Individual Retirement Accounts

 

Contributions to your individual retirement accounts (IRAs) that are Traditional IRAs or Roth IRAs are generally limited to a certain annual dollar amount ($6,000 for 2019, or $7,000 if you were age 50 or older by the end of 2019) or your compensation that is includible in your gross income for the tax year.

If you exclude income under the foreign earned income exclusion or the foreign housing exclusion, you must add back the excluded amounts in determining your compensation for purposes of the IRA limits.  Likewise, for purposes of determining the IRA limits, do not reduce your compensation by any foreign housing deductions.

If you are covered by an employer retirement plan at work, your deduction for your contributions to your traditional IRAs are generally limited based on your modified adjusted gross income. This modified adjusted gross income is figured without taking into account the foreign earned income exclusion, the foreign housing exclusion, or the foreign housing deduction.   In other words, you must add back any excluded amounts under the foreign earned income exclusion or foreign housing exclusion, and any deducted amounts under the foreign housing deductions, in determining the modified adjusted gross income limits for your traditional IRA contributions.

Example

You report your income on a calendar-year basis and you qualified for the foreign earned income exclusion under the bona fide residence test for 75 days in 2019.  In 2019, you excluded $21,760 of your $25,000 in foreign earned income (75/365 of the $105,900 maximum exclusion for 2019). In determining the maximum contribution to your IRA, you must add back the $21,760 of excluded foreign earned income to your compensation includible in your gross income or the modified adjusted gross income.

Other modifications may also be required in determining the IRA limits. For more information, see Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs).

References/Related Topics