Convert traditional IRA to Roth while abroad?

[adanna]

Hello, I am living/working abroad for 3 years. I will claim the foreign income tax exclusion and should not have to pay taxes as my income is below $112k. I have a traditional IRA that I know I'm not allowed to contribute to while I'm out of the US. Would it make sense for me to convert that to a Roth IRA while I'm gone? I assume I would have to pay taxes on that, but since the rest of my income is excluded, I'd be in a low tax brackets. Thanks for any insights!

 

[robert1849]

@adanna I'm no expert but I think to continue to manage and contribute to your US IRA, you just need to maintain a U.S. mailing address. Ask your IRA custodian. It's a crazy regulation but with an easy workaround from my experience.

 

[timnewton85]

@robert1849 A conversion is not a contribution

 

[robert1849]

@timnewton85 My point is simply that if OP maintains a US mailing address, they may be able to continue to contribute to their IRA and manage it the same way as if they never left.

 

[timnewton85]

@adanna If your country's taxes are lower than the US, use the FEIE and convert. If your dividends , interest, and conversion add up to more than the standard deduction then consider your estimated tax payment obligations.

If your country's taxes are higher, and you dont make a high salary, it may still make sense to convert. But you should use the FTC and contribute to your roth.

I just moved countries and will be switching from the FTC to the FEIE approach this year.

 

[mfinnergab]

@adanna You can't contribute to a Roth either. You can only put US source earned income into a Roth IRA.

 

[adanna]

@mfinnergab I know I can't contribute, but would it make sense to convert?

 

[mfinnergab]

@adanna I am sorry, I do not know. I guess I misunderstood your question.

 

[tlwilnos]

@mfinnergab That's incorrect. It doesn't matter where the income was earned (unless it's like Cuba or North Korea), you can always contribute to an IRA if you have earned income (not excluded by the FEIE).

 

[olamide]

@adanna Yes it would absolutely make sense! If you keep the amount converted (plus your income) below the threshold you should not have to pay taxes on anything other than self employment income.