Eligibility of American UN employee to contribute to Roth IRA?

[Guest ConfusedInSwitzerland]

Hi, everyone,

We are having a debate here at one of the United Nations organizations regarding the eligibility of American employees to contribute to Roth IRAs. We know that in general foreign income earned under the limit is not considered compensation and so can't figure into the potential for contribution.

What we don't know is whether this applies to us as we work for an international organization, not a company nor a governmental body. Under treaty with both the US and Swiss governments, we are not subject to country tax in either country and we do not have to report tax in Switzerland (although we, of course, do in the US). We are filing (in general) forms US-1040 and 2555, reporting the income, but then not having to pay tax on it. In addition, we do contribute to the pension fund here, but for myself at least, I'm pretty sure I'll return to the US before being vested in the pension and will have to take out what I put in without any significant gain.

So my questions:

1. Can we contribute to Roth IRAs?

2. If not, what CAN we contribute to? (Many of us are in our mid-30s without retirement plans worth anything. I want to have something to live on when I'm 75!!)

Many thanks for your help!

Cheers,

Confused in Switzerland

[mbozek]

Roth contributions can be made from any type of compensation for personal service such as W-2 income and other income that is not subject to income taxation such as foreign earned income. See IRS publicaton 590, P 55 available at irs.gov. How are you deducting your income on the 1040 form under the treaty- As an itemized deduction not subject to the 2% reduction or some other offset? Be glad to review the tax issues if you want a formal opinion.

[JAMES PATRICK]

I guess I am missing something because when I look at Pub 590 p55 it mentions "taxable compensation" and I was under the impression that foreign earned income (2555) was not taxable.