Eligibility… Is a person eligible to contribute to a 401(k)?

[Guest Cookiemonster]

I wanted to know if a U.S. citizen living in Japan is eligible to contribute in a

401(k). He is living in Japan with no intentions of ever coming back to the United States. He meets all the eligibility requirements needed to get into the 401(k).

Would it matter if he were paid in U.S. dollars or Yens? Does this even matter?

Please help!

[Harwood]

Do the wages meet the definition of Plan compensation? Virtually all plans consider U.S. source income only [except, perhaps, for HCE determination].

[Guest eafredel]

Dear Cookiemonster (I've always wanted to say that),

The first question is whether the individual is excluded from participation. Many plans exclude from participation employees who are nonresident aliens who receive no earned income from U. S. sources. Your employee is a U. S. citizen. The second question is whether the employee receives earned income from U. S. sources. If he or she does, the employee may want to participate in the 401(k) plan. I have had many clients who permitted U. S. citizens working abroad to participate in 401(k) plans. In most cases, these employees had their pay direct deposited to a U. S. bank account in dollars so it was easy to handle. However, even if the employer paid in yen, if the amount paid constitutes earned income from U. S. sources, the employee may be able to participate.

This will turn largely on what your 401(k) plan document states.