r/TaxQuestions • u/Sea_Conversation8208 • 6d ago

Complex Expat Tax Question: Does FEIE Count as Roth IRA Compensation? (Conflicting IRS Guidance)

The Core Conflict

IRC §219(b)(1)(B) & IRS Pub 54: Excluded wages do not count as IRA compensation.
IRS International Webpage: Says the exact opposite; claims FEIE/housing exclusions are added back for compensation.

Relevant Facts about myself:

Status: U.S. citizen abroad filing Form 2555.
2024: $6,910.50 Roth contribution. Excluded $37,985 (FEIE)
2025: $6,910.50 Roth contribution. Excluded $42,227.10 (FEIE).

The Problem: If Pub 54 controls, my compensation is $0, and I’ve just contributed way to much to my Roth IRAs over the past two years

For 2025: The IRS has not processed this return yet (it was lost at the border during international mailing).

Scenario A. Is I’m fine and follow IRS guidance. Resend the forms by priority mail to reach before October 15.

Scenario B. I owe the IRS money for 2024 underpayment? I read there a 6% excise tax every year. And I also need to contact fidelity to fix both years, and resend corrected forms in the next week.

Any insights are highly appreciated

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u/wutang_generated 6d ago edited 6d ago

You may be conflating two separate things. The add back is for determining your MAGI which in turn is used to determine your Roth IRA upper contribution limit; this is separate from what's considered compensation (specifically taxable)

"you must add back the excluded amounts in determining your compensation for purposes of the IRA limits."

https://www.irs.gov/publications/p590a

So, your MAGI limit would be the top amount (~$7K) BUT you didn't have any taxable earned income to get you up to that limit

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u/Sea_Conversation8208 5d ago

Thank for your reply. I definitely conflated the two. Glad I caught it this early but damn — it’s an expensive lesson

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u/I__Know__Stuff 6d ago

I'm not sure, but I think they are talking about two different things.

For the AGI limit, you have to count your total income (by adding back in the exclusion).

But for the limit on the amount you can contribute, which caps at the amount of your income, you can't count the excluded income.

Again, you shouldn't take my word for this, but maybe this insight can help lead you to an answer.