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April 1, 2013


  • Roth IRAs (if you qualify based on your income) are ideal for US expatriates because due to the foreign earned income exclusion and credits for foreign income taxes paid, they often owe little or no tax on their US tax return. A regular IRA results in a deduction an expatriate may not need in that situation.
  • You cannot make Roth  IRA contributions unless your earned income for the tax year exceeds the foreign earned income exclusion taken in that year.  If your earned income does does exceed your foreign earned income exclusion, you can make a Roth IRA contribution limited only by the maximum allowed and the amount your earned income exceeds your foreign earned income exclusion if less than the maximum contribution allowed.
  • You also cannot make an Roth IRA contribution if your  modified adjusted gross income exceeds a certain amount.  That amount  (which is lower if you are covered by a US pension plan and is  much higher if you are not covered by a US pension plan) is set forth in Publication 590 (on pages 62 and 63 )  which can be downloaded below.  If your modified adjusted gross income exceeds this maximum you cannot contribute to an IRA.  To determine that phase out amount you must add back the  foreign earned income exclusion you took on your tax return and use formula set forth in Publication 590.
  • If you over contribute to an Roth IRA (more than is allowed under the law), you will not be penalized if you withdraw that contribution on or before  the due date of your tax return.                                You can also in most situations  notify the IRA administration  company to have that contribution re-designated to your subsequent tax year.
  • The maximum contribution is $5000 for 2012, and $6,000 if you are over 50.  You may also be able to make a contribution for your spouse in the same amounts subject to certain limits.
  • You must make the contribution and open the Roth IRA no later than April 15th following the end of the calendar year.
  • Roth IRA contributions may be withdrawn at any time without taxes or penalties; earnings may be withdrawn tax-free and penalty-free once you reach age 59½ and the account has been open for at least five years.
  • Roth IRA Earnings may be subject to taxes and penalties if distributed before age 59½ and before the the contributions included in the distribution are at least five years old.

  • There is a 6 percent penalty per year for over contributions
  • We have noted one of the biggest mistakes made by expatriates is contributing money to regular IRAs (deductible) or Roth IRAs  when they are eligible under the rules above. The penalties for these over contribution can become extreme.

Let us know if you need help with your 2012 expatriate or international taxes. Visit our website at . Email us at

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