyder
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Re: That's what always thought.

Post by Spyder »

mcdave wrote:That is what I have always understood and thought!

But can anybody find that in Pub 590?
It's at the end of page 57.
IRS Pub 590 wrote:Generally, you can contribute to a Roth IRA if you have taxable compensation (defined later) and your modified AGI (defined later) is less than:

* $160,000 ($166,000 for 2007) for married filing jointly or qualifying widow(er),
* $10,000 for married filing separately and you lived with your spouse at any time during the year, and
* $110,000 ($114,000 for 2007) for single, head of household, or married filing separately and you did not live with your spouse at any time during the year.
Then on page 58 it defines Compensation:
IRS Pub 590 wrote:Compensation. Compensation includes wages, salaries, tips, professional fees, bonuses, and other amounts received for providing personal services. It also includes commissions, self-employment income, and taxable alimony and separate maintenance payments. For more information, see What Is Compensation? under Who Can Set Up a Traditional IRA? in chapter 1.
"Anything free | costs twice as much | in the long run | or turns out worthless." | -Robert A. Heinlein (The Moon is a Harsh Mistress)
adrift
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Re: That's what always thought.

Post by adrift »

mcdave wrote:
adrift wrote:In order to be eligible to contribute to an IRA, she needs to have earned income (i.e. from a job, not passive income from investments). Furthermore, foreign earned income does not count.

So, she's not eligible.
That is what I have always understood and thought!

But can anybody find that in Pub 590?
Dave
Dave,

I don't have a Pub 590 reference. But, when we worked out of the US and had foreign income, that's how the major accounting firm retained by our company treated it.

From what I can tell from your post, this probably does not apply to your daughter. But, for us when we had any business trip to the US, this was considered as US income and to the extent it occurred was considered eligible as US income. And we were able to fund our IRA's to that extent.

Even if her situation is similar to this but her employer is not US based, this may well not apply to her. That's beyond my knowledge.
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mcdave
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Thanks All

Post by mcdave »

Thanks Spyder and Adrift et. al. You have nailed it down!
:)
Dave
mcdave
jefmafnl
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Any earned income taxable in US after for. inc. exclusion?

Post by jefmafnl »

If there's enough (4K?) earned income (not interest or dividends) "left over" on the US return after taking the foreign income exclusion, then she should be eligible to open a Roth IRA. This could be the case if she spent some time on business in the U.S., or if she simply doesn't take all the exclusion available to her. (Just my opinion as a U.S. citizen living in a foreign country, I am not a tax expert.)

Joel
GBer
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Yes you can, read the IRS website!

Post by GBer »

Got this from another site:

Excluded foreign earned income however, is posted on line 7, and then immediately deducted on line 21 by placing the amount in ( ) and writing "form 2555" next to it in the white space. Be sure you take your housing exclusion also if you qualify. See Pub.593 for details.
www irs.gov/pub/irs-pdf/p593.pdf
stupid site won't let me post links, but I hope you can at least figure out the addresses from here.... javascript:emoticon(':roll:')
Rolling Eyes

The critical point here is that excluded foreign earned income and the housing allowance are added back in to your Adjusted Gross Income to give you something called MODIFIED Adjusted Gross Income.

For a traditional IRA the excluded income is not considered compensation. For Roth IRA's the case is different. Roths are based on modified adjusted gross income. If you are married and file jointly you can earn up to $160,000... if you are single or head of household you can earn up to $110,000 to make the contribution of $3000,($3500 if over 50 years old).

See Pub. 590, p. 48, table 2-1 for more details.
www irs.gov/pub/irs-pdf/p590.pdf

Be sure to go to the IRS site and download Pub. 54 "Tax Guide for US Citizens and Resident Aliens Abroad."
www irs.gov/pub/irs-pdf/p54.pdf :roll: :roll: :roll: :roll: :roll:
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