In 2024 I got married and filed my taxes as "married filing" separately because my wife is English and we didn't want her to pay taxes on her income as well. That same year I made some very minimal investments into a Roth IRA amounting to less than $200. I'm quite young and was just learning the ropes so I could start investing more seriously in the next few years.
Now that I've been digging into the information about Roth IRAs a bit more, in Publication 590-A, I discovered that actually I should not have invested into my account because the upper limit for the MAGI of a person married filing separately to be able to contribute at all is $10,000. I am the bread winner in our relationship, so needless to say, I definitely earned more than $10,000 last year.
Quote under "Modified AGI limit for Roth IRA contributions" for context:
"Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than zero. You can’t make a Roth IRA contribution if your modified AGI is $10,000 or more."
So now I'm looking into having my wife as my "nonresident spouse" and elect to file jointly. The obvious downside is that she has to pay American taxes on all of her income. Additionally, neither she nor I would ever be able to make this choice again once we choice to end it. So there's no making this choice to build up the Roth IRA until she gets a good job and then turning it back on later when we're retired.
Right now we live in Japan, which has a relatively low salary compared to a similar quality of life in the US and we generally have no intention to return. However, my work contract is only another 4 years so there is definitely a degree of uncertainty. Generally speaking, we likely won't be in high paying careers ever and therefore not paying much, if anything in US federal taxes, especially after foreign tax and foreign housing exclusions. However, I'm hesitate to make such a huge decision without really thinking it through. On the other hand, I've already invested the money and I don't know what the consequences are (it didn't get flagged in my tax return last year).
Any thoughts?
Roth IRA Contributions with a Foreign Spouse
byu/little_pooper intax
Posted by little_pooper
1 Comment
Income excluded under the Foreign Earned Income Exclusion and the Foreign Housing Exclusion does not qualify as income to contribute to an IRA.
You could recharacterize your Roth IRA contribution as a traditional IRA to fix the incorrect contribution if a traditional IRA contribution were allowed for that year.