bluto wrote:It is possible to fund the ROTH 401k with the FEIE. After learning about this, I persuaded my employer in Japan to offer a Roth 401k option, which they did. It took the help of financial services company to get it done, but it was well worth it. I was able to contribute 15.5k pre-tax $.
Sorry I can't give a lot of details on the legal issues involved, but we were told that there are loopholes make it possible.
It's actually quite simple. Any W-2 salary can go into a 401(k); the fact that you claim it back for the foreign earned income exclusion has nothing to do with 401(k) regulations. The requirement of non-excluded income only exists for IRAs (as per Pub. 590).
I'll reiterate what csoren said....Canga, you are unable to contribute to a Roth IRA unless you foreign earned income is more than $91,400 and (Modified AGI) less than $116,000. That is a fairly tight window.
Also, as of the most recent change to the Foreign Earned Income (that stupid 'Tax Increase Prevention and Reconciliation Act of 2005' which ruined the loophole which was foreign employment), your tax rates (income, dividend, capital gains, etc.) are dependent upon your income (i.e. not taking away the exclusion). So if you make $100k AGI, prior to 2005 you would be treated by the IRS as making $20k (was $80k FEIE), thereby making you eligible for retirement saver's credit, (possibly) earned income credit, and you'd pay 15% marginal tax rate + 0% capital gains & dividend rate (with the current reduced investment tax rates). These days, the government treats you as if you make $100k AGI to get your rates, so 28% marginal tax rate + 15% capital gains & dividends rate; you then get the taxes back on the first $91,400 of income you paid tax on. In addition, your IRA max income limit is now based on your total income, so the window of eligibility is very tight, as I mentioned above.
That means if you make more than $33,951 (again, ignoring the foreign earned income exclusion), then you are into the 15% gains on LT capital gains and 25% on LT real estate gains (i.e. the rate for your 25% tax bracket as you mentioned).