Korean Job Discussion Forums

[jackson7]

Anyone here investing in a Roth back home? To do this, you have to have taxable income (which you won't have if you take the foreign income exclusion). However, I believe it would be legal to simply take the presence test for foreign income exclusion.

For example, let's say (to make it easy) I'm making 20,000 USD after foreign exchange. I could take a presence test of 9 months and thus 75% of my income would be excluded, so I'd pay tax on 5,000 USD (before other deductions I take). That would be around 300 USD for me.

I'm paying an extra 300 bucks in tax, but I could then invest up to 5,000 in the Roth IRA, growing tax-free until I take it out (before 59 1/2 gets a 10% fee, but after that it's all good). The tax saved on the investment and returns would be well worth it.

Anyone in the know see any flaws in this idea?

[jellobean]

You could also look into filing a foreign tax credit rather than income exclusion. In that case, all your income is eligible for ROTH contribution, but you don't end up paying much in taxes after you deduct what you paid to the Koreans.

If your income is only in the 20,000 range then after you take your personal exemption and standard deduction your taxable income in in the 10-12,000 range (less if you have student loans you are paying or other deductible things). The tax in that range is $1000-1500 (less if you can get other credits or deductions). Then you subtract any income taxes you paid in Korea (about $600-700 minimum) and what you have left is what you owe.

As for your calculation, I'm not sure the presence test works the way you are using it. It might, but it seems strange to me and I worked with tax stuff when I lived back in the states. Usually the presence test applies to whether or not you qualify for income exclusion. Sorry I don't have time to figure out what you are talking about.

[jaykimf]

I'm pretty sure you can't exclude part of your korean income. That's not the way the physical presence test works. On the other hand, you don't have to exclude your income at all. I haven't used the exclusion for years, partly so that I can invest in an IRA. I'm married with 2 kids, so we still end up owning no tax and even got refunds because of the additional child tax credit.

[jackson7]

Thanks for the replies guys. I'm a single guy, so I don't take too many deductions beyond student loan interest. I'll have to take a look at last year's returns and see if it would be worth my not taking the exclusion.